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THE GREEN BOOK | ENHANCING BOARD EFFECTIVENESS

THE GREEN BOOK
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ENHANCING BOARD EFFECTIVENESS

APRIL 2006

Putrajaya Committee on GLC High Performance (PCG)

Putrajaya Committee on GLC High Performance (PCG),

Transformation Management Office,
Level 37, Tower 2, Petronas Twin Towers,
Kuala Lumpur City Centre, 50088 Kuala Lumpur.
Tel: (03) 2034 0000 Fax: (03) 2034 0001
Email: [email protected] Website: www.pcg.gov.my
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 99

TABLE OF CONTENTS

PREFACE

APPROACH TO DEVELOPING THE GREEN BOOK

EXECUTIVE SUMMARY

INTRODUCTION 1

CHAPTER ONE: 5
Setting the guidelines for GLC Boards
Best practice standards that all GLC Boards should adhere to

CHAPTER TWO: 23
Raising Board effectiveness to best practice levels
Practical suggestions for GLC Boards on how to raise overall effectiveness,
including examples that GLC Boards can adopt

CHAPTER THREE: 49
Conducting an assessment of GLC Board effectiveness
Guidance on conducting the Board Effectiveness Assessment and developing
an actionable improvement program, with a step-by-step case example

APPENDICES:
1. Template and assessment grid for GLC Boards to determine their 63
current level of effectiveness
2. Contact details for TMO 81
3. Useful tools and templates 83
4. Statutory, regulatory and legal responsibilities of Directors 93
5. References 97

Acronyms and Abbreviations 99

Exhibits 101

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PREFACE

In the GLC Transformation Manual, launched on 29 July 2005, the Putrajaya Committee on GLC High Performance
(PCG) put in place a framework to guide GLC Transformation. One of the main policy thrusts in this framework is
the need to upgrade the effectiveness of GLC Boards.

The PCG is setting an imperative for GLC Boards to truly raise their effectiveness: to structure high-performing
Boards, to ensure effective day-to-day Board operations and interactions, and to fulfill their fundamental roles and
responsibilities at best practice levels.

The purpose of this document – the ‘Green Book’ – is to help GLC Boards to do this.

Following the 1997 Asian crisis, and with the introduction of the Malaysian Code of Corporate Governance in 2000,
the overall quality of corporate governance – and Board effectiveness – in Malaysia, and among GLCs, has
improved. However, more progress is required so that GLC corporate governance accelerates the transformation of
GLCs.

Importantly, this Green Book is consistent with and complements the Malaysian Code of Corporate Governance by
emphasising the performance aspects of Boards. It is not intended to be a comprehensive restatement of best
practices, but is designed to be a helpful ‘stand-alone’ document that deals with some key conformance aspects
of Boards and their Directors. It is also intended to be a ‘living document’ and so will be amended and updated as
needed.

Every GLC Board is unique. The role, operating mode, and even composition of a Board has to be tailored to the
company’s specific context – its history and its current situation, and its priorities. Further, every GLC Board today
will have its own strengths, weaknesses, challenges and aspirations. For this reason, each Board will have a differ-
ent starting point. While PCG would like all GLC Boards to improve effectiveness, improvements at the Board level
will be a continuous journey rather than a single event. This journey must therefore reflect each GLC Board’s starting
point and context.

While some of the benefits will begin to be felt immediately and continue to be gained over the next few years, it is
important to stay focused since sustainable longer-term benefits are expected to play out over the next 5 to 10
years. It is essential, therefore, that GLC Boards put in place new practices by the start of 2007 to ensure that the
GLC Transformation Program is on track to deliver those national benefits in the period 2010 to 2015 and set the
stage for the realisation of Vision 2020.

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APPROACH TO DEVELOPING THE GREEN BOOK

Much of the research and analysis into the cause and issues surrounding GLC Performance has been taken from
the GLC Transformation Manual. The Green Book contains an approach to improving Board effectiveness that has
been piloted at several GLC Boards. In addition to an extensive study of global best practices, valuable input was
obtained through con sultation with experienced Directors and Chairmen, lawyers, auditors, corporate governance
experts, Bursa Malaysia, Securities Commission, MAICSA and MICG. Such contributions are greatly appreciated.

Review of corporate governance principles and Codes,

including the OECD Principles, Hermes Principles, the UK
Development of best practice Code of Corporate Governance and IFAC Enterprise Gover-
guidelines and Board nance
Effectiveness Assessment
Tool Interviews with leading corporate governance and Board
effectiveness experts (globally and in Malaysia); experi-
enced Malaysian Chairmen and Directors

Conducted 6 to 8 week pilots at several GLC Boards

Board Effectiveness Assessment tools and templates

tested and refined
Tools are tested and refined at
pilot GLC Boards In-depth interviews of all Board members and key senior
management

Observed Board and Commitee meetings

Reviewed Board agendas, Board papers, Board processes

and charters with Company Secretary

Syndication conducted with Bursa Malaysia, Securities

Consultative syndication to Commission, MAICSA, MICG, experienced Directors and
finalise guidelines and tool Chairmen, leading lawyers and auditors

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EXECUTIVE SUMMARY

One of the main policy thrusts in the GLC Transformation framework is to upgrade the effectiveness of GLC Boards.
This Green Book focuses on the biggest challenges that GLC Boards face and sets guidelines for GLC Boards to
adhere to with the overall objective of raising GLC Board effectiveness.

And to be effective, Boards must progress from just ‘conforming’ to also ‘performing’. Chapter One sets out the
guidelines structured along the three main components of an effective Board:

1. Structuring a high-performing Board that is led by a Chairman with strong leadership skills, who is
respected by all Directors, and able to manage discussions among Directors with differing styles and
personalities. The Board should preferably be no larger than 10, and have a balanced composition – with
at least one-third of the Board made up of Independent Directors, and up to two Directors (with a maxi-
mum of 30% representation) from management. However, it is important that each Director has real
commercial experience, specific industry or functional knowledge, which meets the company’s unique
context and requirements. Nomination and selection of Directors should follow a disciplined and objective
process, with clear and appropriate selection criteria. Boards should develop and implement improve-
ment programs as part of the outcome of the annual Board and Director evaluation process.

2. Ensuring effective Board operations and interactions are predicated on a clear mandate that is aligned
to the company’s overall priorities. Directors need to function as a cohesive team so that individual Directors’
strengths can be fully used as a resource for the benefit of the collective Board and the company. Further,
there needs to be a strong trust-based relationship between the Board and management, with the Board
constructively challenging, and, at the same time supporting management. Management, in turn, is
expected to report to the Board in a similar spirit and fashion. Streamlined logistics are also required – for
example, pre-set calendars, agendas that focus on critical issues, and concise Board information that is distrib-
uted with sufficient notice.

3. Fulfilling fundamental Board roles and responsibilities. GLC Boards should move away from getting
involved in operational details, and refocus their attention to the Board’s fundamental roles and responsi-
bilities: strategy setting, corporate performance management, development of future leaders and human
capital, and risk management. Boards need to co-own the corporate strategy with management by being
active in the development of the strategy and by setting performance targets. Once the company’s goals
and target KPIs have been jointly agreed, Boards need to intensify the corporate performance manage-
ment to ensure that these are achieved. Increasingly, and particularly so for GLCs, Boards need to be
more engaged in the development of the company’s leadership pool and in the succession, termination
and hiring of CEOs. As companies grow in size and complexity, the Board has a bigger task to understand
and manage the company’s risks. In fulfilling these roles and responsibilities, the Board should adopt a
shareholders’ perspective, while balancing all valid stakeholder interests.

Chapter Two provides practical suggestions for GLC Boards on how to raise their overall effectiveness, including
examples of practices that GLC Boards can adopt. The chapter is structured in a question and answer format, selected
to address important issues common to many GLC Boards as well as the issues that GLC Boards believe are most
difficult to overcome.

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Improving the effectiveness of GLC Boards to best practice standards is a continuous journey. PCG is setting an
imperative that all listed GLC Boards assess their current level of Board effectiveness and then develop, and begin to
implement, an actionable improvement program by December 2006.

Chapter Three provides a guide for GLC Boards on how to conduct an assessment of GLC Board effectiveness and
develop an actionable improvement program.

The Chairman of the Board is responsible for ensuring this implementation effort. Boards can choose to conduct
the assessment themselves or seek external support to facilitate the process.

GLC Boards are encouraged to seek external support to facilitate this process – particularly if this is the first time
that any form of Board assessment has been conducted. It is often very difficult to self-diagnose and identify weak-
nesses and an external board governance consultant can provide objectivity while also sharing ideas and assisting
Boards to develop an effective improvement program.

Once the Board Effectiveness Assessment (BEA) has been conducted, and the improvement program developed, it
is important that sufficient follow-through is carried out. Boards are encouraged to schedule time in Board meet-
ings to review the program – at least every 6 months – and the Chairman (or a designated Director) should lead
this discussion. Based on the feedback of the Board, and inputs from the annual Director and Board evaluations,
the program should be refined to ensure continuous Board improvement over the longer term.

The relevant GLIC will monitor that the GLC Board has completed its Board Effectiveness Assessment, developed
its improvement program, and begun implementation of this program. The GLIC will provide semi-annual progress
reports on their portfolio companies to the PCG.

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 INTRODUCTION
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INTRODUCTION

VISION 2020 AND THE NATIONAL MISSION AS LAID OUT IN THE NINTH MALAYSIAN PLAN is our guiding light,
informing what goals are set and how those goals are achieved. It is about putting strong, worthy ideas into action
and truly becoming a ‘comprehensively developed country – developed economically, developed politically, devel-
oped socially and culturally, progressive and caring’.1

The YAB Prime Minister has made it clear that the transformation of GLCs is a critical part of Malaysia’s development
and journey through the National Mission and towards Vision 2020.

There are three underlying principles of the overall GLC Transformation (GLCT) Program, namely:

(i) National development foundation – the GLCT Program is a subset of the broader national development
strategies that include the principles of growth with equity, improving total factor productivity, the development
of human capital, and the development of the Bumiputera community.

(ii) Performance focus – the underlying rationale of the GLCT Program is to create economic and shareholder
value through improved performance of GLCs.

(iii) Governance – the GLCT Program, while being led by the Government, fully observes the rights and governance
of shareholders and other stakeholders.

PERFORMANCE OF GLCS CRITICAL TO THE FUTURE DEVELOPMENT OF MALAYSIA

The GLCT Program is important as GLCs have significant impact on the economy being producers, service providers,
employers and capital market constituents. Specifically, the GLCT Program is expected to deliver significant
performance outcomes for all stakeholders:

Substantial value for investors of RM250 to 300 billion in market capitalisation of Bursa Malaysia (in other
words, a doubling of current levels)
Improved service, quality and value for money for customers
Better job prospects and human capital development for the labour force – although this might happen
only after a period of reduced employment to drive out inefficiencies
Positive demonstration, and improved service, to the private sector to increase competitiveness and
capabilities of the whole market
Increased merit-based transparency and reduced leakage for suppliers, which will allow local and
Bumiputera vendors to develop and grow
Development of the Bumiputera community through more skilled Bumiputera employees.

1 YAB Prime Minister Dato’ Seri Abdullah Ahmad Badawi at the Nikkei International Conference on ‘The Future of Asia’, Tokyo, 25 May 2005 – as adapted from
‘Vision 2020 – Malaysia as a Fully Developed Country’

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INTRODUCTION

BOARD EFFECTIVENESS IS A CATALYST FOR GLC TRANSFORMATION

The GLCT Program, relies on three principal agents of change – the Government-Linked Investment Companies
(GLICs) that can drive change through their roles as active professional shareholders; the GLC Boards that govern,
guide and monitor overall company performance; and the GLC management that are responsible for driving execution
and implementation, which results in improved operational and financial performance. Of these change agents, the
Board is central, for it is through the Board that GLICs actively manage GLCs and, ultimately, it is the Board that
governs management.

Interviews with GLICs, GLC Boards and GLC management, together with independent analyses conducted by
various consulting firms and investment banks, as well as input from the Government, all highlight the need for
GLCs and GLC Boards to improve their effectiveness. Further, as more and more GLCs have regional aspirations, the
benchmark for improvement will not just be the leading Malaysian private sector companies but also regional and
global peer organisations and businesses.

Generally, improving Board effectiveness is an imperative for any business that seeks to become a high-performing
company, regardless of size and geography. There is a strong correlation between companies with good corporate
governance and long-term financial out-performance. Research indicates that institutional investors place equal
value on corporate governance and financial indicators when evaluating investment decisions. In emerging
markets, the majority of institutional investors are willing to pay a premium for well governed companies – and in
Malaysia that premium could be up to 20%.2

GLC BOARDS MUST PROGRESS FROM JUST ‘CONFORMING’ TO ALSO ‘PERFORMING’

The PCG found that most GLC Boards complied with the legal form, if not necessarily the full substance, of corpo-
rate governance at its best. Today, many Boards conform with compliance and oversight requirements – but this is
often at the expense of, or out of balance with, ‘performance’ components. Making this progression to focus on
performance will be critical for GLC Boards to be able to become truly effective.

Beyond meeting statutory, regulatory and legal responsibilities3, Directors – and the Board collectively – should
ensure that the three main components to being an effective Board are in place – that is, structuring a high performing
Board, ensuring effective day-to-day Board operations and interactions, and fulfilling the Board’s fundamental roles
and responsibilities at best practice levels. This Green Book – with best practice guidelines and a Board Effectiveness
Assessment (BEA) tool – has been structured around these three components.

2 McKinsey Global Investor Opinion Survey 2002, updated 2004

3 For example, ensuring adequate disclosure and transparency of information to shareholders. Details of such responsibilities of Directors are detailed in
Appendix 3

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There are three chapters in the Green Book:

Chapter 1 : Setting the guidelines for GLC Boards – best practice standards that all GLC Boards should adhere to
Chapter 2 : Raising GLC Board effectiveness to best practice levels – practical suggestions for GLC Boards on
how to raise overall effectiveness, including examples that GLC Boards can adopt
Chapter 3 : Conducting an assessment of GLC Board effectiveness – guidance for GLC Boards on conducting
the Board Effectiveness Assessment and developing an actionable improvement program, with a
step-by-step case example

BOARDS SHOULD IMPLEMENT THIS GREEN BOOK BY DECEMBER 2006

The PCG expects all listed GLC Boards to assess their current level of Board effectiveness, and subsequently to
develop and begin to implement an actionable improvement program by December 2006. The Chairman of the
Board should be responsible for leading this implementation effort.

