Malaysian corporations’ board practices and culture need improvement, says ICDM

By S BIRRUNTHA / Pic By MUHD AMIN NAHARUL

CORPORATE Malaysia’s boardroom practices such as director sourcing, skills and competencies, board evaluation and training need to improve, according to the Institute of Corporate Directors Malaysia (ICDM). 

ICDM president and CEO Michele Kythe Lim (picture) said it is increasingly critical for a company’s board architecture and composition to ensure the board of directors are able to effectively and successfully direct or guide a company through more volatile, uncertain, complex and ambiguous environments. 

She said companies need to adapt their current culture and approach to board composition by first expanding their director sourcing methods. 

This must be followed by a vigorous internal and external evaluation of the existing board as well as ongoing development and competency levels, balancing technical-based competencies with performance-based and undertake behavioural-based training to build sustainable and effective boards. 

“As Malaysia heeds the call to raise the standards of corporate governance through stronger market and self-discipline, boards will continue to be at the forefront in ensuring a transparent, holistic and structured approach to board evaluation, refreshment and development to shape effective boards as well as build greater stakeholder trust,” Lim said in the virtual launch of the Malaysian Board Practices Review 2020 Report yesterday. 

The report found director sourcing through personal network referrals (74%) remained the most common method, followed by nominations by major shareholders or parent companies (14%). 

The report revealed director sourcing via independent and third-party search institutions only accounted for 8% of current boardroom positions, despite It being the best practice recommended in the Malaysian Code of Corporate Governance. 

Lim said the gaps in board skills and knowledge call for greater and more effective adoption of skills such as digital, social media, technology and innovation, environmental, social and governance, human resource, culture and succession communications, and public relations. 

She added board culture also needs to emphasise skills in marketing and sales, branding and reputation, business, e-commerce, treasury and actuarial sciences. 

“Another aspect is the board evaluation, of which only 25% of companies had independent external board evaluations in the last 10 years. 

“The other aspect involves the developmental programmes and training, where the majority of programmes undertaken were based on individual director requests (91%). 

There was also a lack of adequate structure, planning or pathway to ensure holistic, consistent and long-term development of directors,” she said. 

She said four overriding measures boards can adopt immediately to build a robust board include expanding the director sourcing process to access more diverse candidates with relevant skill sets by incorporating independent and alternative sources; considering first-time directors; and looking beyond the established selection of non-executive talent. 

She also said companies can establish a rigorous evaluation and feedback mechanism to enable meaningful board collaboration and periodic refreshment, ensuring that its structure, composition, and culture continue to be aligned with the business landscape and the company’s strategic goals in the short-and long-term. 

“The nomination committee (NC) must retain oversight of the board’s overall leadership refreshment and development, to ensure it has, not only the technical competencies, but also the right mindsets and behaviours to be effective amid the intensity of change,” Lim stated. 

She added corporate secretaries must serve as strategic advisors and partners to boards. They should work proactively with the NC chair to drive the desired board practice outcomes and actively stay up to date with the latest corporate governance trends, methodologies and resources to execute their strategic role effectively, she added. 

The Malaysian Board Practices Review 2020 Report was launched yesterday in collaboration with Russell Reynolds Associates (RRA) and Bursa Malaysia Bhd. 

The report aims to establish paradigms and standards for Malaysian boards through a deeper overall understanding on prevailing industry culture, practices and processes relating to board nomination, selection, appointment and evaluation. 

RRA MD Stephen Langton said the refreshment of boards continues to be key for a board in maintaining adequate independent oversight. 

“Board evaluation and peer review also provide potential value for a well-functioning board,” he said. 

Bursa Malaysia CEO Datuk Muhamad Umar Swift said boards need to continually evolve and improve to properly discharge their role as effective stewards. 

“The regulatory framework that we have put in place is intended to support the good governance of our public limited companies. 

“The report offers valuable insights and a clear call to action that companies need to rethink their current approaches to their board selection and evaluation practices and ongoing development to remain competitive and sustainable,” he said.