In the context of a Malaysian public listed company (“PLC”), an “independent director” means a director who is independent of management and free from any business or other relationship which could interfere with the exercise of independent judgement or the ability to act in the best interests of the PLC, as defined under the Listing Requirements issued by Bursa Malaysia. The Listing Requirements further provide that an independent director must not be an executive director of the PLC or any related corporation of the PLC. As such, an independent director must not be involved in the day-to-day operations or management of any subsidiary of the PLC.

The Bursa Corporate Governance Guide issued by Bursa Malaysia recommends minimising or limiting independent directors sitting on the board of subsidiaries. The Bursa Corporate Governance Guide also states that directorships in multiple entities within a group may potentially create undue dependence in terms of remuneration received by independent directors, thus, raising concerns on the objectivity of these directors.

There is no outright prohibition for an independent director of a PLC to be a director of any subsidiary of the PLC. Neither would an independent director automatically lose his or her independence status as a director of a PLC as a result of sitting on the board of any subsidiary of the PLC. However, the director concerned as well as the board of directors of the PLC must apply the test of whether the said director is able to exercise independent judgment and act in the best interests of the PLC if he or she is to remain as an independent director of the PLC whilst sitting on the board of any subsidiary of the PLC.

 The information in this article is intended only to provide general information and does not constitute legal opinion or professional advice.