Asialaw:
What are the key challenges the commission is facing?
Our key challenge is to make sure that good corporate governance is an active part of Malaysian corporate culture. Our corporate culture is well-established and we want to attract foreign investors to come to Malaysia. We want to sell our expertise to foreign investors as well.
The greatest challenge all of right now for us is how the SSM will be able to assist the government in managing the impact of the global economic slowdown. We will come out with some type of stimulus package. We may also consider liberalizing some things, like the cost of starting business in Malaysia.
We ended our first five-year plan last year, from 2002 to 2008 and are in the process of formulating our second strategic direction plan. We will come out with the total plan at the end of this month. We have come out with eight strategies in ways we can make ourselves relevant nowadays. We want to become a world class registrar of companies.
What are the highlights of these strategies?
We want to drive towards a high performance culture. One of the most important things is employer competency skills, including managerial skills. We aim to improve this.
Crucially, we aim to initiate a legal framework toward fostering a business development environment, as well as develop an effective legal framework to protect shareholders and investors.
We must also uphold regulatory compliance and good corporate governance. One of our key functions is to enforce the law and the reason why we coined the term “balanced enforcement.” If we are too strict, we may kill the goose that lays the golden egg. Instead, we are to encourage them to lay many eggs, but we also have to have them lay these within certain parameters.
We must also enhance Malaysia’s domestic and global presence through strategic branding initiatives. We are still continuing to reposition ourselves to keep on creating and re-branding ourselves and putting ourselves in the category of a world class registrar.
We also want to strengthen our information technology. We are working toward delivering a reliable offering to stakeholders.
How do you execute these strategies?
We have come out with an action plan for each strategy. We have a monitoring system to advise us on these action plans and we have key performance indications and effective result indications to follow. We check on these daily, weekly, and monthly.
We are very serious about this because 2009 will not be an easy year. We have to make sure we take on all problems, convert them to opportunities and use them to enhance our function.
Are these initiatives exclusively Malaysian?
I haven’t come across these initiatives in other countries and we are a member of the corporate registrar forum. We recently made a presentation to other member countries and they were very appreciative to hear about these initiatives. For some of them it was their first time hearing and learning about these.
Can you expand on the concept of balanced enforcement?
The term was coined by us in 2006. One of the primary functions of the SSM is to enforce the law and the balanced enforcement philosophy says that everything we do ought to be well-balanced between regulatory and administrative action, and criminal sanction action.
Apart from creating an environment conducive to business, we also promote good corporate governance and good behaviour. This involves the power to impose penalties and give warnings. We decide whether or not a public or private warning is warranted with respect to any of the breaches committed which are not strong enough for us to justify taking them to court. So we can impose penalties or requirements for them to attend certain courses in our training academy to make them fully aware of their function and their responsibilities and obligations to comply with the law.
This is part and parcel with education and we have to tell them again our underlying philosophy. If they are doing business using the Companies vehicle, there is a philosophy behind this. We give them a limited liability, but in turn there are obligations from them to give us full disclosure about their whole company and to run the company with full corporate governance principles in mind. We have to make them aware. It doesn’t mean you can set up a company and do anything you like.
We want disclosure from you, we want these for people to know and see that the company is being managed in accordance with good practices, good corporate governance and in accordance with the law. Monetary penalties are there in order to prod you to understand your obligations. Sometimes, obligations without a little pain may not be felt.
Then there is criminal sanction. If you commit a serious offence under the act – fraud, for example, or you give the authorities misleading or false statements. These offences would seriously impair the reputation of the company and the country. These are the sort of cases we will bring to court as an example to punish them. It will also inform people who are considering doing the same that we are very serious about it.
How successful have compliance rates been?
In 2003, the compliance rate was 44%. I started enforcing the balanced enforcement approach in early 2006, and the compliance rate shot up to 80%. In 2007, we went up to 91%, and last year it was 94% compliance.
We have been so encouraged by this success and are aiming to get as near to 100% as we can. I don’t think we can get there though because there are so many family companies in Malaysia. These are private small companies and they are not required to submit their financial statements to the SSM. It’s from their annual returns that we know who they are, what they are doing and where they are.
How effective have the recent amendments to the Companies Act been?
The law just came into effect August 2007 and it’s a very comprehensive amendment. We started working on this in 2003 after the Asian financial crisis. We set up a special task force to come up with new strategies to enhance corporate governance and then came out with the green book on corporate governance. We took the lead and made all these best practices into law.
Areas where we are achieving success include the protection of whistleblowers and also if companies want to change the auditor or if the auditor resigns they must inform us.
We are receiving hundred of these notifications, which is a lot of information. We’re assuring them of all the protections under the law. In some of the cases we have initiated investigations. If you came to us four years ago you wouldn’t hear about cases like breach of fiduciary duties, the fraud committed by directors, or fraud committed by employers against shareholders and employees.
We are taking a lot of cases to court. The whistleblower provision is well-received because we have now codified the protection. We are receiving so much information and feedback that we had to create a complaints department to specifically handle these cases, which are mounting every day.
What is the best advice you have for corporate counsel?
It’s very important for people to really get the correct information from the right people and from the right authority. We have seen organisations seeking certain information and they go to persons who are non-players and actually unaware of the role of the SSM. Then they end up providing the wrong information.
We also want corporate counsel to advise the clients to comply with the requirements of the law. For example, provisions on whistle blowing and derivative actions. Corporate counsel need to make sure annual written compliance statutory reports are in place too.
On our part we will keep on listening to stakeholders and counsel. One of our initiatives is to keep on producing practice notes, which are interpretations of certain provisions of the Act. We will give these practice notes to all the lawyers and players.
We ask that people uphold corporate governance. Don’t just listen to people and assume that in Malaysia the company law is very bad, and that we don’t have effective rule. These are misconceptions and such notions are something of the past.