The relevant GLIC will monitor that the GLC Board has completed its Board Effectiveness Assessment, developed
its improvement program, and begun implementation of this program. The GLIC will provide semi-annual progress
reports on their portfolio companies to the PCG.

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 CHAPTER 1
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SETTING THE GUIDELINES FOR GLC BOARDS

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CHAPTER 1: SETTING THE GUIDELINES FOR GLC BOARDS

For GLC Boards to truly raise their effectiveness, they should ensure that the three main components of an
effective Board are in place:

1. Structuring a high-performing Board

2. Ensuring effective day-to-day Board operations and interactions
3. Fulfilling the Board’s fundamental roles and responsibilities to best practice levels.

This chapter sets out the best practice standards that all GLC Boards should strive for and then adhere to. It is
important to note that these guidelines describe best practice for Boards of companies that are in ‘steady state’.
Being in crisis mode or in a period of early development will affect the role of the Board and the best practice
standards it can adopt.

All guidelines should be pursued in totality and Boards should avoid selecting just a few to implement.

Exhibit 1.1
Components of an effective Board
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1. Structuring a high- Structures the Board to match the company’s requirements
performing Board Defines committees’ role, structure and composition to complement the
Board’s requirements
Selects and nominates Directors using a disciplined process
Evaluates the Board as a whole and each Director regularly
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2. Ensuring effective Board Makes every Board meeting productive
operations and interactions Ensures the quality and timeliness of all Board information
Builds trust via positive Board interaction dynamics and open
communication within the Board and with management
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3. Fulfilling the Board’s Contributes to developing corporate strategy and setting of targets
fundamental roles and Upholds a strong corporate performance management approach
responsibilities Oversees development of the company’s future leaders and human capital
Understands and manages the company’s risks
Adopts a shareholders’ perspective when making decisions
Balances valid stakeholder interests

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CHAPTER 1 : SETTING THE GUIDELINES FOR GLC BOARDS

1. STRUCTURING A HIGH-PERFORMING BOARD

Board structure and composition is the foundation of Board effectiveness. Unless and until the Board has a strong
foundation, it will be challenging, if not impossible, for it to make significant improvements in its effectiveness.

1.1 Structures the Board to match the company’s requirements

Every company operates within a specific and unique context, which is determined by its current situation, its
aspirations and its priorities. The structure and composition of its Board, therefore, must reflect this context.
However, there are some common principles that apply to all Boards.

1.1.1 Board is preferably no larger than 10 Directors

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There must be a sufficient number of Directors to ensure that the Board can effectively discharge its roles and
responsibilities. At the same time, the size must be contained so that the Board does not become too large and
unwieldy, which could then compromise Board dynamics and the accountability of individual Directors.

The PCG reiterates the 2004 Measures1: that a GLC Board should be no larger than 10 Directors. However, the PCG
also acknowledges that some GLCs may have legitimate reasons to warrant a larger Board. Therefore, where a GLC
can demonstrate and disclose such rationale, the Board can be up to 12 Directors. Some examples of such ratio-
nale include where a GLC’s business or company structure is more complex in terms of size, scope or geography
and so the Board requires a wider range of specific expertise or the Board has a greater number of appropriate
committees (for example Risk, Credit and Tender Committees) or has a legitimate increase in the number of its
Executive Directors and needs to re-balance the Board with more Independent or Nominee Directors.

1.1.2 Board composition is balanced – no more than two Executive Directors and at least one-third of Board is
independent
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There must be a balance in the Board between Independent Directors, representation from management and represen-
tation from major shareholders. As defined in the Malaysian Code of Corporate Governance, and reinforced through
Bursa Securities Listing Requirements2, the higher of two Directors or one-third of the Board must be independent.
However, significant shareholders should also be adequately represented – usually in proportion to the size of their
investment – via Nominee Directors.

There should also be up to two Executive Directors, with a maximum of 30% representation, on the Board to maintain
links between management and the Board. These Executive Directors should complement each other’s areas of
knowledge and expertise within the business, collectively represent the key business areas of the company and
might include a potential successor to the CEO.

1 YAB Prime Minister address at the seminar on Culture of High Performance for GLCs, 14 May 2004
2 Paragraph 15.02

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 STRUCTURING A HIGH-PERFORMING BOARD

In some exceptional company-specific circumstances, a third Executive Director can be added to the Board. These
circumstances include where additional complementary skills are required to those possessed by existing Executive
Directors or where two potential successors to the CEO (rather than one clear) have been identified.

All appointments should be subject to the candidate possessing the skills and experiences that are expected of GLC
Directors (refer to Guideline 1.1.4). It is better to leave a seat empty, rather than fill it with a candidate who do not
meet these requirements.

A Board with a balanced composition will ensure that no individual or small group of individuals will dominate
decision-making.

1.1.3 Clear separation of Chairman and CEO

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The Chairman is largely responsible for creating the conditions required for the effectiveness of the overall Board
and individual Directors, both inside and outside the Boardroom – including the appropriate balance of power, level
of accountability and independent decision making. Even though there have been successful examples of individuals
performing the combined role of Chairman and CEO, the PCG and the Code recommend that these roles remain
separate and distinct.

The boundaries between Chairman and CEO should be clearly defined and reviewed if there are significant changes
to the company’s strategy, operations, performance or management. In any case, they should be reviewed at least
every 2 to 3 years.

1.1.4 Skills and experiences in line with company’s requirements

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Each Director should have relevant knowledge and skills – which could come from a combination of their industry,
functional or management experience and the right mindset to effectively contribute to the Board.

With the evolving strategic, operational and geographical priorities of GLCs, Boards now require new types of expertise.
In particular, GLCs require Directors who have commercial experience in running or leading operations or specific
functional skills such as marketing, and change management. These Directors also need to understand, and be
sensitive to, the national development objectives of GLCs.

Overall, Directors should be selected based on the company’s requirements – taking into account current needs,
stage of development and aspirations. While not every Director will possess all the necessary and relevant skills
and experience, the collective Board should adequately fulfill the company’s requirements.

Further, as stated in the 2004 Measures3, any possible conflicts of interest should be removed. It is inappropriate
for government representatives who are also regulators to sit on GLC Boards.

3 YAB Prime Minister address at the seminar on Culture of High Performance for GLCs, 14 May 2004

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CHAPTER 1 : SETTING THE GUIDELINES FOR GLC BOARDS

1.1.5 Compensation is aligned to skill set required of Directors

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The compensation of Directors on GLC Boards must reflect the higher level of skill, knowledge and experience
required by the company. To attract the right Directors, and in line with the compensation philosophy advocated by
the PCG in the GLCT Manual, GLC Boards should review the compensation of their Chairman and directors, and
align them to at least around the 50th percentile of an appropriate peer group.

Non-Executive Directors are not eligible to participate in variable performance-linked incentive schemes due to the
need to maintain appropriate checks and balances and to avoid a focus on short-term actions. Executive Directors
should not receive any additional compensation to sit on the Board.

The peer group selected should reflect the same skills, experience and time commitment required of Directors, the
company’s current situation (for example, undergoing significant change, experiencing high growth) and the
company’s future aspirations (for example, to be in the top three by market share in South-east Asia). As GLCs
become more regional, it will gradually become more appropriate to benchmark with companies outside Malaysia.
However, care should be taken to ensure that any increase in Director compensation is always accompanied by an
upgrade in the capabilites of the Board.

1.1.6 Additional selection criteria for Chairman

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As described above, the Chairman is pivotal in driving Board effectiveness. To reinforce the importance of the
Chairman’s position, the selection criteria for Chairmen should be more stringent than that of normal Directors. In
particular, Chairmen should have strong leadership skills – to lead discussions among Directors; to build a cohesive
leadership team consisting of the Board and senior management; and to delegate responsibilities to other Directors,
committees, and management. To do this, Chairmen must be able to secure the respect and trust of the whole Board.

In addition to proven leadership skills, Chairmen need to have recognised stature as they represent the company
both domestically and abroad, and must be motivated by a sense of accountability to shareholders and desire to
create value for all stakeholders.

Given that the time and dedication required to effectively fulfil the role of the Chairman is significant, the onus lies
with the Chairman and the Nomination Committee to ensure that he or she has the sufficient time and capacity to
focus on the task which would include limiting his or her presence on other subsidiary Boards and responsibilities
as appropriate.

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 STRUCTURING A HIGH-PERFORMING BOARD

1.1.7 Cap directorships in listed companies to 5 and in non-listed companies to 10

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The PCG found that the current pool of GLC Directors is too small and has resulted in some Directors having too
many commitments.

Therefore, to ensure that Directors have the time to focus and fulfill their roles and responsibilities effectively, and
in line with the GLC Transformation Manual, GLC Directors cannot sit on the Boards of more than five listed compa-
nies, excluding the GLC’s subsidiaries. This is a departure from the current cap of 10 as required by Bursa Securi-
ties Listing Requirements.

In addition, GLC Directors cannot sit on more than 10 non-listed company Boards, which is lower than current cap
of 15 as stated in Bursa Securities Listing Requirements.4

1.2 Defines committees’ role, structure and composition to complement the Board’s requirements

The Board should establish committees to address specialised topics or specific issues more effectively. Although
this limits the depth of involvement of all Directors on all issues, such committees do ensure that certain topics are
discussed in depth by those individuals with the appropriate and relevant knowledge and insight. This enables
Board meetings to be more efficient and effective and allows the overall Board to devote more time to the
company’s critical issues.

1.2.1 Only those committees necessary are established

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The number of Board committees will depend on the size and complexity of the company and the size of the Board.
Smaller companies will have fewer committees and some of these will have responsibility for more than one area
of the company’s activities.

The Code recommends that four main issues are delegated to committees: nominating Directors; assessing effectiveness
of the Board and individual directors; compensation and remuneration of Executive Directors; and internal controls
and the integrity of audits. Bursa Securities Listing Requirements5 takes this one step further by requiring that all
GLC Boards establish an Audit Committee. Indeed, most Boards establish Audit, Nomination and Remuneration
Committees.

Outside of this, the Board must decide if additional committees are required, but should be careful never to usurp
management’s role and accountabilities. For example, Boards of large companies whose main activities include
procurement might benefit from a Board Tender Committee. This would allow the dedicated time and discussion to
ensure that the integrity of procurement procedures are being adhered to without distracting from other critical
Board issues. Similarly, Boards of very large and complex conglomerates might choose to form a Strategic Planning
Committee, which undertakes the detailed assessment of some BU strategic plans and budgets.

4 Paragraph 15.06
5 Paragraph 15.10

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Excos, however, should only be formed to address specific situations, where it is necessary for the Board to take on
greater executive roles. This should only be for up to 6 months - but in exceptional circumstances it could be
extended to a maximum of 12 months. Further guidance on Excos can be found in Chapter 2.

Finally, committees that have outlived a useful purpose should be disbanded.

1.2.2 Adheres to clear charters as established by Board

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As outlined in the Code, when the Board forms a committee, it also needs to clarify the role and authority of the
committee and, in particular, whether the committee will act on behalf of the Board or simply has the authority to
examine a particular issue and report back to the Board with a recommendation. This is usually done by establish-
ing a charter or terms of reference (TOR). The TOR should also clearly specify the boundaries between the commit-
tees and management to ensure that the committees do not usurp management’s role and accountability. The
charter or TOR will inform the purpose and practice of the committee and should be reviewed every 2 years to test
its continued applicability to the company’s current situation.

1.2.3 Committees are composed of the ‘right’ Directors

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Bursa Securities Listing Requirements6 state that the Audit Committee should consist of at least three Directors,
the majority of whom must be independent, including the Chairman. In addition, at least one Director must be a
member of the Malaysian Institute of Accountants or meet the Bursa Securities Listing Requirements7. Best
practice indicates that to maintain effectiveness, this committee should consist of no more than four Directors.

The Code requires that the Remuneration Committee consists wholly or mainly of Non-Executive Directors and that
the Nomination Committee consists exclusively of Non-Executive Directors, a majority of whom are independent.
GLICs, via their Nominee Directors, should be represented on the Nomination Committee to ensure that the evaluation
of existing Directors and selection of new Directors are in line with the company’s requirements.

Other than these stipulations, the composition of committees will be at the full discretion of the Board. However,
the Board should ensure that committees have sufficient critical mass so that meaningful conversations and
debates can take place, but do not ‘over-invest’ as the Board will still usually need to endorse final decisions. There-
fore, committees should comprise no more than half of the total Board. The Board should also take a holistic view
as to where else directors might need to be deployed – for example, on the Boards of the company’s subsidiaries.

As far as possible, the Boards should ensure the committees are composed of Directors who are skilled and able
to carry out the task at hand (although committees are able to engage outside help as necessary).

6 Paragraph 15.10
7 Paragraph 15.10 (1) (ii)

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 STRUCTURING A HIGH-PERFORMING BOARD

1.3 Selects and nominates Directors using a disciplined process

As laid out in the Code, the Nomination Committee is responsible for recommending potential candidates to the Board
for Directorship. However, it is important to note that the Memorandum and Articles of Association (M&A) of the
company might stipulate that a certain person or body, including major or significant shareholders, will have the power
to appoint the Directors of a company.

1.3.1 Clear selection criteria exists

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The Nomination Committee should recommend to the Board a clear and appropriate selection criteria for Director-
ships. This recommendation should be based on an annual review of the Board’s required mix of skills and experi-
ences, taking into account the current, and future needs of the company. This review should be matched against
the current composition of Directors to identify any gaps. The Board and Nomination Committee should be mindful
of the Companies Act8 requirement that an age limit of 70 years be applied for all Directors of listed companies and
its subsidiries.

