GOOD GOVERNANCE FUNDAMENTAL TO ATTRACTING INVESTORS

KUALA LUMPUR, May 3 (Bernama) -- The ability of companies to demonstrate atrack record of good governance is fundamental to its capacity to attract the interest of strategic and long term investors, Securities Commission (SC) chairman Zarinah Anwar said Tuesday.

She said good governance demonstrates not just accountability to
shareholders and other stakeholders, but is also an indication of company's business performance.

Increasing empirical evidence shows that better governance results in better shareholder value, Zarinah said in a keynote address at the two-day Corporate Directors Conference 2011 organised by the Malaysian Alliance of Corporate Directors here.

She said a culture of good governance can only take root if the board demonstrates commitment and conviction and takes the necessary steps to encourage and embed ethical practices across the company and shows no tolerance for dishonest conduct.

Therefore, boards have a significant role to play in generating confidence and the trust of investors who must be able to rely on the independence, strength and commitment of the board to genuinely promote and practice the key tenets and best practices of governance that will ultimately be translated into better business performance and shareholder value, she said.

Thus, she said it is critical that members of the board have adequate knowledge of the industry that the company is involved, so that they can question and challenge recommendations being put forward for their consideration.

Zarinah said knowledge of the industry will give them an understanding of what can go wrong and what measures need to be put in place to prevent problems from arising.

She said a study carried out by the SC and Bursa Malaysia recently
demonstrated that the failure of a number of listed companies were attributable to the weakness of their business models, most of which were outdated and were not able to survive the changing market and economic conditions.

The lack of industry knowledge and expertise, absence of business savvy and simple complacency amongst others had allowed such outdated business models to remain unchallenged, ignoring the need to anticipate and reshape direction, leading ultimately to the demise of the companies and losses to shareholders, she said.

"It is only when boards have the requisite knowledge and experience that they will have the credibility and understanding to question management about the critical issues that affect the company and its business," she said.

She said assessment will educate the board and its members and reinforce their understanding of the nature of their roles and accountability.

It will enable the board to evaluate its performance and develop itself to meet the needs of the company in an increasingly complex, competitive and international marketplace, she said.

Through assessment, she said, boards can benchmark their performance as well as review an individual director's competence, application of skills, knowledge and experience to strategic issues and oversight as well as the board's collective effectiveness in performing a wide spectrum of duties.

Zarinah said the outcome of evaluation can help identify weakness for which training may be required, fill in gaps in expertise and experience where additional recruitment may be necessary and implement changes to meeting format or committee structure that will enhance the effectiveness of board's performance.