Governance: What Should We Govern – Corporate or Its People?

After the economic crisis in 1997, the need for good corporate governance mushroomed, to an extent whereby Malaysia issued its first Code of Corporate Governance in year 2000. Corporate governance is all about how the company, its employees and everyone involved with the company is managed. There are 4 pillars to corporate governance: transparency, accountability, fairness, responsibility.

Compliance with the Code is not mandatory. However, listed companies are required under the Listing Requirements of Bursa Malaysia to include in their annual reports, how they have applied the principles and best practices set out in the Code, and give reasons for non-compliance.

In fact, there was a revised Code in 2007 to strengthen the roles and responsibilities of the board of directors and audit committee, and to ensure their responsibilities are discharged effectively. The Code, in particular, spells out the eligibility criteria for appointing directors, board composition and role of the nominating committee. Independent non-executive directors are expected to play a more effective independent oversight function.

Recently, the Chairman of Securities Commission mentioned that independent directors must play their roles responsibly and effectively, especially this time where investor anxiety is at the high following Satyam scandal in India. She also wanted independent directors to understand their roles and to discharge their responsibilities accordingly. She made emphasis on the importance of ethical conducts, and this is the underlying value for good governance.

With recent announcements by AIG, GM, Ford, Chrysler and many other huge corporations, bad financial positions and requiring government funding support to overcome bankruptcy issues, this brings rise to the question of corporate governance. It is quite impossible to believe that these Fortune 500 companies do not comply with the 4 pillars of the Code of Corporate Governance. They have tons of highly skilled professionals.

The question now lies, where should governance focus on? Should we continue with the existing Code of Corporate Governance where focus is on the board members, their management teams and certain involved parties?

Or should we make things more complicated by extending the Code to address human issues like integrity, culture, character, attitude and ethical history of everyone within the organization?

Maybe everyone within the organization should take on a psychology test, perhaps?