Study of the Malaysia Code of Corporate Governance 2012

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1. Do you agree with the above statement in light of the Malaysian Code of Corporate Governance 2012

1.1 Critical thinking about the statement

I do not agree with the statement that “rules to be developed must be workable” and “a balance between the benefits to the market and the cost of compliance” should be kept. In making this judgment, I am holding a deontological perspective. As known to us, deontological (duty-based) ethics are concerned with what people do, not with the consequences of their actions, I believe some wrong doings are intrinsic, or resides in the kind of action that it is, rather than the consequences it brings about. In particular, when it comes to the case of setting the rules and laws for business and for people to follow, such regulations should be sacred and their honor would be discounted if they are negotiable. There are three major disadvantages of enacting workable rules: first of all, if rules setting should take into important considerations from market players, majorly the business entities, which means that the business companies could influence the rule setting which in return regulate their own business practice, in this rationality, based on the fact that business firms would tend to strive for their own optimized interests, it is within our anticipation that the rules set finally would only have limited restrictions over the companies’ frequent wrongdoings because the ban of such behaviors will damage the interest of the companies; secondly, the cost of compliance will not be unchanged with time passes. One of the key points that the Commissioner Paul S. Atkin from the United States Securities and Exchange Commission held is that the cost of compliance should be considered. But the fact that most compliances costs will not be unchanged with time passes actually fights back this point of view. For example, if let us say, the relevant department of a government request the listed companies to enact their own code of ethics and implement according to the code of ethics. It is true that it takes time and money for the enactment of the code of ethics and also time and money for the implementation of the code of ethics, but let us look at several years ahead, the code of ethics could still be same because ethical principles tend to sustain for a long period of time and in addition employees would be familiar with the regulations and thus cost of compliance could be large reduced and controlled. Thirdly, everything comes at a cost, even for the promotion of good corporate governance practices, what is more, it takes time for the reflection of the benefits of the new rules and it is too early to say that the “negative effects” will definitely be more than the “positive effects”. In the following, we will refers to the case of Malaysia Code of Corporate Governance 2012 to see how the rules could be made and promoted to encourage good corporate governance.

1.2 Study of the Malaysia Code of Corporate Governance 2012

The Malaysian Code on Corporate Governance 2012 (MCCG 2012) introduces a broad range of principles, best practices and recommendations aimed at enhancing the board effectiveness of listed companies. MCCG 2012, which takes effect this year, seeks to instill a culture of good corporate responsibility that increases both competition and shareholder confidence ( 2012). The Malaysian Code on Corporate Governance 2012 (MCCG 2012) upholds 8 principles and together with a number of recommendations and best practices the new code seeks to foster greater corporate governance. The new code sets higher expectation for the management and directors which is said in the preface by Tan Sri Zarinah Anwar, that the “boards and the management must be mindful of their duty to direct their efforts and resources towards the best interest of the company and its shareholders while ensuring that the interests of other stakeholders are not compromised. Disclosure and transparency are essential for informed decision making. The timely availability of quality and accurate information including the reporting of financial performance are key facets of investor protection and market confidence” ( 2012). For example, the fifth principle is that “the board should ensure the financial statement are a reliable source of information”, in detail the code provide guidelines for the audit committee to make sure the professionalism and independence of the external auditors. The well explained duty of the audit committee has contribute to the clear responsibility of the relevant parties. And in my understanding, though these rules are difficult to be implemented, and there could also be compliance cost, it would still worth promoted because it basically and fundamentally reject the financial statements that contains false and creative financial information.