CASE STUDY

Case Study 1

MUO Sdn Bhd is planning to get listed on the Main Board of Bursa
Malaysia by Q3 2022. They have engaged an investment bank to
facilitate them in fulfilling the requirements of Securities Commission
Malaysia and Bursa Malaysia before they can get listed.

You are their company secretary. The CEO of MUO, Mr Nazrul,

approached you and shared with you his vision. He stressed the
importance of the company of not just doing well financially but must
also be seen practising good corporate governance. He said that it takes
years to build up a good reputation but mere seconds to destroy it.
Therefore, he asked you to come up with an action plan for the
company to ensure that the company is practising good governance.

At the moment, the organisational structure of the company only

consisted of a board of directors (four executive directors and one
independent director) and management team. None of the directors
has accounting or finance background.

It has 1,000 workers with an annual revenue of RM100 million. The

company operations are mainly in mining and oil & gas business. They
are currently outsourcing their internal audit services from their
external auditor.

REQUIRED

Prepare the action plan for MUO Sdn. Bhd to ensure it is practising
good corporate governance when it is listed at Bursa Malaysia.
Case Study 1

 SUGGESTED ANSWER:
 
• Ensure that the company comply fully with MCCG 20.
• Increase the number of independent directors from 1 to at least 4 so
there will be minimum 50% representative of independent directors
on the board.
• Establish Risk Management Committee since the company is
operating in a highly volatile and risky environment (oil & gas).
• Establish Remuneration Committee
• Establish Nomination Committee
• Establish Audit Committee and make sure they are consisted of
independent directors and at least one must have accounting
background since none of the directors have one
• Establish proper internal control system
• Establish Enterprise Risk Management since the company is
operating in a highly volatile and risky environment (oil & gas)
• Establish internal audit team since currently the independence of
their outsourced team can be questioned
• Create Code of Ethics because the organisation is huge
• Introduce Internal Whistleblowing policy because the organisation is
huge
• Ensure separation of CEO and Chairman as individual
• Establish proper communication channels with the shareholders
• Ensure proper disclosure in the annual report including on CSR and
corporate governance
Case Study 2

It was only 2 January 2021 but Wijoyo Berhad was already in trouble.
Last week its company secretary resigned. Last month in December
2020, five directors (one executive and four independent and non-
executive) including their chief financial officer resigned.

Only the executive chairman cum CEO, Mr Gabriel Wong, remained. The
company’s profit for 2019 has been reduced to RM30,000 from
RM120,000 in 2018. It is not known yet whether the company is making
a profit or not for the financial year ending 2020.

Because of that, Wijoyo Berhad says it is unable to release its financials

for the third quarter ended 30 September by the stipulated deadline of
30 November as it is unable to verify with bankers, debtors, creditor
and court on all pending litigation involving its subsidiaries.

The company mentioned that it is unable to assess the impact of a legal

opinion report by the appointed law firm to verify whether Mr Gabriel
Wong had taken personal loans from one of the company’s subsidiaries.
The company also said that it was unable to contact Mr Gabriel Wong
and the rest of directors for the November meeting.

REQUIRED

(a) Describe the duties of directors that have been breached in this
case.

(b) If you are one of the remaining directors of Wijoyo Berhad, what
actions would you take to solve the problem?
Case Study 2
SUGGESTED ANSWER:
 QUESTION A

Directors have a responsibility to use their powers in ways that seem

best for the company and its shareholders. In this case, most of the
directors simply resigned and their act affected the operation of the
company and definitely not the best for the company.

They should be accountable to the owners of the company, the

shareholders, for the ways in which they have exercised their powers,
and or the performance of the company. In the case, the fact that all
directors failed to approve the third quarter results indicated their lack
of accountability.

They have duties to the company. A director also has a duty of skill and
care to the company. Mr. Gabriel took personal loans from the company
and it seems that he has
breached his duty to the company.

A director should not act negligently in carrying out his or her duties,
and could be personally liable for losses suffered by the company as a
consequence of his or her negligence. In this case, the fact that the
directors fail to convene a meeting to approve the third quarter results
already an indication that they are negligent.
Case Study 2
SUGGESTED ANSWER:
 
QUESTION B

The company should compel the executive directors to carry out their
fiduciary duties by convening the meeting to approve the third quarter
reports.
 
The company need to appoint a new company secretary as soon as
possible.
 
The company should hold an EGM to get shareholders’ approval to
appoint the new directors of the company.
 
The company should look into the report by the law firm to assess the
situation of their CEO. If he is found guilty of conflict of interest, the
company need to suspend him before making a final decision whether
to keep him or fire him.
Case Study 3

Datuk Seri Gary Chong was sentenced by the Kuala Lumpur Sessions
Court to a five-year jail term and RM5 million fines for insider trading
offences committed when he was CEO of MFG Berhad (MFG).