1.3.2 Nomination process is objective

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In making its recommendations to the Board, the Nomination Committee should assess the suitability of potential
candidates against the established selection criteria. Potential candidates can be identified by the Nomination
Committee, existing Directors, CEO or, within reason, by any shareholder or other senior executives. Once the
short-list of candidates is finalised, their names should be put forward to the Board for approval and then to the
shareholders for appointment, subject to any terms in the company’s articles of association.

1.3.3 Candidates sourced from likely and unlikely sources

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In addition to the current pool of Directors, and the traditional sources for GLC directors, the PCG recommends that
GLC Boards broaden their view of the potential pool of individuals who are suitable to be GLC Directors. In particular,
the PCG recommends that, over time, GLCs proactively tap into new sources, including:

Professionals within Malaysia – as well as Malaysian expatriates – who have deep sector or functional
expertise in private organisations or are individuals who have led, or been responsible for the growth of,
operating companies and/or large divisions.

Other serving CEOs, provided there is no competitive conflict or conflicts of interest. Note that, at this
stage of the GLCT Program, GLC CEOs are not permitted to sit on Boards other than those of their own
subsidiaries.

Experienced Directors from overseas – especially for GLCs that compete internationally or that are
subject to increasing global competition.

In expanding the pool of potential Directors, GLC Boards should look to those individuals who understand, and are
sensitive to, the national development objectives of the GLCT Program, the National
Mission and Vision 2020.

8 Section 129, Companies Act 1965

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CHAPTER 1 : SETTING THE GUIDELINES FOR GLC BOARDS

1.4 Evaluates the Board as a whole and each Director regularly

As recommended by the Code, Boards are expected to undertake an annual evaluation of the effectiveness of the
Board as a whole, the committees of the Board, and the contribution of each Director. However, a review of major GLCs
found that this has not been uniformly implemented across all GLCs. Further, based on a survey of Main Board companies
that have a formal performance evaluation process, only a few actually follow through with feedback and consequence
management for under-performance.

The PCG recommends therefore that all GLC Boards perform the Board Effectiveness Assessment (as laid out in Chap-
ter 3), which includes creating an actionable improvement program. Each year after this, the Board should complete a
more traditional, shorter evaluation9. The PCG also recommends that another full Board Effectiveness Assessment
would be worthwhile approximately every 3 to 5 years depending on the Board’s progress and/or current situation. In
conducting all these evaluations, Boards should be aware of confidentiality and possible sensitivities at all times.

In completing the ‘shorter’ annual evaluations, the Board should incorporate the following guidelines.

1.4.1 Clear performance evaluation criteria exists

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clear performance evaluation criteria should be established and communicated to all Directors. This criteria should
reflect the company’s current and expected position and environment. Further, the consequences of under-
performance – such as no re-election or removal – should also be communicated to all Directors.

1.4.2 Nomination Committee leads the process

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Nomination Committee is responsible for recommending the performance evaluation criteria as well as leading
the evaluation process, both for the Board and individual Directors. Where necessary, external support can be
engaged to support the Nomination Committee. Evaluation reports should include anonymous feedback from the
Directors’ peers and senior management. Most importantly, the reports should include recommendations for
individual Directors and the Board as a whole on how to improve or continue to develop. All reports should then be
collated for the Chairman.

The Nomination Committee has the duty to recommend that Directors who do not meet the pre-agreed criteria are
not re-elected or removed, and that this recommendation should be put forward to the Chairman. Adhering to this
evaluation process is important as it allows for continual renewal of the Board in line with the company’s require-
ments.

9 Sample forms for these evaluations are included in Appendix 4

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 STRUCTURING A HIGH-PERFORMING BOARD

1.4.3 Chairman leads the follow-up process

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The Chairman should discuss with each Director his or her individual results and together develop a personalised
action plan for the upcoming year based on the evaluation report’s recommendations. Similarly, the collective
Board, led by the Chairman, should dedicate part of a Board meeting to review the results for the whole Board and
develop, or review the existing, improvement program.

1.4.4 Training programs address development areas

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When gaps in either skills or knowledge have been identified, the Chairman should ensure that Directors individually
or the Board collectively have access to necessary training programs or materials which are tailored to address
these gaps – for example, attending industry conferences on new technologies, inviting analysts or experts to
discuss changing trends in the industry, running team-building workshops or inviting professional ‘board coaches’
to enhance the quality of board interactions10. These programs should match up with identified development areas
and not become just a ‘box-checking’ exercise to indicate that training has occurred.

10 Consistent with Bursa Securities Listing Requirements, paragraph 15.09

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CHAPTER 1 : SETTING THE GUIDELINES FOR GLC BOARDS

2. ENSURING EFFECTIVE BOARD OPERATIONS AND INTERACTIONS

The effectiveness of a Board is to a large part determined by the quality of its procedures, processes and opera-
tions. To ensure Board meetings are effective and that Directors are adequately prepared, there are a number of
basic Board processes that need to be in place. An important part of this, and in line with the Code, is that Boards
should appoint an in-house Company Secretary with relevant experiences and skills – taking into account the size
and complexity of the company. For listed companies, it is crucial that the Company Secretary maintains an up-to-
date knowledge of listing and regulatory requirements and is in a position to advise the Board and its committees
on compliance matters as appropriate.

For Board operations to be truly effective, Boards should put the following guidelines into practice.

2.1 Make every Board meeting productive

As most Boards meet only several times a year, it is critical that every Board meeting counts.

Boards should meet regularly – and the actual number of meetings will depend on the nature of the company’s
business and the stage of its development. However, on average, Boards tend to meet six to eight times a year, poten-
tially adding several more offsites for specific topics such as strategic planning. The Code recommends that the Direc-
tors disclose the number of Board meetings held each year to enable shareholders to evaluate if the Board is
adequately in control of the company. In addition, Directors who are absent from more than 50% of Board meetings
in a financial year will have to vacate office as stipulated in Bursa Securities Listing Requirements.11

2.1.1 Follows a set schedule

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A Board calendar with draft agendas should be set for 12 months in advance and synchronised with the management
planning cycle. The Board should also revisit this calendar on a regular basis to ensure that the topics are still
relevant and revise as necessary.

2.1.2 Chairman determines agenda in consultation with CEO

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After getting input from other Directors, the Chairman should determine the agenda with assistance from the Com-
pany Secretary and in consultation with the CEO. The agenda should address priority strategic issues, rather than
detailed operational ones, and ensure that there is enough time for rich discussion. Agenda issues should be
aligned with the overall company’s context, including its starting situation, aspirations and priorities.

2.1.3 Adheres to a clear charter

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As the Chairman and CEO must have clear roles and boundaries, the Board must also clearly define its role –
particularly, its boundaries with management – and codify it in a Board charter or terms of reference (TOR). This
charter should encapsulate the Board’s priorities, which in turn should be aligned with the company’s overall short-
to medium-term priorities. The charter should also be consistent with the mandate that the Board provides to the
CEO, which specifies what the CEO needs to accomplish and what freedoms and constraints the Board will provide.
The Board should review the charter at least every 2 years to test its applicability to the company’s current situation.

11 Paragraph 15.05

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 ENSURING EFFECTIVE BOARD OPERATIONS AND INTERACTIONS

2.2 Ensures the quality and timeliness of all Board information

The quality of the information received by the Board is critical to Board effectiveness. All Directors have the same right
of access to information – whether they are Executive or Non-Executive Directors. Information provided to the Board
should not just be historical financial performance, it should also include other key leading indicators such as
customer satisfaction, product and service quality, market share, market reaction and environmental impact.

2.2.1 Board papers are clear and relevant

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Papers that are prepared by management for the Board should be set out logically and contain synthesised information
and pertinent critical analyses. These papers should be preceded with a one- to two-page summary that lays out
what is requested from the Board – for example, whether it requires an approval or endorsement or if it is for infor-
mation only; the key issues, rationale, risks and decisions required; and actions required with timelines and account-
abilities identified. Sometimes additional information might be necessary – such as background on competitors or
industry trends – so that the Board can understand the issues clearly and have the information necessary to make
a decision.

The Board should give management constructive feedback on the quality of the information and analyses received
so that management is able to ensure Board papers are of a high standard.

2.2.2 Board given appropriate notice

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Even the highest quality information and material will not be of value to the Board unless it is received in sufficient
time to read and absorb it prior to the Board meeting. Therefore, the PCG recommends that meeting agendas are
distributed at least 14 calendar days in advance, and all Board papers and any pre-reading are distributed at least
7 calendar days in advance. This allows Directors time to review material and, where necessary, conduct indepen-
dent analyses or request additional material.

The Board should reinforce this practice and refrain from considering last minute agenda items during Board meetings.
Genuinely urgent matters, for example acquisitions, could fall outside these timing requirements but these should
be exceptions rather than the rule.

In the event that the Board conducts more than the average number of meetings per annum – that is six to eight
meetings – papers can be distributed to approximately five calendar days in advance. However, once the Board
moves back to an average schedule of meetings, the practice of 7 calendar days should be adhered to.

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CHAPTER 1 : SETTING THE GUIDELINES FOR GLC BOARDS

2.3 Builds trust via positive interaction dynamics and open communication within Board and with management

While the structure and composition of the Board are critical, unless Directors trust one another and are able to
function as a cohesive team, the Board will not be truly effective. To achieve this trust and cohesiveness, positive
interaction dynamics, and a spirit of open communication must be fostered within the Board.

Similarly, trust must also exist between the Board and management. To do so, both Board and management must
ensure that interactions are credible and constructive. The Board is expected to challenge management in a
supportive and constructive manner, and management in turn, is expected to report to the Board in a similar spirit
and fashion. Further, once resolution is achieved, the decision should be jointly owned and supported by both
Board and management.

2.3.1 Positive Boardroom dynamics and environment

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Boardroom environment, and the inter-personal dynamics of the Board, must encourage all Directors to partici-
pate in discussions. This means that no one person should dominate discussions and that when an opinion is
voiced, particularly a dissenting one, it should be given a fair hearing. If an open, secure and positive environment
can be created, then Directors will feel encouraged to share their views.

Discussions should be constructive, productive and effective – that is, instead of merely raising and debating
issues, actual resolution or closure must be achieved. In addition, common understanding must exist among the
Directors – for example, upon leaving a Board meeting, there should be consensus as to what agreements were
reached and what next steps are. To support this, there should be regular and constructive feedback among Direc-
tors so that all become aware of their strengths and weaknesses and understand how to improve.

Although all Directors play an important role, the Chairman is responsible for ensuring that trust is built among
Directors and that the Board operates as a cohesive team. The Chairman should lead the interactions, drawing
Directors in, containing non-core discussions, facilitating debate and ensuring resolution or closure is reached.

2.3.2 Constructively challenges and supports management

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
While it is the role of the Board to challenge the assumptions, approach, outcomes, and performance of management,
this should always be done in a constructive way. Therefore, instead of merely critiquing or pointing out flaws, errors
or shortcomings, the Board should focus its discussions with management on the root causes of problems and the
potential actions required to rectify. Through such discussions, the Board can leverage and impart its knowledge,
skills and experiences to management – which will lend significant credibility to the Board’s basis for challenging
management – and demonstrate to management the value that the Board can bring. Management, in turn, has a
duty to ensure that the Board is furnished with sufficient information, analysis, and options in order to make
informed decisions.

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 ENSURING EFFECTIVE BOARD OPERATIONS AND INTERACTIONS

Once required actions or solutions are agreed upon, the Board should then consistently encourage and support
management through the implementation. Occasionally, these solutions might also require action on the part of the
Board – for example, drawing on their contacts or networks. The Board and management should be expected to
follow-through and deliver the necessary outcomes or outputs within the agreed time.

The Directors should also have regular discussions and feedback sessions with senior management to continue to
build a working relationship.

2.3.3 Board decisions communicated promptly to management

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All Board decisions should be clearly recorded in the minutes, including the rationale for each decision, clear actions to
be taken with the agreed timeline, and the individuals responsible for implementation. This ensures that management
understands the decisions made and are able to execute against the decision. Note that this will be subject to any legal
or regulatory restrictions which could limit the level of detail of minutes.

Relevant Board decisions should be communicated verbally to management within 1 working day of the Board meeting
and relevant extracts of the minutes should be distributed within 3 working days.

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CHAPTER 1 : SETTING THE GUIDELINES FOR GLC BOARDS

3. FULFILLING THE BOARD’S FUNDAMENTAL ROLES

AND RESPONSIBILITIES

The PCG found that most GLC Boards complied with the legal form, if not necessarily the full substance, of corpo-
rate governance at its best. Today, many Boards conform with compliance and oversight requirements – but this is
often at the expense of, or out of balance with, performance components such as results and impact.

To address this, and in line with the Code, the PCG recommends that GLC Boards should refocus their time and
attention and spend about 80% of their time on the fundamental roles and responsibilities rather than on detailed
operational matters. And, in so doing, Boards should adopt a shareholders’ perspective and balance all valid
stakeholders interests.

Based on the current context of each GLC, it will be for the Board to determine a target mix of its roles and responsi-
bilities. For example, for a GLC in turnaround mode, the Board will want to spend much more time on managing
short-term performance, managing risk and focusing on getting the right individuals into select pivotal positions. A
GLC in growth mode, on the other hand, will want to spend more time on overseeing the company’s strategy and
the development of its future leaders.

3.1 Contributes to developing corporate strategy and setting targets

Defining a corporate goal or mission and defining the strategy to achieve it are integral to corporate success. The
Board plays a key role in the following three ways.

3.1.1 Guides the strategic direction

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Board should provide guidance and overall input on the overall strategic direction and aspirations early in the
planning cycle. To do this, Boards could draw on industry experts, market analysts or briefings by the internal strat-
egy teams – all of which allows the Board to deepen its knowledge and gain perspectives prior to providing input to
management.

3.1.2 Co-owns the strategy with management

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management typically bears responsibility in developing strategy, together with the Board that actively guides,
challenges, and clarifies the multiple views and assumptions put forward by management. Only through this
process will the end product be a strategy that both Board and management truly co-own. To reinforce this role, the
Board should attend a dedicated session every year to challenge and debate strategic options with management.

3.1.3 Sets targets for management

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After the strategy is decided, and the business plan and budget are completed, the Board should test the CEO’s
and senior management’s KPIs and targets to ensure that they reflect industry trends and internal capabilities –
yet still provide enough stretch and aspiration for management.

