NOMINATING COMMITTEE - MALAYSIAN CODE ON CORPORATE GOVERNANCE 2012 - Part 2

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The following, a commentary, is provided for Recommendation 2.1 to 2.3 and 3.1 to 3.5 of MCCG 2012. The commentaries seek to explain and provide some guidance for the recommendations. 

PRINCIPLE 3: REINFORCE INDEPENDENCE

The board should have policies and procedures to ensure effectiveness of independent directors.

Recommendation 3.1

The board should undertake an assessment of its independent directors annually.

Commentary

Independent directors bring independent and objective judgment to the board and this mitigates risks arising from conflict of interest or undue influence from interested parties.

The existence of independent directors on the board by itself does not ensure the exercise of independent and objective judgment as independent judgment can be compromised by, amongst others, familiarity or close relationship with other board members.

Therefore, it is important for the board to undertake an annual assessment of the independence of its independent directors. When assessing independence, the board should focus beyond the independent director’s background, economic and family relationships and consider whether the independent director can continue to bring independent and objective judgment to board deliberations. The Nominating Committee should develop the criteria to assess independence. The board should apply these criteria upon admission, annually and when any new interest or relationship develops.

The board should disclose that it has conducted such assessment in the annual report and in any notice convening a general meeting for the appointment and re-appointment of independent directors.

Recommendation 3.2

The tenure of an independent director should not exceed a cumulative term of nine years. Upon completion of the nine years, an independent director may continue to serve on the board subject to the director’s re-designation as a non-independent director.

Commentary

The assessment criteria for independence of directors should also include tenure. Long tenure can impair independence. For this reason, tenure of an independent director is capped at nine years. The nine years can either be a consecutive service of nine years or a cumulative service of nine years with intervals. An independent director who has served the company for nine years may, in the interest of the company, continue to serve the company but in the capacity of a non-independent director.

Recommendation 3.3

The board must justify and seek shareholders’ approval in the event it retains as an independent director, a person who has served in that capacity for more than nine years.

Commentary

The shareholders may, in exceptional cases and subject to the assessment of the Nominating Committee, decide that an independent director can remain as an independent director after serving a cumulative term of nine years. In such a situation, the board must make a recommendation and provide strong justification to the shareholders in a general meeting.

Recommendation 3.4

The positions of chairman and CEO should be held by different individuals, and the chairman must be a non-executive member of the board.

Commentary

Separation of the positions of the chairman and CEO promotes accountability and facilitates division of responsibilities between them. The responsibilities of the chairman should include leading the board in the oversight of management, while the CEO focuses on the business and day-to-day management of the company. This division should be clearly defined in the board charter.

Recommendation 3.5

The board must comprise a majority of independent directors where the chairman of the board is not an independent director.

Commentary

A chairman who is an independent director can provide strong leadership by being able to marshal the board’s priorities more objectively. If the chairman is not an independent director, then the board should comprise a majority of independent directors to ensure balance of power and authority on the board.

NOMINATING COMMITTEE - MALAYSIAN CODE ON CORPORATE GOVERNANCE 2012 - Part 1

The following, a commentary, is provided for Recommendation 2.1 to 2.3 and 3.1 to 3.5 of MCCG 2012. The commentaries seek to explain and provide some guidance for the recommendations. 

PRINCIPLE 2: STRENGTHEN COMPOSITION

The board should have transparent policies and procedures that will assist in the selection of board members. The board should comprise members who bring value to board deliberations.

Recommendation 2.1

The board should establish a Nominating Committee which should comprise exclusively of non-executive directors, a majority of whom must be independent.

Commentary

The Nominating Committee is charged with the responsibility to oversee the selection and assessment of directors.

An effective Nominating Committee will contribute towards ensuring that board composition meets the needs of the company. The chair of the Nominating Committee should be the senior independent director identified by the board.

Recommendation 2.2

The Nominating Committee should develop, maintain and review the criteria to be used in the recruitment process and annual assessment of directors.

Commentary

The Nominating Committee’s responsibilities include assessing and recommending to the board the candidature of directors, appointment of directors to board committees, review of board’s succession plans and training programmes for the board. In assessing suitability of candidates, considerations should be given to the competencies, commitment, contribution and performance. The Nominating Committee should facilitate board induction and training programmes. The nomination and election process of board members should be disclosed in the annual report.

The board should establish a policy formalising its approach to boardroom diversity. The board through its Nominating Committee should take steps to ensure that women candidates are sought as part of its recruitment exercise. The board should explicitly disclose in the annual report its gender diversity policies and targets and the measures taken to meet those targets.

Recommendation 2.3

The board should establish formal and transparent remuneration policies and procedures to attract and retain directors.

Commentary

Fair remuneration is critical to attract, retain and motivate directors. The remuneration package should be aligned with the business strategy and long-term objectives of the company. Remuneration of the board should reflect the board’s responsibilities, expertise and complexity of the company’s activities.

The board should establish a Remuneration Committee to perform this function. The Remuneration Committee should consist exclusively or a majority of, non-executive directors, drawing advice from experts, if necessary. Companies without a Remuneration Committee should have board policies and procedures on matters that would otherwise be dealt with by the Remuneration Committee. Board remuneration policies and procedures should be disclosed in the annual report.

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