MGM4136CURRENT ISSUES AND

MANAGEMENTCorporate Governance

LECTURER:

PUAN RUHANA BT HAJI BUSU

Prepared by:

Wong Yoke Pui 147722Seow Fun Yin 147836Oh Shiek Ching 147839Lee Inn Hui 147968Ngor Siew En 150114

Definition

Corporate governance is an internal system that encompasses polices, processes,

people, and makes sure the needs of shareholders and other stakeholders are met in

full. This will be accomplished by directing and controlling managing activities using

good business practices, objectivity, accountability and integrity. Effective corporate

governance relies on external marketplace commitment and legislation, plus a healthy

board culture which safeguards policies and processes.

Why does corporate governance important

Corporate governance is a key element in enhancing investor confidence,

promoting competitiveness, and ultimately improving economic growth. Good corporate

governance helps to prevent corporate scandals, fraud, and potential civil and criminal

liability of the organization. A good corporate governance image will enhances the

reputation of the organization and makes it more attractive to customers, investors,

suppliers and, contributors of nonprofit organizations. It is aims to protect shareholder

rights, enhance disclosure and transparency.

Good Corporate Governance

Good corporate governance will ensures the accountability of certain individuals such as

reduce or eliminate principal-agent problem, achieve an a locative efficiency likes ensure

investors receive adequate return and guideline on how company is managed or governed

such as eliminate undesirable behavior and reduce unethical behavior.

Eight characteristic of good governance

1. Participation

Participation by both men and women is a basis of good governance. Participation

could be either direct or indirectly. Indirectly means participation through legal

intermediate institutions or representatives that represent their interests.

Participation is a method whereby policy making, prioritizing issues, convenience

to public goods and services and also allocating resources that unfair by

stakeholders. It varies from one context to another and subject to different kind of

projects and visions.

2. Rule of law

Good governance require laws, regulations and codes of conduct should be fair

and enforced impartially, particularly the laws on human rights. The helpful ways

of tackling weak governance is to look at the disconnection between institutions

within the broader governance environment as well as the scope of operation of

the public in common. The availability of information is critical to good

governance. Access to information and the promotion of practical rights provide

an enabling framework where accountability and improved delivery could

enhance institutional changes.

3. Transparency

Transparency means that decisions taken and their enforcement are done in a way

that follows rules and regulations. It also means that information is freely

available and directly open to those who will be affected by such decisions and

their enforcement. It also means that enough information is provided and that it is

provided in easily understandable forms and media. It promotes openness of

government action, decision-making processes, and consultative processes among

public sector and all stakeholders.

4. Responsiveness

Institutions and processes try to serve all stakeholders quickly or within a

reasonable timeframe.

5. Consensus oriented

There are many different point of views in a society or a community. A good

governance should take into consideration each stakeholder members’ opinions

and benefits to reach a broad consensus on what is the best interest of the group,

on policies and procedures. Reaching a consensus in any decisions could be done

by practicing serious consideration of every stakeholder’s opinion. This does not

only seek agreement of the majority, but also to resolve the objections of the

minority with the ultimate goal to achieve the most agreeable decision. In other

words, grassroot democracy shall be achieved. A deep understanding of the

historical, cultural, and social contexts of a given society or community could be

the foundation towards a consensus oriented governance.

6. Equity and inclusiveness

A society’s well being depends on ensuring that all its members feel that they

have a stake in it and do not feel excluded from the mainstream of the society.

This requires all groups to have opportunities to improve or maintain their well

being. It includes designing mechanisms, policies, or processes that are fair for all

stakeholder members where each and every one of them is given equal chance to

reach the state of good welfare.

7. Effective and efficient

Good governance means that the processes and institutions produce desirable

results that meet the needs of the society, while putting the resources at their best

use. Being effective which means providing what the community needs, in which

would increase the community’s welfare. In the context of instilling efficiency in

good governance, usage of natural resources should be sustainable and at the

same time, to protect the environment.