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 FULFILLING THE BOARD’S FUNDAMENTAL ROLES AND RESPONSIBILITIES

3.2 Upholds a strong corporate performance management approach

A basic but critical function of the Board is to oversee the performance of the company and determine if the
business is being properly managed. The most effective way to achieve this is through adopting a strong corporate
performance management12 approach built on the use of key performance indicators (KPIs).

3.2.1 KPIs provide a balanced view

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KPIs should be designed to link directly to the core values of a company’s strategy as pre-determined by the Board and
management. The Board should ensure that a balanced and holistic view is taken when establishing KPIs. In particular,
KPIs should reflect the company’s historical performance (for example, return on equity and EBITDA margin) and leading
indicators (for example, capital productivity or ROCE, number of customer complaints and attrition rate of high-
performing employees, quality of customer base, ‘employer of choice’ score and brand perception).

3.2.2 Reviews corporate performance and follows up

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The Board should receive regular performance reports that indicate the current status of all corporate KPIs. Based on
these reports, the Board should focus its discussions on any vital missed targets (or ‘red flags’) and constructively
challenge management to verify root causes, and propose or endorse an action plan to get back on track. The Board
needs to agree on who is accountable for executing these action plans and the timeline in which it expects these actions
to be taken. The Board should then follow up in later meetings to ensure that the actions have been taken and that the
expected impact has been achieved.

Similarly, the Board should note any ‘out-performance’ and discuss how such performance can be sustained.

3.3 Oversees development of the company’s future leaders and human capital

In a global environment, where securing critical talent and skills is becoming increasingly competitive, Boards have to
devote more attention to the issue of human capital management. For GLCs, the development and management of their
human capital is an even more acute issue as it is one of the biggest challenges that GLCs face. The Board has five
distinct responsibilities in this area.

3.3.1 Selects CEO and proactively plans CEO succession

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A critical role of the Board is to select the CEO based on the context of the company – including current performance
levels, competitive landscape, and aspirations of the company. Similarly, the Board should establish a clear succession
model. Prior to short-listing candidates, the Board should review a full fact-base of each candidate’s leadership
achievements and development areas. The Board should then get to know each candidate personally through
individual Directors and through dedicated Board sessions.

12 For details on how GLCs can improve performance management, please refer to ‘Blue Book Version 2.0 - Intensifying Performance Management.’

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CHAPTER 1 : SETTING THE GUIDELINES FOR GLC BOARDS

3.3.2 Reviews the performance management philosophy

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Management is responsible for evaluating the performance of each employee. However, the Board should approve
the methodology for company-wide rewards and consequences; ensure that there is sufficient differentiation in
performance, rewards and consequences among the entire employee pool based on their performance ratings; and
approve the final bonus pool.

3.3.3 Evaluates the CEO

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Upon selecting a CEO, the Board should ensure that clear expectations of the CEO are laid out in a CEO mandate.
This mandate should be aligned with the Board’s and company’s overall priorities, and should form the basis for
the CEO’s KPIs and targets.

Evaluations of the CEO should be conducted at least semi-annually. The CEO’s KPIs are the most relevant performance
indicators for the company and it is against these targets that the Board should evaluate the CEO’s performance.
It is also best practice for Boards to ensure that the employment terms, KPIs, targets and corresponding compensation
(including any variable performance-linked compensation) of CEOs are included in a contract.

3.3.4 Endorses performance and development plan of those in pivotal positions

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pivotal positions are the most crucial jobs with the potential to create or destory the most value to the company.
The Board needs to understand the current performance, competencies and potential of those in pivotal positions,
and endorse their performance and development plans based on discussions with management.

3.3.5 Understands the pool of future leaders

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Board should dedicate time to understand, and gain sufficient exposure to the overall pool of potential leaders.
This begins with understanding the current and future demand for potential leaders, consequently the magnitude
of any leadership gap that exists within the organisation today within the context of its current strategy. Based on
this, the Board should determine if the company’s aspirations need to be made more realistic in line with capabili-
ties available or if a new, more radical approach needs to be taken to boost the pool of future leaders. Beyond
understanding the overall quantity of leaders needed, the Board should also understand the strength and depth of
potential leaders across the group and by key business unit, major subsidiary and job level or grade.

20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 FULFILLING THE BOARD’S FUNDAMENTAL ROLE AND RESPONSIBILITIES

3.4 Understands and manages the company’s risks

Understanding and managing risks is critical in protecting the company’s value. The Board has three specific roles.

3.4.1 Sets the company’s risk parameters

.................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Board’s role is to establish the risk parameters, thresholds and boundaries for the company and ensure that
overall corporate risks are measured and thresholds are controlled within pre-determined limits.

3.4.2 Understands major risk exposures

.................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Board understands major risk exposures on an aggregate basis – that is, as far as possible, all risks are rolled into
a common metric such as ‘cash flow at risk’ or ‘value at risk’. Further, the Board ensures that there are sufficient
internal controls and clear mitigation plans for major risks and that these plans include accountabilities and timelines.
For major risks, the Board should also have a good sense of the costs and benefits of risk mitigation, which takes into
account the probability of occurrence and the magnitude of the impact of the risk.

3.4.3 Considers the risk factors in all major decisions

.................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Board ensures that a culture of identifying and managing risk exists throughout the organisation. One way to do this
is by setting the right example, and tone, and ensure that in-depth risk analysis and quantification is conducted for all
major investments or strategic decisions prior to decisions being made by the Board.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CHAPTER 1 : SETTING THE GUIDELINES FOR GLC BOARDS

3.5 Adopts a shareholders’ perspective when making decisions

The Board has a fiduciary responsibility to act in the best interest of the company. Fulfilling this responsibility can
take various forms.

Boards should take into account capital market perspectives when making financial and strategic decisions to
ensure long-term sustainable value creation. This means being proactive and developing an understanding of what
the capital markets expect from the company in terms of its performance and strategic movements and to ensure
that the company manages these expectations in a realistic manner. Board decisions must either meet those
expectations or demonstrate clear and valid rationale for not doing so.

Boards should also ensure that the views of majority or significant shareholders are considered, and adopted,
where such views are aligned with the interests of all shareholders. Further, minorities’ interests should also be
adequately protected. The most common mechanism to do this is to ensure that all related-party transactions are
on an arm’s-length basis and that such transactions are fully disclosed.

3.6 Balances valid stakeholders interests

GLC stakeholders include employees, customers, suppliers, regulators and the government. In making their
decisions, GLC Boards will have to carefully balance and manage the sometimes opposing interests of these groups
while considering the national development objectives of the GLCT Program.

Boards should first understand the economic impact of particular stakeholder interests on overall shareholder
value. For example:

(i) Employees: In trade union negotiations, the Board should be engaged on the economic impact of the negotia-
tions – including the benefits (such as intensifying performance management, which will result in better
financial performance) and the risks (such as the large costs associated with potential industrial action).

(ii) Government: GLCs often have to carry social obligations such as providing universal access to basic services
or develop a local and Bumiputera supplier base, even though it is uneconomical, or less than economical, for
the GLC to do so. The Board should be engaged on the economic impact of these social obligations – includ-
ing the benefits that the GLC derives (such as monopoly rights) and the actual costs associated with delivering
the service.

Boards must then balance and trade-off conflicting interests and the primary guiding principle to do this should be
to ask: what is in the best sustainable interests of all shareholders?

Finally, while it is management’s primary responsibility to manage these stakeholders, the Board can use its
network to support management in their efforts wherever possible. There are two ways that Boards can do this:
through proactively gaining the support of key stakeholders like regulators, unions, suppliers and new customers;
and through protecting the company by containing those stakeholders that have interests counter to that of all sharehold-
ers.

22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 CHAPTER 2
................ . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .
RAISING BOARD EFFECTIVENESS TO BEST PRACTICE LEVELS

15 .................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
15 ............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CHAPTER 2: RAISING BOARD EFFECTIVENESS TO
BEST PRACTICE LEVELS
GLC Boards are likely to have some specific questions as to how exactly to implement Board Improvement
Programs in order to raise their effectiveness to best practice standards. The purpose of this chapter is to answer
some of those questions and address issues common to all GLC Boards, especially those GLC Boards believe are
most difficult to overcome.

This information is structured in a question and answer format and includes useful examples and case studies to
provide further guidance.

Page

1 How can the Board define its mandate and boundaries with 24
management? How can the Board separate and balance the
Structuring a roles of the Chairman and CEO?
high-performing 2 How can Nominee Directors balance their obligation to the 27
Board company with their duty to the significant shareholder?
3 How can the Board select Directors who have skills and 28
experiences required by the company?
4 How can a parent company determine the Board composition 31
of its subsidiaries?
.. ............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5 How can the Board define its priorities and ensure that 32
Ensuring effective
these are aligned with the company’s overall priorities?
board operations
6 How to ensure that Board papers and presentations are of 33
and interactions
high quality?
.. ............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 How can the Board work more effectively with management in 35
setting strategy?
8 How can the Board uphold a strong corporate performance 37
Fulfilling the
management approach?
Board’s key roles
9 How can the Board oversee the development of the company’s 39
and responsibilities
future leaders and human capital?
10 How can the Board guide the management of the company’s 44
risks?

.. ............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
 CHAPTER 2 : RAISING BOARD EFFECTIVENESS TO BEST PRACTICE LEVELS

1 HOW CAN THE BOARD DEFINE ITS MANDATE AND BOUNDARIES WITH MANAGEMENT?
The role of Boards include overseeing strategy setting, corporate performance management, the development of
future leaders and human capital, and risk management. Because the roles of Board and management are comple-
mentary, it is important to clearly define the mandate of each party to find the right balance between support and
check-and-balance. Therefore, clear boundaries need to be drawn between the Board and management, such that
the Board avoids over-focusing on operational details, which are the responsibilities of management. Management,
in turn, should offer the Board open and transparent access to relevant information.

Within these broad boundaries, each GLC Board will need to determine, based on the context of the company, the
precise role that it will play relative to management, and this should be discussed and agreed upon with management.
The Board’s roles should then be codified in a Board charter or terms of reference. (An example of such a board
charter can be found in Appendix 3). Below is an example of how a typical Board might categorise the boundaries
between itself and management.

Exhibit 2.1
Boundaries between Board and Management: an example

Management’s role Board’s role

Strategy development Develops strategic direction and plan Guides strategic direction
and target setting for company based on agreed Challenges assumptions, priorities
direction and boundaries and options put forward by management
Coordinates the development of the in the strategic plan
business plan and budget across all Reviews the business plan and budget
business units and sets targets for management
. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Establishes corporate KPIs Reviews, approves and provides
management Monitors KPIs monthly with BUs, feedback on corporate KPIs and
investigates variances and develops targets
corrective actions if required Reviews results quarterly, discusses
Cascades KPIs throughout organisation material variances, and ensures that
corrective actions are taken if
required
. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Human capital Develops and implements the Selects and proactively plans CEO
management company’s performance management succession
system Reviews the performance management
Evaluates leadership performance and philosophy
potential of all executives Evaluates CEO
Identifies the top talent pool and closely Endorses the development plan of
manages their performance and those in pivotal positions
development plan Understands the pool of future
leaders
. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk management Analyses and quantifies the company’s Sets the company’s risk parameters
risks Understands major risk exposures and
Manages all risks within the boundaries ensures appropriate risk mitigation
set by the Board approach is in place
Instils risk culture throughout Considers the risk factors in all major
organisation decisions
. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders Understands needs of shareholders, Ensures that all shareholder views are
and communicates key decisions in represented and shareholders are
transparent manner treated equally
Ensures that all disclosure or any
other regulatory or statutory requirements
are fulfilled
. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stakeholder Manages all stakeholder interests Balances and manages economic
management within boundaries agreed with the impact of stakeholder interests on
Board shareholder value
Supports management in managing key
stakeholders
. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 BOARD’S MANDATE AND BOUNDARIES

The Board can take a more active role in operations if both of the following conditions are met:

The company is in crisis mode. This includes undergoing a major turnaround, or being under a sudden
external threat (for example, acquisition, changes in competition, new regulation), or facing a major inter-
nal risk
Management does not have the capabilities or the capacity to respond as the situation demands.

In this case, and if the Board decides it is necessary to take on a greater executive role, it should only be as an
interim measure. As a guide, it should typically be only up to 6 months – but in exceptional circumstances it could
be extended to a maximum of 12 months. During that time, a priority for the Board would be to recruit a new
management team.

There are three ways that Boards can play a greater executive role in such circumstances:

Require an increase in the frequency and depth of information provided to the Board. For example, in a
turnaround situation, this could include management providing weekly performance management reports
on cash and profit indicators and a snapshot of the company’s risk situation
Increase the frequency of Board meetings to provide more frequent updates as well as additional time to
delve deeper into important issues. For example, Boards that meet every quarter might now need to meet
monthly
Establish a Board-based Exco to address the situation. This is typically only a small subset of the Board,
which can balance the trade-off between having sufficient Board representation and making decisions
quickly. The Board should determine the mandate of the Exco and this can range from full power – the
ability to act for the Board between board meetings – to a narrower mandate for specific functions and
tasks – for example, limited to providing guidance to the new CEO during the transition.

Despite its ability to facilitate Board decision making, the Exco structure has two major shortcomings - it could usurp
the role of the Board or create a two-tier Board and demotivate those Directors who are not Exco members.

To overcome this,
Exhibit 2.2
Boards can adopt a
Characteristics of Exco Board: an example
number of measures,
Purpose such as limiting the
 To enable the Board to act in between full board meetings purpose or authority of
 To develop response to hostile take-over bid
Excos, or allowing defer-
Scope/authority Membership ral of decisions to the
 To analyse options, determine appropriate Size: 4 full Board, or allowing
reponses and negotiate with hostile bidder Chair: Chairman of the Board
 To take any action or perform any task
the Board to review Exco
Other members:
requested by the Board  CEO decisions.
 Directors X,Y,Z

Decision making Meeting frequency Resources

 Majority vote of members in  As frequently as needed,  Company secretary to
attendance with a minimum of every acts as Exco secretary
2 weeks Resources
 Exco typically has authority
 Unanimous written consent
 Written report to rest of Board to retain external advisers as
in absence of physical every 2 weeks.
meeting necessary
 Any Exco member can Timeline
request deferring a decision
until next full board meeting  Maximum of 6 months

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CHAPTER 2 : RAISING BOARD EFFECTIVENESS TO BEST PRACTICE LEVELS

As part of defining its boundaries with management, it will be important to separate and balance the roles of the
Chairman and CEO. The Chairman, as leader of the Board, is the person primarily responsible for the overall effec-
tiveness of the Board- both within and outside the Boardroom. The CEO, on the other hand, runs the company and
is responsible for ensuring the company achieves its strategy and targets.

