“CORPORATE GOVERNANCE”

1. “CORPORATE GOVERNANCE” GROUP 2

2. GROUP MEMBERS • HAIFA AMANATUL HAFIZ BT ABD.RAFEK 108624 • NURULHUDA BT SULAIMAN 108640 • MASITAH BT RAMLAN 108632 • SHAZLINA BT ABD JALIL 108647

3. Definition “Corporate governance is the process and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long term shareholder value, whilst taking into account the interests of other stakeholders.” Definition from the Finance Committee Report on Corporate Governance

4. CORPORATE GOVERNANCE IS ESSENTIALLY ABOUT LEADERSHIP • Leadership for efficiency • Leadership for probity • Leadership with responsibility; and • Leadership which is transparent and • which is accountable • This because principal owners of Corporate Governance are DIRECTORS !! Commonwealth Association for Corporate Governance (CACG)

5. Therefore, Board of Directors must be the FIRST toBUYINTOthe idea of GOOD CORPORATE GOVERNANCE.

6. BOARDS MUST KNOW THAT:- An ethical society is fundamentalto run business. Corporate Governance is about going back to basics, a return to a “value culture”

7. Boards must return to basic virtues of : HONESTY , RESPONSIBILITY , HUMILITY AND LOVE .

8. Profitability - Shareholders Value Social Responsibility Environmental Protection BOARDS MUST LOOK AT THE TRIPLE BOTTOM LINES:-

9. Do we all need good Corporate Governance? YES !

10. BECAUSE: • We need a good image. • We need a good reputation to instill CONFIDENCEin us, locally and internationally.

11. We need Good Corporate GovernanceBECAUSENeed Arises to Reinvent the Corporate Enterprise to Efficiently Meet Emerging Global Competition which will be Market-Oriented

12. We have no choice but to: • prepare for GLOBALISATION • prepare for GLOBAL COMPETITION • be WORLD CLASS , to be RELEVANT

13. A THINKING NATION “..To be a great country, a nation must also possess great minds, brilliant thinkers and a culture that encourages debate, criticisms and freedom of expression.” “..In the borderless, knowledge-powered economy of THE FUTURE, it will be new ideas that will give a country that extra competitive edge.” - Azam Aris Managing Editor, The Edge

14. GOOD CORPORATE GOVERNANCE IS MORE THAN JUST LAWS AND MORE LAWS Because effective enforcement everywhere in the world is easier said than done.

15. THE MALAYSIAN CODE ON CORPORATE GOVERNANCE Launched on 25 March 1999 by The Ministry of Finance Amended March 2000

16. THE CODE HAS TWO MAIN PARTS • Part 1 • Sets out broad principles of good governance in Malaysia • PLCs to disclose, under listing rules, annually, a narrative account how they applied the principles to their structures and processes • Part 2 • Sets out best practices for PLCs to follow • PLCs to explain under listing rules, circumstances justifying departure from such best practices

17. Part 1 -THE CODE (Broad Principles)Directors • The Board • Board Balance • Supply of Information • Appointments to the Board • Re-election

18. THE CODE Director’s Remuneration • The Level and Make-up of Remuneration • Procedure • Disclosure

19. THE CODEShareholders • Dialogue Between Companies and Investors • The AGM

20. THE CODEAccountability and Audit • Financial Reporting • Internal Control • Relationship with the Auditors

21. Part 2 - BEST PRACTICES IN CORPORATE GOVERNANCE • Company boards will be required to justify in their annual reports any significant variances with the best practices set out here. • The importance of the role of non-executive, independent directors in corporate governance is spelt out. • The guidelines are quite comprehensive and easy to comprehend. The guidelines are to be used in a flexible manner depending on each company’s business scenario and needs.

22. The Code is voluntary but disclosure of compliance is mandatory under KLSE Listing Requirements

23. Independent - Minded Directors Play A Central Role in Fostering Good Corporate Governance

24. The paper will be discussing on literature pertaining to the relationship between internal auditors and the audit committee which has significant implications for effective corporate governance. This paper examine the perceptions of internal auditors in three major issues.

25. First, we look at the communications and interactions between the internal auditor and the audit committee for example: frequency of meeting, management’s presence at meetings, private meetings with the audit committee, etc.