8. Accountability

Accountability is the key requirement of good governance. Not only

governmental institutions but also the private sector and civil society

organizations must be accountable to the stakeholders and public. Who is

accountable to whom varies, depending on whether the decision/action is internal

or external to an organization. It acts as a means towards the development of more

efficient and effective organizations. So how accountability comes into the picture

in ensuring the positive impact being brought to the community? As an example,

politicians and public servants are given enormous power through the laws and

regulations they implement, resources they control, and they organizations they

manage; and accountability is a way to ensure that this power is used

appropriately and in accordance with the public interest. In general, an

organization is accountable to those who will be affected by its decisions or

actions, and it’s important to practice transparency in order to enforce

accountability in organizations.

Advantage of Corporate Governance

Corporate governance practices leads to a better system of internal control, thus

leading to greater accountability and better profit margins.

Good corporate governance practices can pave the way for possible future

growth, diversification, or a sale, including the ability to attract equity investors

either nationally or abroad.

Better corporate governance can also provide shareholders with greater security

on their investment.

Better corporate governance also ensures that shareholders are sufficiently

informed on decisions concerning fundamental issues. For example, when a

company amendments of statutes or articles of incorporation, it will inform the

shareholders.

It was found out that more than 84% of the global institutional investors are

willing to pay a premium for the shares of a well-governed company over one

considered poorly governed but with a comparable financial record.

Disadvantage of Corporate Governance

Costs of Monitoring

--- To effectively govern a publicly traded corporation, shareholders must speak

with one voice and have enough votes to allow that voice to have any real weight.

This requires individuals that have a collective vision for the company to pour

more money into that company to gain a controlling share. This process can be

highly political, since controlling shareholders that sense a hostile takeover may

attempt to buy up more shares to stay in power and keep the minority party silent.

Corporate governance at this level could grind to a halt, driving stock prices lower

and hindering a corporation's ability to make smart business decisions.

Family-Owned Companies

--- Corporate governance works at its best when shareholders and board

members are able to make objective decisions that are in the best interest of

the company. For example, Ford and Wal Mart lose objectivity in business

making decisions due to the family's financial investment in the business'

performance and the emotional ties associated with building a worldwide

corporation from the ground up.

Current issues

Case 1: Port Klang Free Zone (PKFZ) Scandal

Port Klang Free Zone scandal had been exposed since early of August 2007, but

the police and the Malaysian Anti-Corruption Commission spent about three years to

charge several people including former Transport Minister Tun Dr Ling Liong Sik with

cheating the Malaysian government by misleading the Cabinet on the land acquisition for

the Mega Distribution project in Port Klang.

Dr Ling is accused of dishonestly hiding the fact that the valuation by the

Valuation and Property Service Department, Ministry of Finance. According to the

charge, the fraud was committed with the knowledge that he could cause a loss to the

Malaysian government, where he had an interest in the transaction pertaining to the fraud

and he was bound under the law to protect it.

Parliament is entitled to know what were the reasons which caused the PKFZ land

question, which has landed the country with a RM12.5 billion PKFZ scandal. It noted that

three months after the formation of the Super Task Force, several people were charged

for their alleged role in the PKFZ scandal. The Ministry of Transport also said that they

will make sure the PKFZ scandal will be clearly and hoping that corruption is being

checked and justice is being restored. The Port Klang Free Trade Zone (PKFZ) fraud not

only will bring bad effect to the country's economic growth, public trust, the market

economy and national control systems also constitute a threat.

In our opinion, PKFZ scandal is a serious misappropriation issue. has been

involving more and more people. But as Malaysian, we are more concerned about the

responsibility as its leaders are involved in the scandal, particularly when the scandal has

caused the country to lose so much money.

Although the task force's investigation report has identified the government

officials who has seriously violated the rules, but we were disappointed that the ministry

was not represented by any official who could shed light on the many unanswered

questions regarding the issue.

The RM12.5 billion Port Klang Free Zone (PKFZ) scandal as it represented a

major step backwards in public accountability and good governance. PKFZ’s

management should have known that the risk of misappropriation. PKFZ scandal caused

Malaysia’s has suffered the ignominy of the worst ranking and score in 15 years in

Transparency International (TI) Corruption Perception Index (CPI) .Therefore, good

corporate governance is very important helps to prevent corporate scandals, fraud, and

potential civil and criminal liability of the organization.