Exhibit 2.3
Division of roles: Chairman and CEO

Chairman roles Potentially shared roles CEO roles

 Provides leadership to the Board  External relations, including  Develops and implements strategy,
- Plans Board meetings, agenda relationship with reflecting long-term objectives and
- Ensures Board receives shareholders priorities established by Board
proper information in timely  Senior leadership  Assumes full accountability to
manner development Board for all aspects of company
- Chairs all Board meetings operations and performance
- Ensures that all Directors  Puts adequate operational plans
contribute and financial control systems in
place
- Drives discussion toward
consensus and to achieve  Closely monitors operating financial
closure on such discussions results in accordance with plans
and budgets
 Chairs shareholder meetings  Represents company to major
 Acts as company’s ambassador, customers, employees, suppliers,
both within domestic market and and professional associations
internationally

While the roles are complementary, there may be some overlaps which could generate conflict. Even though the
Board is formally responsible for determining the roles of the Chairman and CEO, ensuring there is clarity and
shared understanding from the start will reduce any confusion and limit conflict. Best practice calls for the
responsibilities of each role to be set out in writing and reviewed periodically.

Choosing a Chairman-CEO combination that works together in an atmosphere of mutual trust is particularly impor-
tant. The right combination will create the right environment for co-operation, facilitate the flow of information, and
help the Chairman to be an effective mentor to the CEO and to revel in his or her success.

26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 BALANCING NOMINEE DIRECTORS OBLIGATIONS

2 HOW CAN NOMINEE DIRECTORS BALANCE THEIR OBLIGATION TO THE COMPANY WITH THEIR DUTY TO THE
SIGNIFICANT SHAREHOLDER?

Large or significant shareholders can nominate a number of Directors to the Board. The number of Directors is
usually proportionate to the size of the shareholder’s investment in the company.

These Nominee Directors have two main responsibilities: the fiduciary responsibilities that is common to all Directors
(namely, to act in the best interests of the company which in the majority of cases means the shareholders as a
whole) and the responsibility to accurately represent the views and opinions of his principal, the large, significant or
major shareholder.

Current judicial development in the Commonwealth jurisdictions1 suggest that Nominee Directors will not be in
breach when they act with the interests of their principal other than the company in mind, provided they have a genu-
ine belief that in so doing they are acting consistently with the interests of the company as a whole.

However, in the event that these responsibilities do conflict, the Code recommends that nominee Directors’ primary
obligation is to act in the best interests of the company and that their duty to the large or significant shareholder must
always be subject to this.

1 Re Broadcasting Station 2GB Pty Ltd (1964-65) NSWR 1648; Berlei-Hestia (NZ) Ltd v Fernyhough [1980] 2 NZLR 150; Cumberland Holdings Ltd H Soul
Pattinson & Co Ltd (1977) 2 ACLR 307 at 318; Re News Corporation Ltd (1987) 70 ALR 419 at 436

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
 CHAPTER 2 : RAISING BOARD EFFECTIVENESS TO BEST PRACTICE LEVELS

3 HOW CAN THE BOARD SELECT DIRECTORS WHO HAVE SKILLS AND EXPERIENCES REQUIRED BY THE COMPANY?

Even though Directors on any high-performing Board should be effective on an individual basis, it is more important
that the collective ability of all Board members represent the skills and attributes required by the company. In
determining which relevant skills and experiences are required, the company’s current needs, its stage of develop-
ment and its aspirations should to be taken into account.

With the evolving strategic, operational and geographic priorities of many GLCs, companies require Directors that
have deep commercial, functional, geographical and/or relevant industry skills, knowledge and experiences.

DIRECTORS MUST BE INDIVIDUALLY EFFECTIVE

Individually, Directors need to have the relevant knowledge and skills to be able to identify key issues, construc-
tively challenge, collaborate to solve problems, propose alternative solutions and support management. In
addition, it is important that Directors have the right mindset, integrity and motivation to be able to act in the interest of
all shareholders. Within the Malaysian context, Directors must also understand, and be sensitive to, the national develop-
ment objectives of GLCs.

Exhibit 2.4
Ideal characteristics of an effective Director

Understands fiduciary responsibility as a Director

Understands the fundamental roles and responsibilities of the Board and Directors
Understands and adheres to the clear boundaries between the Board and management
Understands key industry trends (e.g. competition), geographies, and functions (e.g.
Knowledge operational, legal, technical) that are most relevant to the company
“What a Director Understands Malaysian cultural, social, political and developmental context
knows” Knows the company well enough at the right level of detail (e.g. where profit is
made/lost, how customers buy, how things get manufactured, what are major talent
gaps in critical positions)
Understands shareholder expectations (e.g. dividend expectations, growth forecast)
and knows key stakeholders (e.g. suppliers, regulators)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actively and constructively solves problem (e.g. share, challenge and close) with the
Board and key management
Skills Decisively challenges, then supports, management
“What a Director can Possesses business acumen from prior experiences to identify key issues and propose
do” solutions
Proactively uses networks and manages multiple stakeholders for the benefit of the
company
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Believes that performance of Director is critical (requires performance measures and
consequences) and that the position is earned, not an entitlement
Mindset Balances all shareholder and valid stakeholder interests while representing views of
“What a Director GLIC (if nominee)
believes” Behaves like an owner of the company and feels accountable to the company
Has the integrity and courage to not act in self-interest and dissent when required
Willing to invest adequate time and effort and not spread too thin across too many
responsibilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 SELECTING DIRECTORS WITH SKILLS AND EXPERIENCES REQUIRED BY THE COMPANY

COLLECTIVE BOARD SKILLS AND EXPERIENCES IN LINE WITH COMPANY’S REQUIREMENTS

Considering the current needs, stage of development and aspirations of GLCs, the collective skills and experiences
required of Directors can be achieved through:

Appointing people who have led large organisations or divisions to deliver superior financial performance or
who have grown successful entrepreneurial companies
Supplementing this by selecting Directors based on their specific relevant functional or industry knowledge,
skills and experience.

Many high-performing Boards have a significant proportion of current or former CEOs from other companies, who can
contribute greatly from their practical experiences as stewards of their own companies. Below are some examples of
Boards of telecom companies that include Non-Executive Directors who are, or were, CEOs, MDs, SVPs or heads of
large business units.

Exhibit 2.5
Composition of directors at Telecom Boards: case examples

Percent of Non-Executives Directors with experience leading large organisations/ divisions

President Siam Cement, CEO CEO MTR, CEO HK Stock Exchange/

Lend Lease Australia, MD HDFC Citicorp HK, CEO ChinanetCom, CEO
India, ex-CEO Perpetual Trustees, Bank of East Asia, ex-CEO HSBC US/
CEO DBS, ex-CEO Sara Lee Middle East; ex-CEO of Li & Fung
Indonesia
CEO Yuhan-Kimberly,
CEO Metropolitan Life,
CEO SET Asset Korea,
70 69 CEO Seil Tax
Accounting
50 50
43

Souce: company websites; annual report

These Directors contribute to their Board and companies in the following ways:

Inject business acumen, particularly in helping the management team to prioritise issues, identify solutions,
and make decisions that maximise shareholder value
Proactively use their networks to advise and benefit the company, including contacts with influential
business colleagues or government
Understand and respect the clear boundaries between Board and management.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
CHAPTER 2 : RAISING BOARD EFFECTIVENESS TO BEST PRACTICE LEVELS

Exhibit 2.6
Board composition at Kookmin Bank: a case example

Board composition:
composition Total 13 Directors, 9 Non-Executives, 4 Executives

Non-executive Directors that have been CEOs of large companies

- Chairman and CEO,
CEO Fuji
FujiXerox
XeroxKorea
Korea
- President & CEO,
CEO LG
LGHousehold
Household&&Health
HealthCare
Care
- CEO,
CEO Joonang
Joonang Ilbo,
Ilbo, Sisa Media
Media

- Executive Directors that
(excluding
have led
current
majorCEO)
business
who units
have led major business units
- Former MD
MD,of
SME
SME
Business
Business
&&Consumer
Consumer Finance
Finance
Citibank
Citibank
- Former CEO
CEO,Kapco
Kapco and
and CFO
CFO,Citibank
CitibankSeoul
Seoul
- Former Country Manager,
Manager ING
INGBank
BankJapan
Japan

A financial service example is Kookmin Bank, a successful bank in Korea that has recently undergone a transformation.
Kookmin has a strong Board made up of former CEOs from reputable Korean companies, a leading lawyer and respected
academics. In addition, Kookmin’s senior management, who are represented on the Board, include former heads of large
banking divisions with international experience across North Asia.

Through mapping the existing skills and experiences of the Board against the company’s requirements, any gaps can be
quickly identified. Subsequently, a more targeted search for Directors with specific skills and experiences can be
conducted.

This mapping should also be conducted by the Nominations Committee every year to review the balance of skills and
experiences of the collective Board. This will guide the committee in establishing the selection criteria for new or additional
Directors.

Exhibit 2.7
Skill review of Board composition of a property development conglomerate: a case example

Nature of business Gaps in

Required experiences Current Directors
current board
• Property development
A B C D E F New
conglomerate with
construction, hotel
Legal
management, and basic
material (e.g. cement and Risk & audit  
Function

steel) subsidiaries
M&A  
Performance of company
Finance  
• Financial performance has
not met market expectations
Marketing

over the past year Operational 
turnaround
• Limited growth in domestic
construction sector
Construction  
Industry

• Revenues increasingly
dependent on hotel
Hotel management 
management where facing Cement  
stiff competition from
international players Steel 

In addition, the skills and capabilities of Directors can be upgraded through training and development programs - by
existing providers such as ICLIF or the upcoming Directors Academy.
30 . . .. . . . . ......... ....... .............................. . . .
 SUBSIDIARY BOARD COMPOSITION

4 HOW CAN A PARENT COMPANY DETERMINE THE BOARD COMPOSITION OF ITS SUBSIDIARIES?

Subsidiary2 boards, like all boards, should have a balanced composition – a mix of representation from manage-
ment, representation from parent company or major shareholders, and external or independent members.

As laid out in Chapter 1 of this Green Book, there should be no more than two Executive Directors, with a maximum
of 30% of the total Board – representing the management of the subsidiary on the Board of the subsidiary.

In the event that the subsidiary is listed, the Code and reinforced through the Bursa Securities Listing Requirements3,
require that the higher of two Directors or one-third of the Board must be independent.

The remaining Board positions can be filled with nominees of the major shareholder in this case the parent company.

CONSIDERATIONS FOR THE PARENT COMPANY IN SELECTING NOMINEE DIRECTORS

There are three categories of potential candidates that the parent company can select from to fill the remaining
positions – (i) group or parent company management, (ii) parent company Board members, or (iii) parties external to
the parent company.

Subject to the shareholders’ agreement and the M&A, the parent company should ensure that the Board is balanced
and consider the following factors, among others:

Need for specific skills or knowledge as required by the subsidiary

Need for group or parent company management to be sufficiently empowered and accountable to effect
changes at the subsidiary
Need for parent company Board to have sufficient oversight and control over the subsidiary.

Where the subsidiary needs specific knowledge and skills at Board level that go beyond what the group or parent can
provide, then external parties should be appointed to the Board.

Having group or parent company management, such as Group CEO or Group CFO, on the Board of the subsidiary,
empowers those who are accountable for the performance of the subsidiary. However, there are benefits to having
Non-Executive Directors from the parent Board be on the subsidiary Board, such as:

1. When Directors from the parent Board have deep knowledge or experience of particular relevance or value
to the subsidiary
2. When group or parent management do not have the depth or when additional Board responsibilities would
overstretch them
3. When the performance of the subsidiary is poor and it is strategically important or a large contributor of
profits, and greater oversight from the Main Board is required
4. When internal systems of controls or checks and balances are weak
5. When exposure to the subsidiary business would increase the overall Main Board’s understanding of the
company.

2 Including wholly-owned, partly-owned and listed subsidiaries

3 Paragraph 15.02

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
 CHAPTER 2 : RAISING BOARD EFFECTIVENESS TO BEST PRACTICE LEVELS

5 HOW CAN THE BOARD DEFINE ITS PRIORITIES AND ENSURE THAT THESE ARE ALIGNED WITH THE COMPANY’S
OVERALL PRIORITIES?
A Board charter should define the priority issues or topics for the Board and also set out the Board’s role for
addressing these topics - especially with respect to management. Once these priority topics are defined, then the
Board’s agenda should be limited to these topics, ensuring each Board meeting is focused and productive.

However, to define the priority issues or topics for the Board, there must first be a shared understanding – among the
Board members and between Board and management – on the overall direction of the company.

To develop this shared understanding, the Board must, among themselves and with management, agree on
the following:
An objective assessment of the company’s current situation – that is, the outlook for the company if it
continues to perform at current pace and levels
The future aspirations of the company within a pre-determined time frame. These aspirations should be
articulated in terms of financial and non-financial metrics (for example, economic profit of RM 1 billion in
5 years and top 3 by market share in South-east Asia in 3 years).

The priorities for the company can be determined based on the company’s current situation and future aspirations -
for example, dramatically cut costs by 20%, diversify revenue streams immediately, or develop footprint in 2 to 3
ASEAN markets either through acquisition or alliance within the next 3 years.

These priorities for the company should then guide the Board in its consideration of its priorities, which will then form
the basis for future Board meeting agendas. It should be on these critical issues that the Board focuses its time and
attention.

