Corporate Governance: Theory and Some Insights into the Malaysian Practices

The objective of this article is to explain what is Corporate Governance (CG) and together with some insights on the trends and development of corporate governance in Malaysia since the 1997-1998 financial crises. This article discusses briefly the various participants in CG, and focuses on CG mechanisms, ownership and control, and the agency problem, the board of directors, corporate transparency, ethics, and social responsibilities, investor relations and shareholder activism. The board of directors as the agent of the owners have been identified as the key mechanism in ensuring that sound CG is in place. In terms of Malaysian corporate practices, among others, the Malaysian Code of Corporate Governance was introduced in March 2001, giving particular attention in areas concerning board practices. Other key changes seen were the strengthening of accounting standards in 1997 via the establishment of the Malaysian Accounting Standards Board (MASB) under the Financial Reporting Act 1997 (FRA) as well as the enhancement of practice notes by Bursa Malaysia (BM). The regulatory authority also undertook a review of Securities Industry Act 1983, in particular, the Take-Over Code (TOC) via its amendment in 1999.