26. Recommendations of the Blue Ribbon Committee and Malaysian code of Corporate Governance: meeting must be held 4 times a year between internal auditor and audit committee. Issues discussed with audit committees in the meeting is related to financial and operational issues.

27. The role of audit committees is to encourage an “open relationship” or quite close or informal relationship. It means that audit committee is in the position to give advice, solutions and act like a ‘father’ to internal auditors. Internal auditor would feel more comfortable when they give opinion on management activities to audit committee without the presence of management.

28. Second, we examine internal auditors’ perceptions of the functions and effectiveness of the audit committee. In particular, we consider how internal auditors perceive the role played by audit committees in attending to problems identified by the internal audit function and the influence of top management and the external auditors in such circumstances.

29. In the present study, audit committees were found to be involved in approving the termination of the chief internal auditors. When it comes to termination, they believe that they are well protected by employment regulations and bodies such as the securities commission. Thus, it appears that internal auditors are not only conscious of their employment rights but their obligations as well.

30. Malaysian code of Corporate governance’s recommendation that the audit committee comprise no fewer than 3 members, majority independent directors and the chairman is independent director. However, executive management formed part of audit committee

31. A review of the firms’ annual reports also indicates that the audit committees had reviewed the audit plan for the year, and other related reports including a review of the extent of the company’s compliance with the provisions set out under the Malaysian Code on Corporate Governance.

32. Third, we examine internal auditors’ perceptions on how audit committees may contribute to improving the internal audit function.There are the list of characteristics and the roles which internal auditors believed that an audit committee needs to possess or undertake in order to meet such a responsibility. Have in-depth knowledge and experience in the industry. Have appropriate financial knowledge (preferably, an accounting/auditing qualification) Be able to communicate and share their ideas with internal audit staff and other members Promote a culture that supports ‘honesty’, ‘professionalism’ and ‘respect’

33. Managers would be less willing to question their superiors and a more willing to be led or guided by their superiors. In addition, some internal auditors also perceived that a more broad-based audit committee will better contribute to the internal audit function. **Audit committee is highly to be effective in improving control system weaknesses and the overall company decision making.

34. In addition, we will also discuss anotherissue regarding the role of shareholders in the corporate governance process and the good and bad news about shareholder avenues for involvement

35. The Role of Shareholders (a silenced partner) In the Corporate Governance Process… • There are several findings regarding this issue which have encountered by shareholders dealing with managements, whose actions are violating their fiduciary duty.

36. 1) Selling the stock is always an option • Referred to as “Wall Street Rule” • But, decision includes COST • “Avoidance strategy” is unlikely to effect any changes in the management’s behavior

37. 2) Bring the company to court • Suits against corporate board of directors • Many suits have been settled out-of-court • Director wants to avoid expenses of pursuing full trial and negative publicity • However, both ways, by bringing the company to court or even settling out of court, is a lengthy and costly

38. Contd… • Difficult to find lawyer willing to accept risky cases • Thus, shareholder grievances never become suits • Shareholders never make it beyond the client-lawyer

39. 3) To wage a proxy battle • shareholder solicits support from fellowshareholders by issuing his own proxy statement • only few individual stockholders can afford this line of recourse • even if the shareholders could afford a proxy battle, only a 1/3 chance of winning

40. 4) Submit a shareholder resolution • been hailed as an excellent means for shareholders to participate in the corporate governance process without imposing huge financial burdens.

41. Contd… • Some important things to be considered by shareholders.. • First, their resolution is limited in terms of its length and subject matter • Second, management review shareholder proposals before their appearance in the proxy and then appeal to Securities and Exchange Commission (SEC) for permission to omit them.

42. Contd… • It has severe limitations.. • The proposals might not make it to the proxy stage • Even if it is printed in the proxy, it is unlikely to pass to next stage.

43. CONCLUSION(issue 1-3)

44. Such evidence is important for improving audit practice and better corporate governance. • In turn, such a study has the potential to assist regulators and organizations to set up guidelines that are more effective in ensuring proper channel communications and interactions between the internal auditor and the audit committee.

45. Conclusion (issue 4) • Shareholders MUST make the FIRST step; cannot expect management to lead the way in order to increase their involvement in the corporate governance process.

46. THANK YOU