Case 2: Sime Darby suit against ex CEO and two others over Bakun

project

A recent news report states that there major projects in the sector of Sime Darby,

due to improper management of these projects led to repeated extension and cost

overruns, prompting the company to withstand up to RM 1.6 billion total loss last year.

For the coming six months, government is estimated need to allocate 900 million

provisions for the losses. Most of the losses are down to ill-advised investments in the

energy and utilities sector in Qatar as well as tardy business practices in the development

of the Bakun dam in Sarawak.

The Bakun Dam project at Sungai Balui, Sungai Rejang, Sarawak, is the largest

hydropower project in Malaysia. Sime Darby is in the midst of preparing for a civil suit

against those responsible for the company losses. Thus, Sime Darby Bhd and its three

subsidiaries have filed another civil suit against its former group chief executive Datuk

Seri Ahmad Zubir Murshid and two others for restitution of RM90.5mil relating to the

Bakun Dam project. The other two defendants are former head of the group’s energy and

utilities (E&U) division, Datuk Mohamad Shukri Baharom, and former E&U division

chief financial officer Abdul Rahim Ismail. This case reflects very badly on the

management and corporate governance of Sime Darby that lead to the losses.

In our opinion toward this case, Sime darby failed to comply the principles

of corporate governance that caused to the losses. Sime Darby management tried to hide

the losses incurred in Qatar and Bakun. The amount for cost over-runs of the projects was

much higher.

We think that Sime Darby not only against the principles of good governance but

also breached the various laws. We are also questioned how plantation-based Sime Darby

could post such huge losses when it enjoyed financial and political support from the

government. It also need to highlight that faulty corporate governance and risky

investments as factors behind Sime Darby’s historic losses.

The first rule of Corporate Governance is to have capable people who are also

competent and with integrity to manage a company. Malaysia need to take serious in the

selection of candidates to take the responsible. Besides that, awareness towards

importance of corporate governance will improve economy performance in Malaysia.

References

http://en.wikipedia.org/wiki/Corporate_governance#Principles

http://www.corporategovernancedefinition.net/

Topics/Corporate_governance/An_overview_of_corporate_governance

http://www.gdrc.org/u-gov/doc-oecd_ggov.html#Accountability

http://siteresources.worldbank.org/PUBLICSECTORANDGOVERNANCE/Resources/

AccountabilityGovernance.pdf

http://www.unescap.org/pdd/prs/ProjectActivities/Ongoing/gg/governance.asp

http://www.metagora.org/training/encyclopedia/governance.html

http://www.reform.gov.bb/page/GOOD_GOVERNANCE.pdf

http://www.swview.org/blog/seven-characteristics-corporate-governance

http://www.malaysia-today.net/mtcolumns/letterssurat/33654-who-is-at-the-root-of-the-

pkfz-scandal-tun-dr-ling-liong-sik-or-tun-dr-mahathir-mohamed

http://www.unescap.org/pdd/prs/ProjectActivities/Ongoing/gg/governance.asp

http://www.reform.gov.bb/page/GOOD_GOVERNANCE.pdf

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http://www.metagora.org/training/encyclopedia/governance.html

http://www.gdrc.org/heritage/tugi-culturalheritage.pdf

reference:

http://www.ehow.com/list_6523092_disadvantages-corporate-governance.html

http://www.ehow.com/list_6058186_benefits-corporate-governance_.html

http://www.bsse.sk/Content/EN/Issuers/Corporate_Governance.lst/mervyn_aj.htm?

LANG=EN

http://www.mysinchew.com/node/49174

http://pkfz-scandal.org/2009/12/11/pkfz-details-of-charges/

http://www.mysinchew.com/node/37925

http://www.mysinchew.com/taxonomy/term/87?page=2

http://www.sinchew-i.com/sciWWW/taxonomy/term/426?page=11

http://www.csrdigest.com/2010/05/sime-darby-probes-bakun-dam-losses/

http://www.themalaysianinsider.com/malaysia/article/pakatan-questions-sime-darbys-

corporate-governance/