This is because 85 of PLCs in Malaysia companies in Malaysia are run by owner

This is because 85 of plcs in malaysia companies in

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minority shareholders will be expropriated. This is because 85% of PLCs in Malaysia companies in Malaysia are run by owner-managers where important posts such as CEOs and chairman are held by family members (see section 2.6.2). The next section will look into how corporate governance is being practiced in Malaysian PLCs. The discussion will be based on board composition, frequency of board meetings, role duality, cross directorships, substantial shareholders and board committees. Much of the information on governance practices was gathered from corporate governance surveys conducted by Bursa Malaysia and Price Waterhouse Coopers in 1998, 2001 and 2002. 2.5.1 Board composition 15 Cadbury Committee, 1992, Report on the Financial Aspects of Corporate Governance, Gee, London 16 Greenbury, R, 1995, Directors’ Remuneration: Report of the Study Group, Gee Publishing, London 17 Hampel, R, 1998, Committee on Corporate Governance: Final Report, Gee, London 63
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The composition of the board of directors is a critical factor in establishing the effectiveness of the board in monitoring the management (Fama and Jensen, 1983). The MCCG (2000) acknowledges that to have an effective board, there must be a right balance in the board composition comprising of independent non-executive (INEX), non-executive (NEX) and executive directors (ED). Haniffa (1999) found that the board composition in Malaysian PLCs comprises of INEX, NEX and ED, with the majority being the first two groups. The Bursa Malaysia/PwC Survey in 2001 indicated that there is a reasonably proportionate mix of INEX (average number is 2.7) and ED (average number is 2.5). The findings are presented in Table 2.5. Table 2.5: PwC Survey (2001) on Board Composition Min Median Max Mean Total 4 7.57 13 7.5 ED 1 2.4 7 2.5 NEX 1 2.8 8 3 INEX 1 2.4 6 2.7 (ED is executive directors, NEX is non-executive directors, INEX is independent non-executive directors) Source: Board of Directors: A Bursa Malaysia/PwC Survey of Remuneration and practices (2001) Similarly, Abdul Rahman and Mohd Ali (2006) found that on average, the proportion of INEX of the companies in their study is 39%. Based on the three studies, INEX constitute about one-third of the board. These findings are in line with the Report on Corporate Governance in Malaysia (1999) which suggested that the board should include a balance of ED and NEX (including INEX) such that no individual or small group of individuals can dominate the board’s decision making. The Bursa Malaysia 64
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listing rules also stipulate that at least 2 directors or one third of the board whichever is higher must be independent directors. Generally and from the survey results, this requirement has been diligently complied with. Besides that, on average, board size was found to be 8 persons. One of the reasons most board sizes are not too big is probably because of the shortage of suitable INEX, as the larger the board size the more INEX have to be appointed (Abdul Rahman, 2006).
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