Under the Malaysian Code on Corporate Governance (“MCCG”), one of the intended outcomes is for board decisions to be made objectively in the best interests of the company taking into account diverse perspectives and insights.

To achieve this outcome, one of the best practices provided under the MCCG is for the board to utilise independent sources to identify suitable qualified candidates. The board should not solely rely on recommendations from existing directors, management or major shareholders, in identifying candidates for appointment of directors.

The MCCG also provides that if the selection of candidates for directors was based on recommendations made by existing directors, management or major shareholders, the Nominating Committee should explain why these source(s) suffice and other sources were not used.

𝘋𝘰 𝘗𝘓𝘊𝘴 𝘪𝘯 𝘔𝘢𝘭𝘢𝘺𝘴𝘪𝘢 𝘶𝘵𝘪𝘭𝘪𝘴𝘦 𝘪𝘯𝘥𝘦𝘱𝘦𝘯𝘥𝘦𝘯𝘵 𝘴𝘰𝘶𝘳𝘤𝘦𝘴 𝘵𝘰 𝘪𝘥𝘦𝘯𝘵𝘪𝘧𝘺 𝘴𝘶𝘪𝘵𝘢𝘣𝘭𝘦 𝘤𝘢𝘯𝘥𝘪𝘥𝘢𝘵𝘦𝘴 𝘧𝘰𝘳 𝘥𝘪𝘳𝘦𝘤𝘵𝘰𝘳𝘴?

The Malaysian Board Practices Review 2020 reveals that among the PLCs which provided their feedback for the review, personal network referral is the most common director sourcing method (74%), which is followed by nominations by major shareholders or parent companies (14%). Only 8% of companies used independent, third-party search institutions. (See link below)

𝘛𝘩𝘦 𝘤𝘢𝘴𝘦 𝘧𝘰𝘳 𝘪𝘯𝘥𝘦𝘱𝘦𝘯𝘥𝘦𝘯𝘵 𝘴𝘰𝘶𝘳𝘤𝘦𝘴

In respect of appointment of independent directors of PLCs, utilising independent sources to identify suitable qualified candidates provides credibility to the directors’ independence and their ability to exercise independent judgement and act in the best interests of PLCs.

By utilising independent sources to identify suitable qualified candidates for directors, PLCs also gain access to a more diverse pool of candidates who may have the relevant skills which are beneficial to the PLCs.

#malaysiancorporatelawyer

This post was first posted on 9 July 2021.