Need to improve board practices, including director sourcing, report says
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July 08, 2021
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Executive Summary
The inaugural Malaysian Board Practices Review 2020 reveals a greater need to improve board practices.
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Excerpt from the article originally published in The Star

The Star article, ​"Need to improve board practices, including director sourcing, report says," quoted Russell Reynolds Associates Consultant Stephen Langton​ and featured our joint report with ICDM, "Malaysian Board Practices Review 2020." The article is excerpted below.


The thrust of the review is to improve board practices in line with the Malaysian Code of Corporate Governance (MCCG), the Institute of Corporate Directors Malaysia (ICDM) said in a statement. 

ICDM said the review is to strengthen best practices of the boards, in tandem with the Securities Commission’s (SC) recent update on the MCCG to enhance the corporate governance culture. 

The review, which was in collaboration with Russell Reynolds Associates (RRA) and Bursa Malaysia Bhd, is to establish paradigms and standards for Malaysian boards through a deeper overall understanding of prevailing industry culture, practices and processes relating to board nomination, selection, appointment and evaluation. 

Some key observations from the review revealed a greater need to improve board practices in line with the MCCG: 

i. Director sourcing – personal network referrals (74%) remain the most common director sourcing method, following by nominations by major shareholders or parent companies (14%), and only 8% of companies used independent, third-party search institutions, which is the best practice recommended in the MCCG. 

ii. Skills and competencies – 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 & Governance (ESG), human resource, culture & succession, communications & public relations, marketing & sales, branding & reputation, business, e-commerce, treasury & actuarial sciences, etc. 

iii. Board evaluation – only 25% of companies had independent external board evaluations in the last 10 years. 

iv. Developmental programmes and training – majority of programmes undertaken (90%) were based on individual director requests; there is lack of adequate structure, planning or pathway to ensure holistic, consistent and long-term development of directors. 

... 

RRA managing director Stephen Langton said the refreshment of boards continues to be key for a board in maintaining adequate independent oversight, which is in line with a previous study that illustrated a strong link between critical director behaviours with higher company performance. 

He added that board evaluation and peer review also provide potential value for a well-functioning board. 

“The review highlighted an important observation: companies are generally compliant with the MCCG and listing requirements for board composition; however, it also highlighted that 19% of independent directors have been on their respective boards for over nine years. 

“This brings to question the independence of the board – a significant factor in allowing for more considered decision-making and protection of shareholders’ interest. 

“It is also vital for companies to conduct periodic board evaluations by professional, experienced and independent parties, where the objective insights gained will facilitate better board-management relationships, director nomination and appointment, as well as assist in determining board remuneration.”​ 
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To read the full article, click here​.​