Corporate Governance and Board Duties
What is tested
This domain tests board composition, independence, committees and the statutory and fiduciary duties of directors. For listed issuers, the Malaysian Code on Corporate Governance 2021 (MCCG 2021) applies on an 'apply and explain' basis through the Bursa Listing Requirements.
Core rules
- Directors owe duties to the company: act in good faith in its best interests, exercise powers for a proper purpose, and exercise reasonable care, skill and diligence (s 213). The standard combines objective and subjective elements.
- Avoid conflicts of interest and disclose the nature and extent of any interest in a transaction (s 221). Interested directors must not vote or count in the quorum where the constitution or law so requires.
- Do not misuse position or information. Related party transactions require disclosure and, where material, shareholder approval.
- MCCG 2021 promotes board leadership, an effective board, independent directors, audit, risk, nomination and remuneration committees, integrity in financial reporting and sustainability.
- Bursa requires at least two independent directors or one-third of the board, whichever is higher; the audit committee needs at least three members, all non-executive, with a majority independent and an independent chair.
Worked example
A director owns 30% of a supplier. The company proposes a RM500,000 contract. The director must disclose the interest at a board meeting, abstain from voting, and have the disclosure minuted. If the transaction is a related party transaction, the board should consider shareholder approval and the listing rules. Silence is a breach even if the price is fair.
Traps
Treating MCCG as a statute (it is a code, enforced mainly through listing rules); assuming an independent director may have close family or business ties; failing to minute disclosure; letting a conflicted director vote; ignoring insolvency risk when continuing to trade.