SINGAPORE (Nov 11): As the regulations on Malaysian independent directors turn more stringent, corporate executives are increasingly less willing to take up the fiduciary duties, especially when the fees are small.
“Getting paid as little as RM10,000 [$3,285] to RM20,000 a year with harsh new penalties for independent directors are putting many people off from taking up the role,” one independent director tells The Edge Malaysia.
“The onus on independent directors has increased over the last five years, so much so that those who actually blow the whistle often have a large interest in the firm. They have a lot to lose [if they do not flag questionable deals].”
A former independent director notes that independent directors can also be sued by shareholders for not protecting their interests.
“I would not take up any appointment as an independent director unless I know the credibility and history of the management of the company,” he says, pointing to the example of London Biscuits.
In May, London Biscuits reported a doubling in net profit for the first half ended March 31, only to slip into Practice Note 17 status two months later after it defaulted on a RM9.83 million debt to The Bank of Nova Scotia.
Its chairman, Liew Kuek Hin, and two independent directors — Leslie Looi Meng and Cheong Siew Kai — have quit their positions since the PN17 categorisation.
According to London Biscuits’ 2018 annual report, its six-member board of directors had three independent directors, including Looi and Cheong.
“Independent directors are now clearly taking their responsibility more seriously than ever before simply due to the requirement of the market as well as changes in the regulatory environment,” Kasturi Nathan, head of governance and sustainability at KPMG in Malaysia, tells The Edge Malaysia in an interview.
“For example, there is the new corporate liability provision in the Malaysian Anti-Corruption Commission Act 2009 under Section 17A that comes into force in June 2020. This is a draconian law that drives ethical leadership for all directors. It states that board members can be liable if any employee commits a corrupt act.”
The offence carries a penalty of at least 10 times the value of the gratification or RM1 million, whichever is higher, or imprisonment of not more than 20 years, or both.
Kasturi agrees that it is increasingly difficult to find qualified independent directors. “The responsibility for directors to be relevant in the business is on the rise. Clearly, the job is no longer cushy. It is a task.
“It goes back to how companies are increasingly required to be more transparent and more objective in demonstrating their board performance. You will be surprised that family-owned companies have been more forthcoming with their disclosure,” she says.
“As we engage in a one-to-one discussion with these family-owned boards, they are more likely to undertake a robust board evaluation process and improve where required simply because they believe in the substance of the outcome. Why? This is driven very much by the market. You increasingly find investors, customers and suppliers demanding that directors, senior management or owners of companies demonstrate how they address strategies and risks, and explain performance or measurement plans to manage the risks.”
In its Malaysia-Asean Corporate Governance Report 2018, the Minority Shareholders Watch Group says between 2017 and 2018, there had been an increase in the average remuneration for executive and non-executive directors with increasing responsibilities, time commitment and risk.
A quick look at the top 20 highest paid CEOs listed in the Securities Commission Malaysia’s Corporate Governance Monitor 2019 reveals that Genting’s independent directors were paid fees ranging from RM13,000 to RM162,000 last year while at Genting Malaysia, independent directors were paid between RM127,000 and RM177,000.
Sapura Energy was more generous to its non-executive directors, paying between RM285,000 and RM950,000 last year.
At government-linked companies, Malayan Banking paid its non-executive directors fees of between RM403,750 and RM610,000 for 2018 while those of CIMB Group Holdings received fees of RM170,000 to RM890,000.
Non-executive directors at IHH Healthcare were paid fees of between RM295,000 and RM832,000, while independent directors at Telekom Malaysia received between RM180,000 and RM363,833 in fees and allowance received from subsidiaries last year.
In the same year, independent directors received fees ranging from RM365,000 to RM428,000 from Public Bank, RM163,000 to RM200,000 from IOI Corp and RM340,020 to RM486,632 from Maxis.