The Board should also communicate a clear mandate to the CEO and management while ensuring that both Board
priorities and management mandate are aligned to the company’s overall priorities. This mandate is a good way for
the Board to lay out its expectations for management and therefore it should be precise and have well defined param-
eters.

Exhibit 2.8
Five questions that a mandate for CEO and management should answer:

Example for an integrated financial services player

What are you going to accomplish?

1. What are you going to accomplish? 1. Broad Southeast Asia footprint, with leadership
position in domestic and 2 ASEAN markets

2. .. .. .. to
to what
what standard?
standard? 2. #1 in terms of overall market share. #1 in terms of
credit card market share. ROE of at least 15%

3. .. .. .. by
by when?
when? 3. By June 2008

. . . for which stakeholder?

4. 4. Voluntary employee attrition and customer
satisfaction rates to remain at current levels

5. .. .. .. within
within what boundary conditions?
what boundary conditions? 5. Full flexibility with respect to hiring management,
rewarding performers and managing-out non-
performers

32 . . .. . . . . ......... ....... .............................. . . .

 ENSUIRNG BOARD PAPERS AND PRESENTATIONS ARE OF HIGH QUALITY

6 HOW TO ENSURE THAT BOARD PAPERS AND PRESENTATIONS ARE OF HIGH QUALITY?

A common complaint among Boards is that Board papers are long and difficult to read or that they lack critical
information or analyses. To overcome this problem, the Board needs to set clear expectations upfront on the quality
and timeliness of material they need, and then provide an appropriate mechanism for both Board and management
to obtain ongoing feedback.

Boards need to set the standards for their Board papers. This can be done by providing a template and ensuring that
the material has been reviewed by an accountable senior manager whom the Board trusts. Typically, Board papers
should be preceded with a short, synthesised executive summary that includes:

Action required for Board – whether it is for approval, noting or input

Responsible parties who prepared and reviewed the report
Essence of the case which summarises the objective and context of the paper
Key issues and risks, with a clear response plan
Required actions with clear accountabilities and timelines.

In addition, the Board can showcase particularly good papers and presentations internally after making sure that any
sensitive information is removed. This will provide management with a clear benchmark.

Exhibit 2.9
Executive summary: an example

BOARD PAPER AGENDA 5 (i)

Topic: Consolidation of 8 loan processing centres (LPC) to 3
: Approve decision to consolidate
Action required:
Submitted by: GM, Operations Reviewed by: Head, Retail Bank

Objective Risks/ challenges

• Consolidate 8 LPCs to 3 (KL, Penang, JB) to serve • Need to reassign redundant employees and
the West Coast of Peninsular M’sia in mid-Jun ‘06 manage unions
• Savings of RM 2m p.a. (50 employees redundant, • Lease of 2 locations only expire in 2009
another 30 employees reassigned)

Context/ analysis Implementation plan

• Consolidation is part of Wave 2 of operations • Additional machinery and space at
efficiency improvement; 6 other local banks have KL,PP, JB currently being sourced –
done so and transportation network has improved Ahmad by 25/4
• Pilots (Dec ’05-Feb ’06) in PP showed 40% • Reassign notified staff – HR from 18/3 in
increase in labour productivity from scale benefit 3 phases
• Documents to be packed, and moved in
stages – Ali from 30/5 to 30/6

Other options considered and recommended decision

• Consolidate from 8 to 5 • Savings RM0.5m p.a. insufficient to justify ‘project effort’

• Consolidate from 8 to 1 • Need back-up centre for risk mitigation purposes; 35% probability of
missing BNM deadline caused mainly by reliability of transport
network; Additional savings marginal (+RM0.3m) due to difficulty of
reassigning staff in JB and Penang

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
CHAPTER 2 : RAISING BOARD EFFECTIVENESS TO BEST PRACTICE LEVELS

Boards must choose an appropriate feedback mechanism to ensure that materials are useful and timely. For
example, one leading Malaysian non-GLC Board has adopted a practice where all Board papers and presentations
are subject to a ‘rating’ or ‘grade’ as a way to provide feedback to management. This is done immediately after the
Board meeting and, has over time, benefited both Board and management.

To implement such a practice, Boards need to do the following:

1. Establish and agree with management the evaluation criteria that will be used
2. Communicate criteria to all relevant management
3. During the meeting, put feedback in writing (verbal comments can also be passed to the CEO)
4. Collate all input from Directors immediately after the meeting and disseminate to relevant management
team members. (For most Boards, this will be the responsibility of the Company Secretary).

Exhibit 2.10
Board feedback form: an example

Topic: RMX million investment into technology X

Submitted by: Chief Technology Officer
Reviewed by: Director A

Rating* Supporting Remarks Recommendations

Board Paper 4
Clear objectives, easily
Shorten paper – for

Conciseness understood and well laid example section on

Clarity out with clear messages background could have

Structured supported by facts and been abbreviated

Analytically robust analysis

Presentation/
2
Poor management of
Start presentation with
Discussion
time, stuck in background key arguments and

Use of time
rather than focusing on rationale for investment

Quality of
articulation rationale and need for

Synthesise and articulate
investment

Focused on key messages rather than
core issues just reading ‘off the slide ’

* Scale of 1 to 5, where 5 is highest

The Chairman is responsible for ensuring that the feedback is specific, objective and constructive for management.
And, as feedback is being provided to management, Directors should also be prepared to receive feedback from the
CEO on behalf of the management team that addresses their contribution to the discussion.

34 . . .. . . . . ......... ....... .............................. . . .

 WORKING MORE EFFECTIVELY WITH MANAGEMENT IN SETTING STRATEGY

7 HOW CAN THE BOARD WORK MORE EFFECTIVELY WITH MANAGEMENT IN SETTING STRATEGY?

Boards should co-own the corporate strategy with management. Management typically bears responsibility for
developing the strategic plan, but true alignment between the Board and management can only be achieved when
the Board also plays an active role in the development of the strategy. Specifically, the Board is responsible for:

Guiding the strategic direction

Challenging management’s strategic plan
Reviewing the business plan and budget and setting management’s targets.

GUIDING THE STRATEGIC DIRECTION

Early in the planning cycle, the Board should clarify its expectations of management and guide the strategic direction
of the company. Management, usually the corporate planning or strategy function, should provide the Board with
synthesised information on industry trends, competitive behaviours, and the capital market’s current perspective on
the company (for example via analyst reports). Some companies choose to disseminate such information via a
dedicated Board meeting or an off-site session. In such instances, industry experts can be invited to present their
views rather than having printed material made available to the Board.

CHALLENGING MANAGEMENT’S STRATEGIC PLAN

Once the strategic direction has been established, management is responsible for translating this into a strategic
plan. Once developed, Board and management hold a dedicated session – typically a 1 to 2 day offsite meetings to
minimise any distractions – where the Board challenges the assumptions, priorities and options put forth by manage-
ment. It is through this ‘challenge’ session that Board and management can have a rich and deep discussion which
ultimately allows the Board to co-own the strategy.

Each major business unit should

provide in its strategic plan: Exhibit 2.11
Agenda for Board strategy offsite session for a conglomerate:
Alternative strategies considered an example
Best, worst and most likely
Day 1 Day 2
scenarios
09:00 - 11:00 • Analyse and discuss root
Analyze 09:00 - 10:30 • Assess groups ability to
Key financial and non-financial causes for any variances in extract value from portfolio
performance
measures to track the strategy’s – At portfolio level 10:30 - 11:00 • Break
– At each business unit
success 11:00 - 13:00 • Assess risk/return and
11:00 - 11:30 • Break maturity of portfolio and
Major risk factors and how organizational capabilities to
organisational
11:30 - 13:00 • Review and challenge the manage the portfolio
management intends to address strategic positioning of each
business unit and its relevant 13:00 - 14:00 • Lunch
them industry (including SWOT
analysis, market trends, 14:00 - 16:00 • Develop 5-year portfolio with
Resources required: people and competitor positioning, corresponding key targets for
macroeconomics) each business unit
capital – business unit 1
16:00 - 16:30 • Break
13:00 - 14:00 • Lunch
16:30 - 18:00 • Finalise action plans and
Finalize
14:00 - 15:30 – business unit 2 commitments
15:30 - 16:00 – business unit 3

16:00 - 16:15 • Break

16:15 - 17:00 – business unit 4

17:00 - 18:00 – business unit 5

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CHAPTER 2 : RAISING BOARD EFFECTIVENESS TO BEST PRACTICE LEVELS

Exhibit 2.12
Board’s role during a strategy offsite session: thought starters

Objectives of Board Potential questions for the Board to ask

Ensures robust
Test assumptions about the market
What assumptions have you made about
strategies (customers, competitors, regulation, market trends, competitors, customer needs? If
technologies) you are wrong, how will this affect your

Add creative insight strategy?

Check that full range of strategic
What have you assumed about the
choices are considered opportunities your competitors will pursue in

Push boundaries on upside potential the same period?
and downside risks
If you had to triple your growth, which new

Force honest assessment of businesses would you enter?
company’s strengths and
What strategic choices are you making with
weaknesses this plan? What choices or ideas are you
rejecting? Under what situation would you
choose differently?

Ensures good
Verifies that short-term budgets
How many customers did we survey to back
process reflect required investment to achieve this critical analysis?
longer-term strategic objectives
How were the markets around the world

Forces rigorous, fact-based analysis understood?

Lends credibility to conclusions/
How have you ensured that the strategic
direction initiatives have been resourced?

The output of the strategy offsite is an agreed draft strategic plan, which management then uses as a basis for
developing its more detailed business plan that includes the operating plan, 12-month rolling budget and a mid-
term forecast (say 3 years). Such planning is usually conducted at the business unit level, with the corporate
planning or strategy function coordinating across the business units to derive the overall corporate level plan and
budget.

REVIEWING THE BUSINESS PLAN AND BUDGET, AND SETTING MANAGEMENT’S TARGETS

Once the business plan and budget is finalised, the Board has the responsibility to review and approve them. In so
doing, the Board should test the management’s proposed targets to ensure that they reflect industry trends and
internal capabilities, yet also provide sufficient stretch or aspiration to challenge management.

36 . . .. . . . . ......... ....... .............................. . . .

 UPHOLDING A STRONG CORPORATE PERFORMANCE MANAGEMENT APPROACH

8 HOW CAN THE BOARD UPHOLD A STRONG CORPORATE PERFORMANCE MANAGEMENT APPROACH?

Boards should provide oversight and the necessary checks and balances to ensure that the company’s strategy and
corporate targets are being achieved. To achieve this, the Board has two main responsibilities, namely to:

Review and approve the corporate KPIs and targets

Regularly review corporate performance.

REVIEW AND APPROVE THE CORPORATE KPIs AND TARGETS

Through the strategy planning process, management will develop operating plans and budgets which the Board
should review and approve. As part of these plans, KPIs and corresponding targets will be proposed by management.

The Board should test management’s proposed corporate KPI’s and targets to ensure that they are linked to the
underlying strategy and measure both direct value creation for shareholders and any other concrete social or develop-
ment objectives of the company. In addition, these KPIs should be balanced and include measures that reflect the
company’s current performance as well as its future health.4

REGULARLY REVIEW CORPORATE PERFORMANCE

The Board should regularly reviews the performance of the company against its targets. While the frequency with
which Boards should conduct this review will vary depending on the context of the company, the minimum is at least
once every quarter.

Boards should review a corporate scorecard to highlight the most important KPIs for the company and to track the
company’s performance against its targets.

Exhibit 2.13
Corporate scorecard: a telecoms example
Monthly YTD

Group
EBITDA R Y
Performance

Market share G G
Mobile
Churn G G

Fixed
ARPU G G

Opex / line R Y
Broadband
Penetration R Y

Capex
ROCE
ROCE R R
Health

Customer satisfaction
CSI vs.

competitors R Y
Employees
No.
No. of
of leaders
leaders Y R

4 Information on how to define KPIs can be found in the Blue Book v 2.0, Guideline 1.1 and its supporting materials.

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CHAPTER 2 : RAISING BOARD EFFECTIVENESS TO BEST PRACTICE LEVELS

When reviewing the company’s performance, the Board should focus its discussion on material ‘missed’ targets,
particularly to understand the root causes. Thereafter, the Board needs to be confident that the proposed actions,
accountabilities and timelines are adequate to rectify the situation.

To aid the Board in having a productive discussion, management should prepare synthesised reports (such as the
one illustrated below). Both the CEO and senior management should guide the Board’s discussion around the
issues raised in this report and ensure that its implementation occurs.

While the majority of discussion should be on ‘missed’ targets, it is still important that good performance or ‘green
flags’ are acknowledged. Factors for success should be identified and replicated to other parts of the business.

Exhibit 2.14
Performance management report and examples

Dec ’05 YTD

KPI status status Root cause Actions to rectify Responsibility Timeline

EBITDA
Lower EBITDA caused by lower
Review pricing scheme of
Min, SVP Operations
15/6/06
R Y revenues from broadband, and higher broadband packages
opex from mobile

Freeze all discretionary cost
Rizal, CFO
15/3/06
spending in mobile

Mobile’s lower revenue driven by
Refocus marketing campaign
Ahmad, GM product
25/5/06
increased churn with new competitor on customer segments not development
introducing introductory promotional targeted by new entrant
pricing

Mobile market
Higher than expected acceptance of
n/a
n/a
n/a

share G G new marketing plan that target growing
customer segment

ROCE
175% cost overrun for CRM system
Review budget and identify
Ali, Chief Procure-
15/3/06
R R areas to lower specs ment Officer

Implementation of cable delayed by 3
Identify bottlenecks of
Mojan, Project
31/4/06
months project Manager

Add another project manager
Soo, SVP HR
30/3/06

Specific activities proposed Clear accountabilities

to rectify the situation and timelines

38 . . .. . . . . ......... ....... .............................. . . .

 OVERSEEING THE DEVELOPMENT OF THE COMPANY’S FUTURE LEADERS AND HUMAN CAPITAL

9 HOW CAN THE BOARD OVERSEE THE DEVELOPMENT OF THE COMPANY’S FUTURE LEADERS
AND HUMAN CAPITAL?

The CEO, aided by the head of HR, is ultimately responsible for identifying, developing and retaining the company’s
talent pool. In particular, the CEO should have the discretion to appoint, evaluate and subsequently determine
consequences (positive or negative) for senior management. This talent pool becomes the responsibility of the
CEO, who is then personally involved in managing their development.

