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CORPORATE GOVERNANCE

PRACTICES IN
EMPLOYEES PROVIDENT
FUND
CORPORATE GOVERNANCE
PRACTICES
• Corporate Governance (CG) – definitions:
9OECD:A set of relationships between a company’s
management, its board, its shareholders and other
stakeholders. It provides the structure through
which the objectives of the company are set, and
the means of attaining those objectives and
monitoring performance are determined.

9Malaysian Code of Corporate Governance:A process


and structure used to direct and manage the
business and affairs of the company towards
enhancing business prosperity and corporate
accountability with the ultimate objective of
realizing long term shareholder value, whilst taking
into account the interests of the stakeholders.
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CORPORATE GOVERNANCE
PRACTICES

In essence, CG is about systems, processes


and structures by which organizations are
directed and managed. It influences how the
objectives are set and achieved, how risk is
monitored and assessed, and how
performance is optimized.

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CORPORATE GOVERNANCE
PRACTICES
Background

• In Asia, emphasize on the importance of good


CG really came about after the Asian financial
crisis.

• The 1997 Asian financial crisis brought to the


forefront the importance of the CG. Poor CG
was cited as the key reason for corporate
failure.

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CORPORATE GOVERNANCE
PRACTICES
• In Malaysia, the direct response to poor CG was the
introduction of the Malaysian Code of Corporate
Governance (MCCG) issued in February 1999.

• Whilst it is a code for listed companies, a number of


key recommendation were subsequently incorporated
into legislation.

• Today, the need for good CG practices has moved


beyond public listed companies. CG is also expected
of private limited companies, government, non-profit
organizations, etc.

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CG and EPF

• The EPF is the single largest institutional investor in


Malaysia. Therefore, it is in the interest of EPF to
ensure that our investee companies practice good CG.

• Steps taken by EPF to ensure good governance in


investee companies:
9 Setting up the Minority Shareholder Watchdog
Group
9 Formation of a dedicated unit within EPF to engage
and monitor public listed companies on CG issues.
Also actively attend and exercise proxy voting in
companies’ AGM and EGM.

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CORPORATE GOVERNANCE
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CG practices within the EPF

• Whilst advocating CG on our investee companies, it


is also crucial for the EPF itself to practice good CG.

• Good CG practices will ensure integrity, optimal


performance and instill confidence of our
stakeholders in EPF.

• In EPF, we have adopted CG practices as one of the


key component in our Balanced Scorecard.

• We have designed a Governance Index to track and


monitor implementation of good CG practices.

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CORPORATE GOVERNANCE
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CG Index – Main Components

• The key components of the CG Index:


9 Transparency
9 Independence
9 Accountability
9 Focus
9 Risk Management
9 Regulatory Compliance
9 Fairness
9 Social Awareness
9 Responsibility
9 Environmental Responsibility

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CORPORATE GOVERNANCE
PRACTICES
CG Index – Main Components

• Transparency:
9 Statement of Mission and Vision
9 Statement of Corporate Governance
9 Statement of Internal Control
9 Statement of dividend policy
9 Disclosure of Board Members and Panel Members
profiles, honorarium and allowances, board
attendance
9 Disclosure of Corporate KPI
9 Quarterly and annual financial statements
• Clear, accurate and timely disclosure of
information
9 etc
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CORPORATE GOVERNANCE
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• Accountability & Responsibility:

9 Establishment of Board and Management Committees to oversee


management and operation:
- Board Audit Committee
- Finance & Development Committee
- Board Establishment, Appointment & Service Committee
- Board Disciplinary Committee
- Board Performance Management Committee
- Etc

9 Board members’ attendance of Continuous Education Programs


and orientation programs

9 Board members’ attendance of meetings- no less than 50%

9 Board members’ peer group evaluation

9 Board members’ access to external advisors


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CORPORATE GOVERNANCE
PRACTICES
• Accountability & Responsibility:

9 Board’s regular monitoring and review of management


performance vs KPI

9 Management compensation based on KPI

9 Adoption of the “Green Book” on Board Effectiveness


(GLC Transformation).

9 Board review of Strategic Business Plan

9 Establishment of Business Continuity Plan, Knowledge


Management and Succession Plan

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CORPORATE GOVERNANCE
PRACTICES
• Independence:

9 Position of Chairman and CEO – 2 separate persons

9 Board/Panel members’ declaration of interests/ abstain


from voting where it involves conflict of interest

9 Internal Auditors monitor, supervise and report


directly to Board Audit Committee

9 External Auditors report directly to Auditor General of


Malaysia

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CORPORATE GOVERNANCE
PRACTICES
• Risk Management:

9 Establishment of enterprise wide risk


management framework and system - Corporate
Risk Scorecard (operational risk and investment
risk).

9 Establishment of a Board/Investment Panel and


Senior Management Risk Committees

• Focus:
9 Clearly defined core businesses and competencies

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CORPORATE GOVERNANCE
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• Fairness:

9 Establishment of proper channels for


communication and dialogue with stakeholders

- Emails, medias, specific counters


- Special Fraud Unit
- Regular dialogue with Union, Employers
Federation and Focus Group
- A designated Senior Management personnel for
all corporate communication
- Regular issuance of member statement

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CORPORATE GOVERNANCE
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• Regulatory Compliance:
9 Compliance with laws including the EPF Act
1991 and the policy directives of the Ministry of
Finance

• Environmental & Corporate Social Responsibility:


9 Establishment of policy on CSR
9 Establishment of policy on Environmental
Responsibility

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CONCLUSION
As a trustee of members old age retirement, the Board
believes that good corporate governance practices is
essential for the effective discharge of its fiduciary
responsibility.

The fact is, there is no single model of good governance.


Any model needs to take into account the broader
macroeconomic policies, legal & regulatory, social and
cultural environment.

The model we have developed is not static. We will


continue to improve the model, adding new requirement
while removing which ever is no longer relevant.

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