Executive Chairman of Kuala Lumpur Stock Exchange (KLSE) Dato' Mohd Azlan Hashim said regulations and requirements alone cannot promote excellent corporate governance and transparency without full and proper enforcement.
"Enforcement in turn by regulators alone, would be less than effective without the full support and co-operation of industry and market participants.
"In this regard, it must be emphasised that such enforcement will be undertaken in a fair, objective and consistent manner, and equally important, enforcement action taken must also be conducted in a timely manner.
Mohd Azlan was speaking at the International Conference on Corporate Governance - 'Trends and Challenges in the Millenium' in Kuala Lumpur.
Mohd Azlan said to ensure that the companies that continue to be listed are at least of a minimum quality, continuous listing obligations are prescribed for listed companies. Part of this requirement is for listed companies to have satisfactory financial condition under Practice Note 4/2001 (PN4).
Listed companies under PN4 are required to regularise their financial condition within a specified time frame. Since PN4 came into effect on 15 February 2001, 18 PN4 Companies have successfully regularised their financial condition.
Mohd Azlan said despite the ample time and opportunity given, some PN4 companies appear to be making very slow progress. It is hoped that these companies will be able to meet the specified timeframes, otherwise KLSE will have no choice but to effect enforcement action.
"In the interest of continuing investor protection and maintaining the quality of our markets, these affected PN4 companies will be subjected to the appropriate enforcement action of facing possible delisting procedures.
"KLSE will be announcing the full details for handling such affected PN4 companies very soon," he said.
For affected PN4 companies, the commencement of delisting procedures refers to only the initiation of the process of delisting. This does not equate to an automatic delisting of the securities of affected PN4 companies from the official list of the exchange.
With the commencement of these procedures, affected PN4 companies will be provided with an opportunity to make representations to the KLSE as to why their securities should not be delisted.
Mohd Azlan said for investors and shareholders of affected PN4 companies, it is important to note that upon delisting of a company, the company will continue to remain as a public company with existing shareholders.
"The business and commercial affairs of the company can continue. However, since the company is no longer listed, investors and shareholders will not be able to trade their shares on the KLSE.
"Despite being delisted, the company can still continue to regularise its financial condition and at the appropriate time, re-apply for a listing. This is provided the company satisfies the relevant conditions for listing and in particular, the guidelines on the issue/offer of securities by the Securities Commission," Mohd Azlan said.
Mohd Azlan added PN4 and the commencement of de-listing procedures are examples of the development of appropriate regulations and a comprehensive enforcement process in meeting the various objectives of ensuring continuing corporate responsibility, disclosure and investor protection, which leads to greater market confidence.
As at 25 October 2002, 97 public listed companies have been identified as PN4 companies or companies with unsatisfactory financial condition, out of a total of 860 companies listed on KLSE. This represents about 11% by number of companies but only about 1% by value compared to total market capitalisation. PN4 Companies' market capitalisation amounts to RM4.88 billion from KLSE total market capitalisation of RM483 billion as at 25 October 2002.
In his opening address, Mohd Azlan said one of the common notable developments in various jurisdictions, is legislative reforms and formulation of codes for corporate governance practices. In a recent survey by the World Federation of Exchanges (WFE), which account for almost all of global stock market capitalisation, 87% of member exchanges indicated that their country now has a code for corporate governance practices, an increase from 76% recorded a year earlier.
He added whilst many markets, including some of the developed ones, have only recently proposed changes to its listing standards to reflect these requirements, KLSE has already effected such, via the introduction of the new Listing Requirements launched in February last year. The Malaysian Code on Corporate Governance itself was introduced 2½ years ago in March 2000. Both have led to enhanced market transparency and corporate governance practices in Malaysia.
"What is crucial is uniformity in the exacting standards of corporate governance that provides a fundamental benchmark to guide and influence investment decisions. Corporate governance standards and practices are increasingly relied upon to assess risk, even accord premiums to investments.
"From a global perspective, corporate governance is now even seen as contributing to systemic stability in the capital markets, providing a form of early warning mechanism," Mohd Azlan said.
Mohd Azlan also stressed on the importance of continuing education and training in corporate governance for directors of public listed companies.
"Perhaps, it is in moments when the learning stops, that the spirit to do things right will diminish.
"It is also noted that the problem of governance initiatives of recent years, is that there is no consensus, at the starting point, on what boards are for, whom they should serve, and what distinguishes governance from management. Thus, it is important to realise that the board is the essential building block for governance to be based on - if the board is to be consistent and self-reinforcing.
"This is where educating the board on their role and responsibility is of tremendous importance. Thus, the premise for the KLSE view, that training for directors is essential. Hence for this reason, training for directors is prescribed as a mandatory requirement in the KLSE listing requirements," Mohd Azlan added.
Through the Research Institute of Investment Analysts Malaysia, KLSE's training arm, the Mandatory Accreditation Programme (MAP) for directors has been conducted over the last 18 months. To date, over 4,600 directors of public listed company have attended the MAP, representing 98% of the total 4,715 directors of public listed companies.
Opening the International Conference on Corporate Governance - Trends and Challenges in the Millenium, Mohd Azlan said it is important for both practitioners and academics to undertake more research work to analyse further the relationship between good corporate governance and disclosure, and the value this brings to companies, shareholders and investors. He said to ensure adoption and practical application, the work and research by universities on these matters should include latest corporate practices with a view of fine tuning and improving such practices.
"Increasing sophistication of investors, their demand for greater transparency and disclosure in capital markets, the market requirement for effective enforcement, investor protection and a level playing field - these are but some of the trends and challenges of corporate governance in the millenium," Mohd Azlan said.
