Vincent Duhamel State Street Global Advisors March 2003

1. 5th OECD Asian Roundtable on Corporate Governance:Developments In Malaysia – The Private-Sector Perspective Vincent Duhamel State Street Global Advisors March 2003

2. Agenda • Company and market valuation • Legal, regulatory, and supervisory framework • Shareholder rights and participation • Role and responsibility of institutional investors

3. Corporate Governance Structure • Corporate governance: • asystem of checks and balances designed to produce efficient corporations that deliver long-term value • Arm’s length model: • depends upon checks and balances between management, boards, majority and minority shareholders and enforcement of shareholder and creditor rights • Relationship model: • governance exercised by controlling block-holders; minority shareholder rights and role of independent board directors are weak

4. Impact on Company Valuation • Relationship-oriented companies and markets: • lack effective risk oversight • have ineffective mechanisms for shareholders to assess or influence management • may be perceived as disregarding consequences of underperformance or failure of good governance • Investors increasingly link corporate governance with stock valuations and cost of capital/risk premiums for firms and emerging markets • companies that follow international standards for governance are considered worth 20% more than companies lacking such standards • corporate governance weaknesses erode shareholder value and jeopardize investor rights • addressing weaknesses can dramatically increase investor interest

5. Legal, Regulatory, and Supervisory Framework • Prior to 1997 financial crisis, Malaysia took steps to strengthen corporate governance: • rules for independent directors, audit committees, shareholder election of directors • Securities Industry Development Centre established • Financial crisis highlighted importance of good corporate governance -- led to increased regulation: • Quarterly financial reporting; adoption of International Accounting Standards • New disclosures, corporate board requirements under Malaysian Code on Corporate Governance • Revamped KLSE listing requirements, mandatory director training for listed companies • Limits to insider trading, dealings by directors and substantial shareholders, voluntary suspension of share trading

6. Malaysian Corporate Governance: A Moving Target • Many improvements are being made… • increased partnership between government and private sector with greater separation of ownership and management • authorities pressuring boards to respect shareholder interests • effective legal system and adequate legislation protect private property • unique system for training directors • . . . But problems persist • concentrated ownership • corporate attitudes undervalue transparency, accountability and integrity • lack of division between politics and corporate sector • Mind-set of shareholder passivity

7. Shareholder Rights • “Best practice” requires shareholder rights to participate in corporate strategic decision-making • Malaysia has good track record protecting shareholder rights and complies with many best practice standards, e.g.: • All shareholders entitled to attend AGM and vote or appoint proxies • Meeting and proxy information conveyed in timely manner • Re-registration of shares into beneficial owners’ names not required • Shares being voted are not blocked for trading • Responsibilities of depository bank for ADR shares are clear • Split voting is possible • Issuers cannot reject votes if full compliance with voting requirements

8. Shareholder Participation • Level of participation by minority shareholders in corporate governance remains relatively low: • Corporate governance historically dominated by majority investors • Changing entrenched or traditional practices is a slow process • But shareholder participation beginning to grow: • foreign investors imposing demands and pressures • local investors considering how they can exercise their rights • large institutional investors realize they can wield substantial influence • Organizations like the Malaysian Institute of Corporate Governance contributing to training and education • Minority Shareholder Watchdog Group– Badan Pengawas– working to unite minority shareholders and raise governance standards

9. Role and Responsibility of Institutional Investors • Institutional shareholders have right and duty to exercise influence on company value • Investment managers must uphold duty of care and loyalty to beneficial owners to add value and protect interests • SSgA’s corporate governance philosophy and process • “sacred trust” to ensure that clients receive best possible return on investments within acceptable level of risk • vote proxies in best economic interest of the owners, always considering cost-benefit trade-offs • set and follow proxy voting principles and procedures • maintain “open door policy” to encourage discussion; be responsive to requests from companies and shareholders to consider issues of concern • make and act on decisions through investment committee, proxy voting service unit, and thorough decision making process

10. How Investors Can Effect Change • Shareholder activism • Relationship investing • Quiet diplomacy • Proxy voting • Engage in dialogue with government, regulators, stock exchanges, trade associations, and self-regulatory bodies • Adopt best practice policies and standards and communicate them to the market

11. Conclusion • Good corporate governance: • Embraces accountability and transparency • Enhances perceived integrity of management and board • Has tangible positive effects on value of a company’s stock • Is an important factor for investors in evaluating opportunities • Investors recognize improvements made by government, regulators and corporations but challenges remain: • Convergence in regulations, attitudes and pressure from institutional investors and shareholder groups must continue • Strong supervision and enforcement of new standards essential for success • Market “state of mind” must firmly recognize and put into practice the precepts of accountability, transparency and integrity

12. Thank you