Corporate Governance

BBBD 3014
Lecture 10
Disclosure and reporting
▶ Declaration of interests
▶ Legislative disclosure
▶ Disclosure under Listing
Requirements
Declaration of interests
▶ Sec 221: Disclosure of interest in contracts, proposed
contracts, property, etc.
▶ every director of a company who is in any way,
whether directly or indirectly, interested in a contract
or proposed contract with the company shall, as soon
as practicable after the relevant facts have come to
the director’s knowledge, declare the nature of his
interest at a meeting of the board of directors.
▶ Sec 222: Interested director not to participate or vote
General Duty to make disclosure
219. (1) A director of a company shall within 14 days give
notice in writing to the company:
▶ of the particulars relating to the shares, debentures, participatory
interests, rights, options and contracts as are necessary for the
purposes of compliance with section 59 by the company;
▶ of particulars of any change in respect of the particulars referred
to in paragraph (a) of which notice has been given to the company
including the consideration, if any, received as a result of the event
giving rise to the change; and
▶ of such events and matters affecting or relating to himself as are
necessary for the purposes of compliance with the requirements
of this Act by the company.
Statutory duties of directors
▶ S. 135 - is a general duty to make disclosure of share and the director is required to disclose the
following:
 
◦ particulars of such interest in shares or debentures;

◦ particulars of any changes in the interests mentioned above . Particulars as are necessary for maintaining the
register of directors;

◦ in the case of a director of a public company or subsidiary of a public company the date on which he attained or
will attain the age of 70 years.
 
▶ S.167 - duty to ensure that the accounts are properly prepared and present at the AGM a profit and
loss account and balance sheet showing a true and fair view of the company’s financial position
together with statutory director’s report.

▶ S.167A - provide that the board of directors of a public company or a subsidiary of a public
company must set up a system of internal control to ensure that the company does not suffer loss
through the unauthorized use of its assets and that proper records are maintained to ensure that
the assets are properly accounted for.
▶  
▶ S.171(1) - all directors are required to take reasonable steps to ensure that the company complies
with the provisions of the Act regarding the account.
Related party transactions
▶ Related party transaction – to ensure that the company
fully discloses material information regarding related party
transactions to the market, either individually or as a
group, including whether such transactions are executed at
arms-length and on normal business terms.
▶ Examples include:
◦ Acquisition, disposal or leasing of assets;
◦ JV agreements;
◦ Financial assistance;
◦ Providing services;
◦ Any business transactions or arrangements by the company or its
subsidiaries.
Related party transactions
Note: Bursa Malaysia’s requirements relating to related
party transactions.
▶ Paragraph 10.08 of the Listing Requirements stipulates
the obligations that a listed issuer must comply with in
relation to a related party transaction
Related Party Transaction
▶ Bursa Malaysia’s Listing Requirement:
◦ A transaction entered into by a company or its subsidiary
which involves the interest, direct or indirect, of a related
party i.e., a director, major shareholder or person connected
with such director or major shareholder. Interest here means
– refer to para 10 BMLR.
Disclosure under Bursa Malaysia’s
requirements
▶ The Bursa Malaysia’s Corporate Disclosure
Guide provides guidance on several critical
areas, including:
◦ Having a corporate disclosure policy
◦ Making immediate disclosure of material
information
◦ Making quality financial disclosures
Disclosure under Bursa Malaysia’s
requirements
▶ Bursa Malaysia’s CG Guide on the other hand
provides:
◦ For the disclosure of directors’ remuneration in
the company’s annual report;
◦ Regarding the nominating committee’s activities
Disclosure
▶ Full disclosure of all related party transactions and full
compliance with periodic reporting and financial disclosure
requirements is essential.
▶ Management should make sure that all related party
transactions have been thoroughly and carefully reviewed
by the audit committee and reported to the board.
▶ The audit committee should regularly review submission of
disclosures on the directorships and shareholdings held by
directors of the company and persons connected with
them as well as if possible substantial shareholders.
Related party transactions
▶ The audit committee is tasked under Paragraph 15.12(h) of the Listing
Requirements to review and report to the board any related party
transactions (including recurrent related party transactions) and conflict of
interest situations that may arise within the company or group. This includes
any transaction, procedure or course of conduct that raises questions about
management’s integrity. The audit committee should ensure that the
transactions are carried out on normal commercial terms and are not
prejudicial to the interest of the company or its minority shareholders.
▶ Paragraph 1.01 of the Listing Requirements defines a related party as a
director, major shareholder or person connected with such director or major
shareholder.
▶ Note the various persons who are included in the definition of a related party
under Chapter 10 of the Listing Requirements.
Framework for reporting related party
transaction or conflict of interest issues
▶ The audit committee should ensure that management
establishes a comprehensive framework for the purposes
of identifying, evaluating, approving reporting and
monitoring such situations and transactions.
▶ The audit committee should also ensure a proper
framework is put in place to bring such related party
transactions and conflict of interest situations to its
attention by directing management to establish
appropriate controls and by way of regularly reporting to
the audit committee.
 Conflict of interest
▶ Conflict of interest may arise when persons connected with a director and / or
shareholder has the opportunity to influence the company’s business or other
decisions in ways that could lead to personal gain or advantage of any kind.
▶ Situations likely to give rise to conflicts of interest include the following:
(a) where the interested party has interest in a business that competes or is
likely to compete, either directly or indirectly, with the business of the
company or its subsidiaries (collectively “the group”);
(b) where the interested party conducts or has interest in business transactions
involving goods or services, either directly or indirectly, with the group;
(c) where the interested persons provide or receive financial assistance from the
group; and
(d) where the interested persons lease property to or from the group.
Related Party Transaction
▶ Was there full & frank disclosure?
◦ Conflict of interest
◦ Chapter 10 of Bursa M’sia’s Listing requirements -Disclosure to:
⚫ The board (independent); AND
⚫ The shareholders
⚫ For PLCs – Bursa Malaysia
▶ Has the board considered whether the transaction is in the
best interest of the company?
▶ What are the views of the independent NEDs?
▶ Did the director concerned vote on the resolution?
Related Party Transaction
▶ Why is related party transaction illegal & discouraged?

▶ Recommendations to avoid related party transactions

◦ Establish an audit committee - ensure the audit is conducted
according to accounting standards (MASB).
◦ Accurate reporting
◦ External auditor – audit plan, risk management
Insider Trading
▶ Who is an insider?
▶ What is ‘material information’?
▶ How is insider trading carried out?
▶ Why is insider trading illegal and discouraged?
▶ Offences that can be committed under CMSA 2007.
▶ Recommendations to overcome insider trading