MGM4136

CURRENT ISSUES AND

MANAGEMENT
Corporate Governance
LECTURER:
PUAN RUHANA BT HAJI BUSU
Prepared by:
Wong Yoke Pui 147722
Seow Fun Yin 147836
Oh Shiek Ching 14783
!ee "nn #ui 14768
$gor Siew %n 1&'114
(e)ini*ion
Corporate governance is an internal system that encompasses polices, processes,
people, and makes sure the needs of shareholders and other stakeholders are met in
full. This will e accomplished y directing and controlling managing activities using
good usiness practices, o!ectivity, accountaility and integrity. Effective corporate
governance relies on e"ternal marketplace commitment and legislation, plus a healthy
oard culture which safeguards policies and processes.
Why doe+ ,orpora*e go-ernan,e i.por*an*
Corporate governance is a key element in enhancing investor confidence,
promoting competitiveness, and ultimately improving economic growth. #ood corporate
governance helps to prevent corporate scandals, fraud, and potential civil and criminal
liaility of the organi$ation. % good corporate governance image will enhances the
reputation of the organi$ation and makes it more attractive to customers, investors,
suppliers and, contriutors of nonprofit organi$ations. &t is aims to protect shareholder
rights, enhance disclosure and transparency.
/ood Corpora*e /o-ernan,e
#ood corporate governance will ensures the accountaility of certain individuals such as
reduce or eliminate principal'agent prolem, achieve an a locative efficiency likes ensure
investors receive ade(uate return and guideline on how company is managed or governed
such as eliminate undesirale ehavior and reduce unethical ehavior.
%igh* ,hara,*eri+*i, o) good go-ernan,e
10 Par*i,ipa*ion
)articipation y oth men and women is a asis of good governance. )articipation
could e either direct or indirectly. &ndirectly means participation through legal
intermediate institutions or representatives that represent their interests.
)articipation is a method wherey policy making, prioriti$ing issues, convenience
to pulic goods and services and also allocating resources that unfair y
stakeholders. &t varies from one conte"t to another and su!ect to different kind of
pro!ects and visions.
20 1u2e o) 2aw
#ood governance re(uire laws, regulations and codes of conduct should e fair
and enforced impartially, particularly the laws on human rights. The helpful ways
of tackling weak governance is to look at the disconnection etween institutions
within the roader governance environment as well as the scope of operation of
the pulic in common. The availaility of information is critical to good
governance. %ccess to information and the promotion of practical rights provide
an enaling framework where accountaility and improved delivery could
enhance institutional changes.
30 3ran+paren,y
Transparency means that decisions taken and their enforcement are done in a way
that follows rules and regulations. &t also means that information is freely
availale and directly open to those who will e affected y such decisions and
their enforcement. &t also means that enough information is provided and that it is
provided in easily understandale forms and media. &t promotes openness of
government action, decision'making processes, and consultative processes among
pulic sector and all stakeholders.
40 1e+pon+i-ene++
&nstitutions and processes try to serve all stakeholders (uickly or within a
reasonale timeframe.
&0 Con+en+u+ orien*ed
There are many different point of views in a society or a community. % good
governance should take into consideration each stakeholder memers* opinions
and enefits to reach a road consensus on what is the est interest of the group,
on policies and procedures. Reaching a consensus in any decisions could e done
y practicing serious consideration of every stakeholder*s opinion. This does not
only seek agreement of the ma!ority, ut also to resolve the o!ections of the
minority with the ultimate goal to achieve the most agreeale decision. &n other
words, grassroot democracy shall e achieved. % deep understanding of the
historical, cultural, and social conte"ts of a given society or community could e
the foundation towards a consensus oriented governance.
60 %4ui*y and in,2u+i-ene++
% society*s well eing depends on ensuring that all its memers feel that they
have a stake in it and do not feel e"cluded from the mainstream of the society.
This re(uires all groups to have opportunities to improve or maintain their well
eing. &t includes designing mechanisms, policies, or processes that are fair for all
stakeholder memers where each and every one of them is given e(ual chance to
reach the state of good welfare.
70 %))e,*i-e and e))i,ien*
#ood governance means that the processes and institutions produce desirale
results that meet the needs of the society, while putting the resources at their est
use. +eing effective which means providing what the community needs, in which
would increase the community*s welfare. &n the conte"t of instilling efficiency in
good governance, usage of natural resources should e sustainale and at the
same time, to protect the environment.
