9 Years Tenure for Independent Directors

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1 Chua Siew Chuan,FCIS President The Malaysian Institute of Chartered Secretaries and Administrators 9 Years Tenure for Independent Directors Implementation & Challenges

2 Malaysian Corporate Governance Journey Malaysian Code on Corporate Governance ( the Code ) Revised Malaysian Code on Corporate Governance ( the 2007 Code ) Malaysian Code on Corporate Governance 2012 ( MCCG 2012 ) Released by Securities Commission Malaysia

from any business or other relationship which could interfere with the

3 definition Independent Directors Para 1.01 Main LR means a director who is independent of management and free from any business or other relationship which could interfere with the exercise of independent judgement or the ability to act in the best interests of an applicant or a listed issuer.

4 Independent Directors prescribed number Para 15.02(1) Main LR at least 2 or 1/3 of board of directors must be independent directors

5 Minimum 3 Composition of Board Committees Audit Committee all non-executives, majority INEDs Para Main LR Nominating Committee No minimum all non-executives, majority INEDs Para 15.08A Main LR

6 MCCG 2012 Recommendation 3.2 The tenure of an independent director should not exceed a cumulative term of nine (9) years. Upon completion of the nine years, an independent directors may continue to serve on the board subject to the director s redesignation as a non-independent directors

7 MCCG 2012 Recommendation 3.3 the board must justify and seek shareholders approval in the event it retains as an independent directors, a person who has served in the capacity for more than 9 years

8 Rationale? Long tenure can impair independence For this reason, tenure of INED be capped at 9 years * Consecutive service of 9 years or cumulative service of 9 years with interval. MCCG 2012

9 Why 9 years? Average tenure limit for INEDs of financial institutions in other jurisdictions is 9 years Study by INSEAD Business School on 2,000 companies Conclusion: Optimal average tenure of INED: 7 to 9 years Accumulate the benefits of company-specific knowledge without the cost of entrenchment

Directors Questions Board should consider when extending the 9 years tenure Are we short of Independent directors Has the board identified the skills required in terms of expertise, background and

10 Directors Questions Board should consider when extending the 9 years tenure Are we short of Independent directors Has the board identified the skills required in terms of expertise, background and types of personalities? Has the board ensured that a wide net has been cast to search for independent directors? Does the director understand the business/industry of the company? Can the director work as part of the board? Can the director work effectively with a diverse group of people can he disagree without being disagreeable? Does the director demonstrate a high level of integrity and honesty? Is the candidate able to commit sufficient time to discharge board duties

11 Tenure of Independent Directors (Years) Spain France United Kingdom Hong Kong South Africa Malaysia Singapore South Africa Hong Kong United Kingdom France Spain Singapore Malaysia Source: SC s Corporate Governance Blueprint 2011

12 What s next, if tenure of an INED exceeded 9 years Alternative Recommendation 3.2 Re-designation as a Non-independent director Recommendation 3.3 Obtain shareholders approval to continue as INED on an annual basis MCCG 2012 Retirement from Office at the end of AGM

13 ? Results of Implementation

Bursa Malaysia s review of 300 listed companies 2012 2013 annual reports Finding: 165 out of 300 listed companies (55%) retain at least one INED beyond the 9 year tenure Retain of INEDs beyond the 9

14 Bursa Malaysia s review of 300 listed companies annual reports Finding: 165 out of 300 listed companies (55%) retain at least one INED beyond the 9 year tenure Retain of INEDs beyond the 9 year tenure 55% 60% 50% 40% 30% 20% 6% 10% 0% Provide some form of justification and seek shareholders' approval Did not seek shareholders' approval Source: Bursa Malaysia s Analysis of Corporate Governance Disclosures in Annual Reports (Released in December 2014) Annual Reports

9 years Percentage of top 100 Malaysian companies that have directors over 9 years on

15 MSWG s findings for 2014 on top 100 co. Finding: Nearly half of top 100 Malaysian companies retain INEDs who had served over 9 years Percentage of top 100 Malaysian companies that have directors over 9 years on board 46% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 34% 38% Source: MSWG s 2014 survey on top 100 Malaysian companies

16 MSWG s findings for 2014 on 873 listed co. Finding: More than half of 873 listed companies have directors over 9 years on board Percentage of 873 listed companies that have directors over 9 years on board 54% 53% 54% 52% 50% 47% 48% 46% 44% 42% Source: Malaysia-Asean Corporate Governance Report 2014

17 MSWG s findings for 2014 on 873 listed co. Finding: 291 out of 873 companies had a term limit of 9 years or less for its INEDs in 2014 Percentage of 873 public listed companies in Malaysia that have a term limit of 9 years or less for its INEDs 33% 33% 35% 30% 25% 20% 15% 10% 5% 0% Source: Malaysia-Asean Corporate Governance Report 2014

18 MSWG s findings for 2014 on 873 listed co. Finding: Average tenureship of INEDs in 2014 is 7.2 years Average INED tenureship (Years) Source: Malaysia-Asean Corporate Governance Report 2014

MSWG s Observation Finding: Since the introduction of MCCG 2012, MSWG noted the following:- INEDs have been INEDs tenure re-elected over exceeded 9 the 9-year limit years to the without strong extent

19 MSWG s Observation Finding: Since the introduction of MCCG 2012, MSWG noted the following:- INEDs have been INEDs tenure re-elected over exceeded 9 the 9-year limit years to the without strong extent of 20 or justifications 30 years No resolutions were proposed for re-elections Multiple number of INEDs who have exceeded the limit were being put up for re-election simultaneously Source: The Observer, Message from the CEO of MSWG dated 29 May 2015

United Malacca Berhad (Company No V)

United Malacca Berhad (Company No. 1319-V) Minutes of the 104th Annual General Meeting held at the United Malacca Berhad Building, 6th Floor, No. 61, Jalan Melaka Raya 8, Taman Melaka Raya, Melaka on Friday,