Corporate Governance

What is corporate governance? Corporate governance can be defined as the processes and systems which used to manage the business of the company in order to improve the business performance by stakeholders and reduce the agency problems among the managers and the shareholders. It is very important to a company or even a country as if the company did not set good corporate governance, the stakeholders of the company may involve in fraud. For example, one of the adviser in Akron had been penalized $212.9M and 12years of prison as he involved in fraud case (MSNBC, 2008).

In Malaysia, the development of corporate governance can be dated back to year 1997. During the year 1997 financial crisis, Malaysia met huge economic slowdown during the world financial crisis. For instances, it was reduced about 72% of the Kuala Lumpur Composite Index, the high interest rates caused the real estate markets declined significantly, etc. (Abdul, M. Fazilah and Md Ishak, n.d.). Therefore, the government felt that it is necessities to launch a framework of corporate government in order to guide the capital market. Finally, the Securities Commission launched the Malaysian Code on Corporate Governance in March 2000. It really helped in corporate governance as it regulated the law and best practices of good governance and it also the foundation of the corporate governance's development schedule (Ponnu, 2008). In addition, the Malaysian corporate scene has considerable improved after introduced the Malaysian Code on Corporate Governance as it allowed the public and shareholders verify and make judgment on the corporate governance's standards of the listed companies. On the other hands, the Code also similar with the United Kingdom's as it is sketch form the experience of United Kingdom which set out in the Hampel Report (Securities Commission, 2007).

Under the Malaysian Code on Corporate Governance (MCCG), there are more focused on the four main principles which are directors, directors' remuneration, shareholders and accountability and audit. The main purpose of setting out these principles is used to lead the Companies which listed in Bursa Malaysia can applying the corporate governance more easily. Besides, it also helped the shareholders or public to monitor the performances of the companies as the companies which applied need to make sure that there are sufficient disclosure of the company' activities. If the company failed to make the sufficient disclosure, it may be delisted from the Bursa Malaysia.

The first Code is the directors of the company. For a company, it is important to have a group of board of directors who are efficiency and effectiveness which can lead the company into success. It is due to the board of directors are the decision- makers of the company's operations, strategy, etc. as their roles are to manage, monitor and review the activities of a company. Generally, it can be divided into executive director and non- executive director whereby executive director or internal director usually is full-time employee of a company and involved in the decision making of company's day- to day operations (Business Dictionary, 2010). However, the non- executive director or external director regularly involved in the strategy and policy making and does not take part in the daily management of the company. Moreover, non-executive director also need to monitor the performance of the executive director to ensure they protect the interest of the shareholders. (Business Dictionary, 2010)

According to the Code, in order to reduce the conflicts of interest between the shareholders and the directors, a company's board of directors should consist of at least one-third of independent non- executive directors. Besides, in the annual report of the company, the board should mentioned about a senior independent non- executive director to who may concerns. (Securities Commission, 2007) By appointed at least one- third or sufficient of independent non- executive directors, the shareholders of the company no need worry about the executive directors may manipulate their running power. Moreover, the non- executive directors can help the executive directors to solve some management problems by giving them the independent views and also widen the company's vision. According to Agrawal and Knoeber (1996), the performance of the company is correlated to the proportion of independent non- executive directors (Ponnu, 2008). Besides, You et al. (1986) stated that the company will achieve more profitable by appointed more independent non- executive directors than the company with fewer independent directors (Ponnu, 2008). From the studies, we can verified that there are many advantages for appointed the non- executive directors in a company, thus the Code regulated that every companies should selected sufficient non- executive directors in a company is actually bring the advantages to a company.

Furthermore, the Code also stated that the company should select the directors who are having relevant skills, knowledge, experiences, etc. As earlier mentioned, the directors of the company will take in charge of decision- making of company's operations. Thus, the directors should own certain knowledge in order to solve the problems which met and also give the best opinions to the company. Additionally, the Code stated that the responsibilities of the chairman and chief executive officer must be clearly stated in order to avoid conflicts of interest. According to Coles (2001), the leadership structure can be divided into combined leadership structure and separated structure (Abdul, M. Fazilah and Md Ishak, n.d.). Some of the companies may adopt combined leadership structure and some of them may adopt separated structure whereby the former refer that chairman is also the CEO of the company whilst the latter means that there are different person acting as the chairman and the CEO of the company. According to Anderson and Anthony (1996), if there is less conflicts between the chairman, CEO and other directors, the performance of the company will be better and may be improved (Ponnu, 2008). Thus, the company should follow the guidelines of the MCCG as it really helps the company to set good corporate governance.

Next Code is directors' remuneration. According to the report, the company should form the remuneration committees. The main responsibility of remuneration committees is to define the salary or bonus of the executive directors in order to make sure the executive directors of the company received a suitable salary and at the same