Session Court judge Marina Hassan, in passing the sentence, had ruled
that a deterrent sentence was warranted as insider trading offences
were deemed more serious than conventional crimes, given the far-
reaching effects on investor confidence and the public as a whole.
“Insider trading is a modern, white-collar economic crime. It is serious
and is in a category or class of its own,” Marina said.

Datuk Seri Gary Chong was convicted for communicating non-public

information to Chan, his brother cum remisier, who subsequently
disposed a total of 6 million MFG shares within five days.

The non-public information related to the audit adjustments proposed

by MFG’s auditors, which resulted in MFG reporting a higher loss for the
financial year ended 31 December 2020, as compared to the previously
reported unaudited fourth-quarter results for the same financial year,
and that MFG would be classified as a PN17 company.

REQUIRED

(a) Describe the situation above using the shareholder’s theory.

(b) Suggest possible governance mechanisms to ensure such

behaviour will not happen again to MFG Berhad.
Case Study 3

SUGGESTED ANSWER:
 QUESTION A

The idea of the shareholder theory is that managers primarily have

a duty to maximize shareholders' interests in the way that is still
permitted by law or social values. In this case, Datuk Seri Gary Chong
who was the CEO of MFG decided to share classified information with
his brother to maximise his personal interest at the expense of the rest
of shareholders.

Asymmetries of information and difficulties of monitoring mean that

capital providers who lack control over the corporation will find it
risky and costly to protect themselves from the opportunistic
behaviour of manager and controlling shareholders. In this case, MFG
were unable to monitor and control the behaviour of their CEO, Datuk
Seri Gary Chong from disclosing non-public information to his family
member.

QUESTION B

Introduce whistleblowing policy, ensure internal auditor is independent,

establish risk management

Proper selection of CEO to ensure highest integrity expected from the

individual
 
Any other good governance mechanism such as creating Code of Ethics
etc.
Case Study 4
Shipping company QWE Holdings Sdn Bhd will convene its 21st Annual
General Meeting on Tuesday (23 May 2017) at 10.30am at Pulau
Resorts situated in Mersing, Johor. QWE’s principal office is in Port
Klang, Selangor and its registered office is in Damansara Utama,
Petaling Jaya.

Over the past few years the company has been convening its
shareholder meetings in Kuala Lumpur. However, for this year’s AGM,
the distance between Mersing and Damansara Utama is about 360
kilometers.

This is not the first time that the shareholders of QWE were taken by
surprise on actions taken by QWE. On 30 December 2016, QWE sold its
main operating subsidiary unit, RTY Sdn Bhd, to Point Break Ltd for a
mere RM1,000. Point Break Ltd was incorporated in the Seychelles and
the owners are unknown. Point Break Ltd assumed all net negative
liability value of RM35 million belonging to RTY Sdn Bhd.

The announcement was made at the year end and many were already
on leave so it caught everyone by surprise when they found out about
it. Bursa Malaysia has reprimanded and fined the company for not
disclosing material transactions.

REQUIRED

(a) Evaluate the practice of the company in relation to its shareholders

based on principles of good governance.

(b) Referring to Malaysian Code on Corporate Governance (2017),

how can QWE Holdings ensure that the two issues will not recur?
Case Study 4
SUGGESTED ANSWER:
 QUESTION A

Two issues related to the case are:

 
The company seems intent to discourage shareholders participation
in the annual general meeting by conducting it during the weekday
morning at a remote location.

The company attempts to downplay a major divestment decision by

timing the closure and announcement of the deal at the end of
the year when the shareholders could possibly be having a long
vacation and caught unaware of the deal. Hence, the shareholders
could not raise questions about the transaction to hold the board of
directors accountable.
Case Study 4
SUGGESTED ANSWER:
QUESTION B

The company should refer to Principle C (Integrity in Corporate

Reporting and Meaningful Relationships with Stakeholders) where

the board should take active steps to encourage shareholder

participation at general meetings by serving notices for meetings
earlier than the minimum notice period.

the board should direct the company to disclose all relevant

information to shareholders to enable them to exercise their rights.
The board can demonstrate their commitment to shareholders by
ensuring that the company publishes these measures on its
corporate website.

even if the annual general meeting is to be held at a remote location

the board should take a proactive measure by using technology to
facilitate electronic voting and to allow remote shareholder
participation at the GM.

the board should promote effective communication and proactive

engagements with shareholders.
Case Study 5
Datuk Chang is the chairman of Good Resources Bhd (GRB), an
investment holding company listed on Bursa Malaysia Securities. A
few days before the company’s Annual General Meeting (AGM), he
received an email from Alvin, a self-proclaimed shareholder activist,
who questioned various decisions of the company for the past years.

Datuk Chang discovered to his dismay that Alvin also sent the same
email to each director, the Bursa Malaysia, Securities Commission and
the media. Since then the telephone keeps ringing. In his email, Alvin
stated that he is representing a group of unhappy shareholders of GRB.