80 5,,oun*abi2i*y
%ccountaility is the key re(uirement of good governance. ,ot only
governmental institutions ut also the private sector and civil society
organi$ations must e accountale to the stakeholders and pulic. -ho is
accountale to whom varies, depending on whether the decision.action is internal
or e"ternal to an organi$ation. &t acts as a means towards the development of more
efficient and effective organi$ations. /o how accountaility comes into the picture
in ensuring the positive impact eing rought to the community0 %s an e"ample,
politicians and pulic servants are given enormous power through the laws and
regulations they implement, resources they control, and they organi$ations they
manage1 and accountaility is a way to ensure that this power is used
appropriately and in accordance with the pulic interest. &n general, an
organi$ation is accountale to those who will e affected y its decisions or
actions, and it*s important to practice transparency in order to enforce
accountaility in organi$ations.
5d-an*age o) Corpora*e /o-ernan,e
Corporate governance practices leads to a etter system of internal control, thus
leading to greater accountaility and etter profit margins.
#ood corporate governance practices can pave the way for possile future
growth, diversification, or a sale, including the aility to attract e(uity investors
either nationally or aroad.
+etter corporate governance can also provide shareholders with greater security
on their investment.
+etter corporate governance also ensures that shareholders are sufficiently
informed on decisions concerning fundamental issues. 2or e"ample, when a
company amendments of statutes or articles of incorporation, it will inform the
shareholders.
&t was found out that more than 345 of the gloal institutional investors are
willing to pay a premium for the shares of a well'governed company over one
considered poorly governed ut with a comparale financial record.
(i+ad-an*age o) Corpora*e /o-ernan,e
Costs of 6onitoring
''' To effectively govern a pulicly traded corporation, shareholders must speak
with one voice and have enough votes to allow that voice to have any real weight.
This re(uires individuals that have a collective vision for the company to pour
more money into that company to gain a controlling share. This process can e
highly political, since controlling shareholders that sense a hostile takeover may
attempt to uy up more shares to stay in power and keep the minority party silent.
Corporate governance at this level could grind to a halt, driving stock prices lower
and hindering a corporation7s aility to make smart usiness decisions.
Family-Owned Companies
--- Corporate governance works at its best when shareholders and board members
are able to make objective decisions that are in the best interest of the company.
For example, Ford and Wal Mart lose objectivity in business making decisions
due to the familys financial investment in the business performance and the
emotional ties associated with building a worldwide corporation from the ground
up.
Curren* i++ue+
Ca+e 1: Por* 62ang Free 7one 8P6F79 S,anda2
)ort 8lang 2ree 9one scandal had een e"posed since early of %ugust :;;<, ut
the police and the 6alaysian %nti'Corruption Commission spent aout three years to
charge several people including former Transport 6inister Tun =r Ling Liong /ik with
cheating the 6alaysian government y misleading the Cainet on the land ac(uisition for
the 6ega =istriution pro!ect in )ort 8lang.
=r Ling is accused of dishonestly hiding the fact that the valuation y the
>aluation and )roperty /ervice =epartment, 6inistry of 2inance. %ccording to the
charge, the fraud was committed with the knowledge that he could cause a loss to the
6alaysian government, where he had an interest in the transaction pertaining to the fraud
and he was ound under the law to protect it.
)arliament is entitled to know what were the reasons which caused the )829 land
(uestion, which has landed the country with a R6?:.@ illion )829 scandal. &t noted
that three months after the formation of the /uper Task 2orce, several people were
charged for their alleged role in the )829 scandal. The 6inistry of Transport also said
that they will make sure the )829 scandal will e clearly and hoping that corruption is
eing checked and !ustice is eing restored. The )ort 8lang 2ree Trade 9one A)829B
fraud not only will ring ad effect to the country7s economic growth, pulic trust, the
market economy and national control systems also constitute a threat.
&n our opinion, )829 scandal is a serious misappropriation issue. has een
involving more and more people. +ut as 6alaysian, we are more concerned aout the
responsiility as its leaders are involved in the scandal, particularly when the scandal has
caused the country to lose so much money.