However, the Board has five distinct roles in overseeing the development of the company’s future leaders and
human capital:

Select CEO and proactively plan CEO succession

Review the company’s overall performance management philosophy
Evaluate the CEO
Endorse the performance and development plan of those in ‘pivotal positions’
Understand the pool of future leaders of the group and of each business unit

SELECT CEO AND PROACTIVELY PLAN CEO SUCCESSION

Selecting the CEO is the most significant task for the Board as, ultimately, the CEO is the person responsible for the
operation of the company. More and more, investors are insisting that Boards have a credible CEO succession plan in
place.

Based on the context of the company, including current performance levels, competitive landscape and aspirations of
the company, the Board should establish the criteria for skills and experiences that the new CEO must meet and
the Board should also decide which model is the best match for the company’s culture and requirements for CEO
succession.

There are, broadly, three main types of

Exhibit 2.15
CEO succession models. The first
CEO succession models
model, a ‘relay race’ involves the Board
selecting one successor and ensuring
“Relay race”
that the current CEO gradually grooms
One candidate from
internal organisation, the heir to ensure that he or she will
Daft “Passing the Isdell handpicked by Board
baton” have the necessary knowledge and
skills to take over successfully.
“Horse race”
Candidate selected from
several contenders within
Welch “Contenders” Immelt the organisation

“Greyhound race” Candidate selected from

larger pool within and
outside the organisation,
Morrison “Hound and hare” Conant typically with more formal
selection process

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CHAPTER 2 : RAISING BOARD EFFECTIVENESS TO BEST PRACTICE LEVELS

The other two models involve competition between several candidates. In the second model, the ‘horse race’,
several candidates from within the organisation compete and the Board selects the most successful candidate
based on agreed criteria.

In the third model, the ‘greyhound race’, the pool from which candidates are selected from is wider and will include
external candidates in addition to internal ones. This model requires a large time commitment from the Board. It is
typically only used when there is a distinct leadership gap within the company or when the company’s performance
or strategy has changed dramatically, requiring a radically different style of leader.

Once the succession model has been chosen and the selection criteria agreed, the Board through individual directors,
should get to know each candidate personally. If the candidates are from inside the company, the Directors should
play a coach and mentor role and dedicate several working sessions with the candidates each year.

REVIEW THE COMPANY’S OVERALL PERFORMANCE MANAGEMENT PHILOSOPHY

Management is responsible for evaluating the performance of each employee. However, the Board should be
involved in ensuring that there is sufficient intensity in the individual performance management process – in other
words, that there is sufficient differentiation between the rewards and consequences between the ‘A’ players and
the ‘E’ players. At the beginning of the year, the Board should approve the compensation policies and guidelines;
at the end of the year, the Board should review the distribution of employees by performance grades and the subsequent
related bonus payouts.

Potential questions for the Board to ask

Exhibit 2.16
to intensify performance management:
Review of performance distribution
Is there a wide enough
ILLUSTRATIVE
distribution overall? By business?
5-10% 80-90% 5-10% By management layer?
Does the distribution of people
performance correlate with the
distribution of business
performance?
Least effective Core (affirm and grow) Best (invest How widely do the rewards
(act decisively) heavily)
Group (including salary and promotion)
BU 1
BU 2
vary with performance?
Top executives What proportion of the bottom 5 to
Middle management
10% have left the company?

40 . . .. . . . . ......... ....... .............................. . . .

 OVERSEEING THE DEVELOPMENT OF THE COMPANY’S FUTURE LEADERS AND HUMAN CAPITAL

EVALUATE THE CEO

The Board should ensure that clear expectations of the CEO are laid out in a ‘CEO mandate’. (See question 5 for
an example of such a mandate). This mandate should be aligned with the company’s, and the Board’s, priorities.

This mandate forms the basis for the CEO’s KPIs and targets, against which the Board should evaluate the CEO. In
line with the ‘Blue Book version 2.0: Intensifying Performance Management’, it is best practice that the CEO’s KPIs
are balanced and linked to the strategy of the company, are formally agreed to between the Board and CEO and
codified in an employment contract, and that targets are clearly linked to compensation.

The performance of the CEO should be reviewed semi-annually, and the consequences of performance – both
positive and negative – should be followed through.

ENDORSE PERFORMANCE AND DEVELOPMENT PLAN OF THOSE IN PIVOTAL POSITIONS

Pivotal positions are the most crucial jobs with the potential to create or destroy the most value to the company.
It usually includes, but is not limited to, the CEO’s direct reports. For this reason, the CEO is personally responsible
for identifying these positions and evaluating the people in these positions.

Management will have to determine for themselves the appropriate number of positions that will be deemed to be
pivotal. One way to approach this is to consider the complexity of scope and geography of the company. For
example, a single-line, domestic business might have 10 to 15 pivotal positions, while a multiple business line
conglomerate that is becoming more regional could have 25 to 50. A global multiple line business that is involved
in many parts of the value chain could have up to 100 pivotal positions.

The Board’s role is to endorse the individuals’ performance and their development plans. The Board can contribute
to, and challenge, these plans and the CEO is responsible for implementing those plans.

Exhibit 2.17
Potential questions for the Board to ask:
Pivotal positions: an example

Is there a good match between the

Position Employee Potential
Pivotal Gold Standard
positions and employee potential?
Non-
pivotal
High potential What actions should we take, if any?
Low
performance
Who are their likely successors?
Do we have sufficient depth in these
positions?
Are future leaders being developed by
deploying them in positions that would
stretch them?

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CHAPTER 2 : RAISING BOARD EFFECTIVENESS TO BEST PRACTICE LEVELS

UNDERSTAND THE POOL OF FUTURE LEADERS OF THE GROUP AND OF EACH BUSINESS UNIT

The CEO’s and management team’s shared responsibility is to develop enough leaders within the company so that
the chosen strategy can be implemented. However, the Board should also have visibility and understand the extent
of any leadership gap within the company.

Exhibit 2.18
Leadership gap analysis: an example

Number of people, 3-year horizon

25 395 310
95

255 20

85

Current Leaders Attrition Leaders Leaders Total Leadership

leadership required to over next 3 required to required to leadership gap
supply meet current years meet deliver demand
business business additional
requirements growth initiatives

Each company should determine, based on its current strategy and future aspirations, its own definition of a
‘leader’. In some cases, this will be limited to senior and middle managers but in others it will also include individu-
als with specific technical or industry knowledge.

The Board should also understand the strength and depth of leaders across the group: by business unit, by subsidiary,
and by job level. One template or framework that is used by many leading companies globally is a performance
evaluation matrix that provides the Board with a quick snapshot of the performance and potential of employees
across the organisation. The task of evaluating each individual is management’s, but the Board should understand
the implications of the overall leadership pool.

Potential questions for the Board to ask:

Exhibit 2.19
Performance evaluation matrix: an example
Do we have a healthy proportion
Distribution of performance and potential of ‘stars’? How healthy is
High
Under Promising Star this by business unit and job
perform 25% 10%
Potential level?
(e.g. leadership, 10% Dependable
values, other Medium 5% 25% How many of each type of leader
competencies)
are we short of (e.g. marketing,
Failure Steady achiever
5% 25% operations)?
Low
Low Medium High What must we do to close this
Performance – Emphasises actual results/achievements
Group leadership gap soon? (e.g.
BU 1 . . . recruiting, promoting
BU 2 . . .
Top executives (VP and above)
upcoming future leaders)
Middle management (GMs…)

42 . . .. . . . . ......... ....... .............................. . . .

 OVERSEEING THE DEVELOPMENT OF THE COMPANY’S FUTURE LEADERS AND HUMAN CAPITAL

In addition, a candidate visibility matrix could assist the Board to track how well they know the candidates. Once
the Board is comfortable that they know each candidate, they should review a complete fact-base of the candi-
dates’ leadership achievements and development needs before creating a shortlist.

Exhibit 2.20
Candidate visibility matrix: an example

Directors
Candidates A B C D E F G H I
1
2
3
4
5
6
7
8
9
10
Knows the candidate well and is Interacting with candidate No interaction at all
mentoring them on a regular basis

For the Board to be effective in this area, it must make human capital management a priority on the Board’s
agenda. For most GLCs, this will mean dedicating blocks of time to discuss these issues – either during regular
Board meetings or at Special Board meetings. Below is a sample half-day agenda for an offsite meeting dedicated
to human capital management and some of the questions that Boards need to ask.

Exhibit 2.21
Agenda for HCM offsite: an example
Time Topics Potential questions for the Board

09:00 – 09:15
Review the progress of overall HCM action
What are our objectives for HCM?
plan
Management
Performance

09:15 – 10:00
Endorse performance management
What is our strategy to attract, develop and retain top
philosophy talent?

Review distribution of performance reward
Is there a wide enough distribution to differentiate high
and consequences performers from low performers?

10:00 – 11:00
Review and debate the leadership gap
What is the strength and depth of our leadership
within the group, and by BU and by job ‘bench’? What is the impact of this gap on our ability to
level
Development

achieve our targets?

Leadership

Endorse CEO’s recommendations on
Who are in pivotal positions? Is there a good match
progress review of existing holders of between positions and employee potential?
pivotal positions (including mapping talents
How are we balancing our performance objectives with
with key positions) talent development objectives?

Identify areas of improvements on the
development programs (e.g. rotation plan)
and advise how to address them

11:00 – 11:15
Break

Planning
Succession

11:15 – 12:45
Finalise the list of candidates for key
What is the model chosen for CEO succession? Have
executive positions (CEO/COO) we agreed on the selection criteria?

Develop the individual development
Are we happy with the quality and quantity of potential
program to make them ready for the candidates?
transition
How are we planning to get to know them, and what

Agree on how to get to know them to help progress has been made to short-list them?
make decisions later in the year

12:45 – 13:00
Finalise action plans and commitments
How have we progressed against our objectives for
HCM?

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
 CHAPTER 2 : RAISING BOARD EFFECTIVENESS TO BEST PRACTICE LEVELS

10 HOW CAN THE BOARD GUIDE THE MANAGEMENT OF THE COMPANY’S RISKS?

Management, typically, is responsible for measuring, analysing and controlling the company’s risks together with
the Board that sets the parameters and provides guidance. Risk assessment should be conducted in conjunction
with the development of the company’s strategy, as risk will be a critical input and is closely linked
to strategy.

There are many ways in which risk can be assessed but irrespective of the methodologies chosen, the Board has
three specific roles:

Determine the company’s risk parameters

Understand the major risk exposures and ensure the appropriate risk management approach is in place
Ensure that risk is considered in all major decisions

DETERMINE THE COMPANY’S RISK PARAMETERS

When reviewing and finalising the company’s strategy, the Board should be comfortable that the company is able
to bear certain risks – it should approve the appropriate limits on the aggregate amount of risk for the company. In
some cases, the risk capacity of a company will be a key determinant of its chosen strategy.

Some of the ways that the Board can determine the company’s risk parameters include, but are not limited to, the
following:

Establish a target credit rating. The Board could establish a desired target rating – for example, BB. The
company’s risk-taking will then be limited by the need to ensure that a certain level of cash and cash flow
is available at any given time to cover any interest expenses and maintain required debt-to-equity ratios in
line with the target rating

Establish an overall risk threshold. The Board could establish parameters to guide which risks the
company should and should not take for example, all risks should be under RM10million, taking into
account the estimated magnitude of the risk multiplied by the probability of it occurring

Establish a hurdle risk-adjusted return. The Board could establish a minimum hurdle rate for all major
decisions. This hurdle-rate could then be adjusted to take into account any additional risk that the
company might have to bear. For example, if the Board determines the minimum hurdle rate to be 10%,
and the quantification of risk (based on magnitude of risk and probability of impact) is estimated at an
additional 2%, then the risk-adjusted hurdle for that decision would be 12%.

44 . . .. . . . . ......... ....... .............................. . . .

 GUIDING THE MANAGEMENT OF THE COMPANY’S RISKS

UNDERSTAND MAJOR RISK EXPOSURES AND ENSURE THAT THE APPROPRIATE RISK MANAGEMENT
APPROACH IS IN PLACE

The Board should have an aggregated view of all the risks that the company faces to be able to understand the
concentration and size of major risk exposures. It should then ensure that management, through internal controls,
has put in place the appropriate risk mitigation plans – in instances where the magnitude of the risks and the costs
to mitigate such risks are justified.

There are many ways that risks can be categorised – one way is to classify them into three types namely, event-
driven risks, continuous risks and decision risks. The depth of the Board’s role and the specific risk management
approaches taken will vary by each type of risk.

Exhibit 2.22
Classification of risks

Event - -driven
driven risk
risk Continuous risk Major decision risk

High-impact
High -impact// low-
low - Unanticipated changes Conscious decisions on
probability events that in business environment business scope and set
setup -
result in business that affect business up
deterioration performance

Strategic
Disruptive technologies
Competition
M&A and divestitures

Regulatory uncertainty
Demand
Manufacturing footprint

R&D pipeline

Financial
Financial
Credit default
FX/Interest rates
Leverage

GDP/Sector Growth
Debt structure

Energy/Commodity Price

Operational
Operational breakdowns
Inventory obsolescence
Layoff programs

Strike
Production waste
Capacity management

Natural disaster

War/terror

Product recall

Build
Build
differentiating
differentiatingrisk
risk Manage
Manage cashcash flow
flow
management
management Optimise
Optimise risk/return
risk/return
volatility
volatility to
to maximise
maximise
capabilities
capabilitiestoto profile
profile for
for decision
decision
enterprise
enterprise value
value
minimise
minimiseimpact
impact

‘Event-driven’ risks involve a sudden shock that can arise from any general type of risk – including, among others,
an introduction of a new disruptive technology, operational breakdowns, natural disasters, and a key customer
defaulting on his credit terms. While there may be a relatively low probability of these events occurring, should they
occur, the negative impact that it can have on the company might be significant.