This group wants to know why despite of high capital investment for
the past few years GRB is still posting low returns. They also brought up
some corporate governance-related issues that may be damaging to the
reputation of GRB. The issues include the long tenure of some
independent directors beyond nine years and alleged related party
transactions.

Datuk Chang knows that he needs to address these issues expediently

before the situation gets out of hands and blows up at the Annual
General Meeting (AGM).

REQUIRED

(a) Advise Datuk Chang on the steps that need to be taken to manage
the situation before the AGM.

(b) Based on the allegations indicated in the case scenario suggest

pro-
active measures that can be adopted to address the corporate
governance issues at GRB.
 
 
Case Study 5
SUGGESTED ANSWER:
 QUESTION A

Datuk Chang has two options to handle the complaints:

 
• Communicate with Alvin directly – Datuk Chang can consult
with the Company Secretary, the Management and the Board to
get the facts right before contacting Alvin directly and provide
explanations to allay the concerns of the shareholders. In this
way, Datuk Chang shows that GRB might be able to prevent Alvin
from creating uproar during the AGM, which might give negative
publicity to GRB. Datuk Chang will also be able to resolve the
issue before it gets out of hands
i.e. nipping in in the bud.

• Provide the explanations during the AGM – Datuk Chang can buy
time to prepare a more measured response to the issues raised
by the shareholders. However, he runs the risk of further
provocation from Alvin and the disgruntled shareholders during
the days leading to the AGM, which might be reported in the
media. GRB may be seen as taking the shareholders’ concerns
lightly; thus the delay in responding to the questions.
Case Study 5
SUGGESTED ANSWER:
QUESTION B

Datuk Chan need to address three possible weaknesses in the

corporate governance of GRB:

(1) the long tenure of independent directors that might compromise

their independence from the influence of the management team,

(2) lack of transparency on related-party transactions (RPT), which

could potentially lead to conflict of interest and

(3) ineffective shareholder communication with regard to

sharing material information about GRB with the shareholders.

Datuk Chan can do the following to improve corporate governance in

GRB:

1) long tenure of independent directors

2) Related party transactions
3) Ineffective shareholder communication with regard to sharing
material information about GRB with the shareholders.
Case Study 6
QUESTIONS 1

In collaboration with Minority Shareholder Watchdog Group,

the Securities Commission Malaysia launched the Malaysia Code for
Institutional Investors in 2014. Compliance to the Code is voluntary but
institutional investors are encouraged to be signatories to demonstrate
their commitment to adopting the best practices.

REQUIRED

Based on the above Code explain the advantages and limitations

of calling for institutional investors to protect the rights of minority
shareholders.
 

QUESTIONS 2

Several countries have started to introduce codes on corporate

governance for unlisted firms. For examples, in 2005, Belgium launched
Corporate Governance for Non-listed Enterprises and the United
Kingdom introduced Corporate Governance Guidance and Principles for
Unlisted Companies in 2010.

REQUIRED

What are the best practices of the Malaysian Code of Corporate

Governance that are appropriate for adoption by private companies in
Malaysia?
 

 
Case Study 6
SUGGESTED ANSWER:
 QUESTION A

Since institutional shareholders own significant shareholding in the

company and therefore
 
carry greater risk and higher profile, they are more motivated to
ensure that the good reputation of the company is maintained
without unnecessary attention given by the media on the unfair
treatment of the minority shareholders.
As institutional shareholders are well represented in the board of
directors, their proxy can influence the board decision towards
protecting the right of minority shareholders.

Limitations
The Code has three limitations.
 
(1) It is voluntary in nature – institutional shareholders cannot be
compelled to adopt the recommendations of the code.

(2) It is difficult to prove that the institutional investors have played

their role due to the fact that discussions are confidential; thus
classified information.

(3) The Code is meant for companies in the MSWG watch list only;
thus it has limited application and effect.
Case Study 6
SUGGESTED ANSWER:
QUESTION B

Best practices of the Malaysian Code of Corporate Governance that are

appropriate for adoption by private companies in Malaysia are:

1. Establishing clear roles and responsibilities of the Board of

Directors such as establishing clear functions of the board and
appointing a competent company secretary.

2. Strengthening composition of the Board of Directors by appointing

well qualified and competent members.

3. Fostering commitment among the members of Board of Directors

by ensuring high attendance and active participation in the Board
meetings.

4. Upholding integrity in financial reporting by ensuring compliance

with the standards and proper appointment of external auditor.

5. Recognising and managing risks by having a sound framework to

manage risks and appointing internal auditor.

6. Ensuring timely and high quality disclosure by establishing policies

and procedures for disclosure and taking advantage of technology
to disclose information.

7. Strengthening relationship between Company and shareholders by

having constant communication and conducting AGM in a
professional manner.