%lthough the task force7s investigation report has identified the government
officials who has seriously violated the rules, ut we were disappointed that the ministry
was not represented y any official who could shed light on the many unanswered
(uestions regarding the issue.
The R6?:.@ illion )ort 8lang 2ree 9one A)829B scandal as it represented a
ma!or step ackwards in pulic accountaility and good governance. )829*s
management should have known that the risk of misappropriation. )829 scandal caused
6alaysia*s has suffered the ignominy of the worst ranking and score in ?@ years in
Transparency &nternational AT&B Corruption )erception &nde" AC)&B .Therefore, good
corporate governance is very important helps to prevent corporate scandals, fraud, and
potential civil and criminal liaility of the organi$ation.
Ca+e 2: Si.e (arby +ui* again+* e: C%O and *wo o*her+ o-er ;akun
pro<e,*
% recent news report states that there ma!or pro!ects in the sector of /ime =ary,
due to improper management of these pro!ects led to repeated e"tension and cost
overruns, prompting the company to withstand up to R6 ?.C illion total loss last year.
2or the coming si" months, government is estimated need to allocate D;; million
provisions for the losses. 6ost of the losses are down to ill'advised investments in the
energy and utilities sector in Eatar as well as tardy usiness practices in the development
of the +akun dam in /arawak.
The +akun =am pro!ect at /ungai +alui, /ungai Re!ang, /arawak, is the largest
hydropower pro!ect in 6alaysia. /ime =ary is in the midst of preparing for a civil suit
against those responsile for the company losses. Thus, /ime =ary +hd and its three
susidiaries have filed another civil suit against its former group chief e"ecutive =atuk
/eri %hmad 9uir 6urshid and two others for restitution of R6D;.@mil relating to the
+akun =am pro!ect. The other two defendants are former head of the group*s energy and
utilities AEFUB division, =atuk 6ohamad /hukri +aharom, and former EFU division
chief financial officer %dul Rahim &smail. This case reflects very adly on the
management and corporate governance of /ime =ary that lead to the losses.
&n our opinion toward this case, /ime dary failed to comply the principles
of corporate governance that caused to the losses. /ime =ary management tried to hide
the losses incurred in Eatar and +akun. The amount for cost over'runs of the pro!ects was
much higher.
-e think that /ime =ary not only against the principles of good governance ut
also reached the various laws. -e are also (uestioned how plantation'ased /ime =ary
could post such huge losses when it en!oyed financial and political support from the
government. &t also need to highlight that faulty corporate governance and risky
investments as factors ehind /ime =ary*s historic losses.
The first rule of Corporate #overnance is to have capale people who are also
competent and with integrity to manage a company. 6alaysia need to take serious in the
selection of candidates to take the responsile. +esides that, awareness towards
importance of corporate governance will improve economy performance in 6alaysia.
1e)eren,e+
http://en.wikipedia.org/wiki/Corporate_governance#Principles
http://www.corporategovernancedefinition.net/
Topics/Corporate_governance/An_overview_of_corporate_governance
http://www.gdrc.org/u-gov/doc-oecd_ggov.html#Accountailit!
http://siteresources.worldank.org/P"#$%C&'CT()A*+,(-')*A*C'/)esources/Ac
countailit!,overnance.pdf
http://www.unescap.org/pdd/prs/Pro.ectActivities/(ngoing/gg/governance.asp
http://www.metagora.org/training/enc!clopedia/governance.html
http://www.reform.gov./page/,((+_,(-')*A*C'.pdf
http://www.swview.org/log/seven-characteristics-corporate-governance
http:..www.malaysia'today.net.mtcolumns.letterssurat.GGC@4'who'is'at'the'root'of'the'
pkf$'scandal'tun'dr'ling'liong'sik'or'tun'dr'mahathir'mohamed
http://www.unescap.org/pdd/prs/Pro.ectActivities/(ngoing/gg/governance.asp
http://www.reform.gov./page/,((+_,(-')*A*C'.pdf
http://ma./ainooks.com/terms/hrm/eight-ma.or-characteristics-of-good-
governance.shtml
http://www.metagora.org/training/enc!clopedia/governance.html
http://www.gdrc.org/heritage/tugi-culturalheritage.pdf
reference:
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L%,#IE,
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