Such event risks are usually best identified and managed by management. However, the Board should ensure that
it has visibility as to what these potential risks are and that management has developed adequate mitigation plans
in line with the risk parameters established by the Board.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
CHAPTER 2 : RAISING BOARD EFFECTIVENESS TO BEST PRACTICE LEVELS

An example of a risk-rating matrix, maintained by management, to identify, quantify and manage ‘event-driven’
risks is illustrated below.

Exhibit 2.23
Risk-rating matrix: an example

= High Risk
Potential questions
Review risk rating matrix = Medium for the Board to ask:
= Low
Likelihood of occurence
Are sufficient back-up
plans are in place, with
Almost clear accountabilities and
certain H H
timelines?
Introduction of
Likely L New Techonology H

Are we over-investing on
Manufacturinig Regulating
Positive L Shutdowns Change on pricing H high impact risks with low
likelihood of occurrence?
Key customers
Unlikely L S
defaults H
Rare L L
Insignificant Minor Moderate Major Catastrophic

Magnitude of impact

Based on the mapping above, mitigation plans should be developed for sides which are deemed to be ‘high’ and
‘medium’. It is important that risk mitigation plans include who is responsible and the agreed timeline for imple-
mentation – and that this is followed through. The Board must be assured that an appropriate response plan is in
place should the actual event occur.

Exhibit 2.24
Risk mitigation plan for high risk events: an example

Review
Risk title Risk description Action to mitigate risk Responsibility date

Product If the product line • Conduct focus groups Team leader 30 June
consolidation is consolidated with dealers to Mr. A Illustrative 2006
strategy inappropriately then investigate product
market share will be range issues
lost • Conduct detailed
competitor scan of
product offerings

Regulatory If we are unable to • Negotiate with joint Team leader 31 Oct

approval late gain regulatory venture partner to Mr. B Tester 2006
by 1 month approval on time continue writing
then new business business to joint
cannot be written to venture book
the new entity • Contract local legal
adviser experienced in
gaining regulatory
approvals

46 . . .. . . . . ......... ....... .............................. . . .

 GUIDING THE MANAGEMENT OF THE COMPANY’S RISKS

‘Major decision’ risks are those risks associated with one-time decision – such as making a significant R&D
decision for a specific product, a major acquisition, or launching a company-wide layoff program. In such situations,
the objective is to maximise the risk/return profile for that particular decision. For example, if the company is going
to make a significant R&D investment in a specific product, there will be risks about whether the product will be
accepted by consumers, the competitive reaction to the product, manufacturing and distribution risks, etc.

Once again, it will be the responsibility of the management to develop mitigation plans for the biggest decision
risks – for example, conduct focus groups to increase the likelihood of consumer acceptance, study the market and
analyse the potential competitive reactions. The Board, as it reviews and approves these major decisions, should
ensure that the risks have been mitigated wherever reasonably practicable and cost effective to do so.

‘Continuous risks’ are unanticipated changes in the business environment that can affect business performance.
These are also referred to as market risk and include fluctuations in foreign exchange or interest rates, energy
prices, or sudden increase in competition. These risks are most closely linked to strategy, and as the Board is
responsible for co-owning strategy with management, these risks should similarly be co-owned.

As the biggest continuous risks are integral in the formulation of the company’s strategy – in addition to some tradi-
tional methods of mitigating continuous risk, such as hedging – the Board and management could choose to
amend the strategic plan to better manage or mitigate these risks. As always, risk management strategies should
only be implemented when the impact of the risk, and the probability of it occurring is high, and when the benefits
of mitigation outweigh any associated costs.

ENSURE THAT RISK IS CONSIDERED IN ALL MAJOR DECISIONS

The Board should ensure that a culture of identifying and managing risks exists throughout the organisation. One
way to do this is by setting the right examples and tone and ensuring that there is a risk analysis and quantification
conducted prior to any decisions being made by the Board.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
 CHAPTER 3
. . . . . . ............... .............................. . . . . .
CONDUCTING AN ASSESSMENT OF GLC BOARD EFFECTIVENESS

15 . . . . . . . . .............................................. . . .
15 . . . . . . . . .............................................. . . .
CHAPTER 3: CONDUCTING AN ASSESSMENT OF
GLC BOARD EFFECTIVENESS

BOARDS, LED BY THE CHAIRMAN, should undertake three steps to begin their journey of raising Board effective-
ness – conduct an assessment on the Board’s current effectiveness, then develop an actionable improvement
program (which should cover the next 12 months), and begin implementation of the program. This chapter provides
a guide for GLC on how to begin this process – Steps 1 and 2 in the exhibit below. Boards should then review their
progress every 6 months and refine the improvement program accordingly.

Exhibit 3.1
How to raise effectiveness of GLC Boards

All listed
GLC Boards to complete
this by December 2006
Step 1 Step 2 Step 3
Conduct Develop an action- Implement
Board Effective able improvement initiatives in
Assessment (BEA) program program

 Chairman to lead  Based on gaps  Individual Directors or

assessment identified, Board members of
agrees on rectifying management lead
 Board has option to actions specific initiatives
conduct assessment
in-house or obtain  Clear milestones and
external support to accountabilities set
facilitate process
Ongoing

Review progress
against milestones

 Every 6 months, plan time in Board

meeting to review progress and make
adjustment to program as necessary

 Annually, conduct shorter Board

evaluation and incorporate inputs into
program

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
CHAPTER 3 : CONDUCTING AN ASSESSMENT OF GLC BOARD EFFECTIVENESS

OPTIONS FOR COMPLETING THE BEA

The Chairman of the Board is responsible for leading this effort. Boards can choose to conduct the assessment
themselves or seek external support to facilitate the process.

Board conducts the BEA. All Board members are required to participate, and the Chairman – or a specifi-
cally designated Director – should lead the process and be responsible for preparing materials to facilitate
the discussion. The discussion can form part of a Board meeting or be held as a separate session.
Once the Board has agreed on their current strengths and weaknesses, a follow-up session should be held
to develop an actionable improvement program with specific initiatives, milestones and timelines.

External consultants assist Boards in completing the BEA. There are a number of ways in which external
consultants can assist Boards in completing this assessment. Each Board should scope an approach that is
tailored to their current context, and determine the external consultant that is best suited to assisting them.
To obtain suggestions of potential consultants and potential options on how to structure the necessary
support, GLC Boards can contact the Transformation Management Office (TMO), located within the Secre-
tariat to PCG.

The PCG encourages GLC Boards to seek external support to facilitate this process, particularly if this is the first
time that any form of board assessment has been conducted. It is often very difficult to self-diagnose and identify
weaknesses, and an external board governance consultant can provide objectivity, while also sharing ideas and
assisting Boards in developing an effective improvement program.

The step-by-step process

Step The activities Helpful tools The result

1. Assess • For each component (and • Assessment grids Completed BEA

Board’s
current sub-component) determine describing criteria to with a rating for all
effectiveness Board’s rating on a scale of 1 to 3 meet best practice for components
(where 3 is best practice) by each component (refer
reflecting upon the Board’s Appendix 1)
current strengths and weaknesses

If the assessment is facilitated by

an external consultant, then
additional interviews, review of
the Board’s materials and
minutes or observations of Board
meetings will be required to
gather a sufficient fact-base to
determine the rating.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 OPTIONS FOR COMPLETING THE BEA

Step The activities Helpful tools The result

2. Develop • Based on the rating for each • Practical suggestions, Actionable improve-
an actionable
improvement component (and sub-component), including examples that ment program with
program identify the main gaps in the the Board can adopt specific milestones,
Board’s current level of (refer to Chapter 2) covering the next
effectiveness 12 months
Template to record
Discuss the root causes of each action plan (refer
gap, then propose, and prioritise Appendix 1)
actions to resolve them.

If external consultants are

assisting to develop the program,
it is important that the assess-
ment has been agreed upon with
the Board, or that there is
sufficient interaction with the
Directors – such as a workshop –
before agreeing on the program.
.................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Implement • Nominate individual Directors or • n/a Board effectiveness
initiatives
in program members of management to lead improves as
implementation of each initiative milestones are
achieved
.................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Regularly Every six months, plan time in Template of Board Progress and
review
progress Board meeting to review progress Assessment and accomplishments
achieved against improvement Action Plan (refer discussed every 6
program established Appendix 1) months, and
improvement
Chairman should lead discussion, program refined
and based on feedback of Board, accordingly
refine the program accordingly

Input from annual Director and

Board evaluation should be
incorporated in these review
sessions.
.................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
At the end of this chapter, there is a disguised case example of how a GLC Board conducted the assessment and
developed its actionable improvement program, including the steps taken to implement the program over the first
6 months.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
CASE EXAMPLE – BANK CONTOH

This is a disguised example based on the experience of several GLC Boards. The facts and characters are typical but disguised
and do not refer to any particular company or individual.

SNAPSHOT OF COMPANY AND BOARD

Context of company

Bank Contoh is an integrated financial services company with four main subsidiaries – retail and corporate banking, asset
management, insurance, and merchant banking. The bank’s international presence covers eight countries and includes
minority stakes in two ASEAN based banks.

In the past 2 years, the bank acquired and integrated three smaller businesses to increase its domestic market share in
hire purchase leasing, credit cards and insurance.

However, the bank has consistently underperformed market expectations for the last four quarters and eight analysts
downgraded their rating from ‘buy’ to‚ ‘neutral’ over that same period. In particular, concern has been raised about the
bank’s higher cost-to-income ratio compared with local peers, which is driven by high provision levels and low labour
productivity.

Bank Contoh has recently hired three new executives into the senior management team following the loss of executives
after the recent acquisitions. Analysts are sceptical as to whether the bank will be able to extract the synergies promised
from the acquisitions.

Total return to shareholders Profile of directors

Percent Chairman: 25 years experience in many businesses – financial

125 KLCI services, property, retail and hotel services. Nominee of GLIC and
120 also a Director of two other companies
115 CEO: Joined the bank 22 years ago and served in various capacities
110 Sector
within the group before taking the helm
105
Bank Executive Director A: Is the MD-CEO of insurance arm and has 12
100 Contoh
95 years experience in the insurance industry. Previously worked for an
90 insurance company that merged with the group
85
Executive Director B: Is the COO of the group. Joined the bank
80
May ‘04 May ‘05 Apr ‘06 recently from a foreign bank
Independent Director C: Is a chartered accountant and retired
partner of a ‘big four’ accounting firm who specialises in risk
management and internal controls. Chairman of Audit and Group
Fast facts on board Risk Management Committees
Composition Independent Director D: Is a former SVP at a GLC in the industrial
10 members – 40% independent, sector and is experienced in operational turnaround
30% executives and 30% represen- Independent Director E: Has a legal background and is the former
tation from significant shareholder EVP of Corporate and Legal Affairs with the Securities Commission
Independent Director F: Is a qualified engineer and holds directorships
Meetings in three other GLCs and two private sector firms
8 scheduled and 4 special Director G: Is a GLIC nominee who started his career with the
meetings last year government and has held various posts in the Ministry of Trade and
Industry, PM’s department and Ministry of Finance. Also a Director
Committees
on the GLIC’s Board
4 Board Committees – Audit,
Director H: Is the retired GM of Credit Control division and was
Nomination and Remuneration,
Credit, and Risk Management appointed to the Board due to his experience on credit issues. A GLIC
nominee

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
CHAPTER 3 : CONDUCTING AN ASSESSMENT OF GLC BOARD EFFECTIVENESS

CASE EXAMPLE – BANK CONTOH

BOARD EFFECTIVENESS ASSESSMENT: AS AT MARCH 2005
Structuring a
high-performing Board Strengths

Structures the Board to match the Right size and balanced composition (3 EDs, 4 independents)
company’s requirements Skills and experiences well aligned to bank’s requirements

Defines committees’ role, structure 4 committees, all well composed and adhering to clear charters
and composition to complement
the Board’s requirements

Selects and nominates Directors Clear selection criteria established and sound process in place
using a disciplined process

Evaluates the Board as a whole Appointed independent party to conduct peer review
and each Director regularly

Ensuring effective Board

operations and interactions

Board calendar and agenda planned 12 months ahead

Makes every Board meeting
productive

Ensures the quality and timeliness

of all Board information

Builds trust via positive interaction Positive dynamics with active participation by all directors
dynamics and open
communication within the Board
and with management

Fulfilling the Board’s fundamental

roles and responsibilities
3 sessions dedicated for strategy discussion
Contributes to corporate strategy
Sufficient challenge of management assumptions, and Board jointly ‘owns‘
development and setting of targets
strategy

Upholds a strong corporate

performance management system

Oversees development of the

company’s future leaders and
human capital

Enterprise Risk Management framework in place and key risks identified

Understands and manages the
company’s risks

Considers capital market perspectives in decision making

Adopts shareholders’ perspective
when making decisions

Chairman and Board has good reputation and proactively manages stakeholders
Balances valid stakeholders
interests

54 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BOARD EFFECTIVENESS ASSESSMENT: AS AT MARCH 2005

Average rating

Weaknesses Best Practices to adopt 3 2 1

Codify and review roles of Chairman and

CEO every 2 to 3 years X

Does not actively source candidates unless Proactive sourcing: Start regular review of Board
vacancy arises skills and experiences, and shortlist suitable X
candidates that would be complementary

Results from reviews not followed-up, nor Chairman to have one-on-one feedback session with
discussed Directors to tailor individual improvement plans X

Too much time on operational issues. Review Board charter to ensure includes board’s
Sessions typically run over as insufficient priorities that are aligned with company’s priorities X
time allocated for Q&A and CEO’s mandate

Papers difficult to navigate and lack key analysis Board papers to contain pertinent critical analyses
Papers only received 72 hours before Board and be preceded by 1- to 2- page executive X
meeting summary

Discussions with management overly Balance can be shifted away from just highlighting
focussed on highlighting problems, rather problems to identifying solutions X
than solving them

Set baseline, stretch and aspirational targets for

management, and clearly state constraints – X
instead of just a single point target

Unclear what to look for in management report 1-page performance flash report
Questions may be overly critical instead of Board to focus majority of discussion on ‘missed’ X
constructive targets

No exposure to Two half day offsites to increase exposure to HCM

Performance management principles
Top talent performance
topics highlighted X
Leadership pool

Ensure that framework is applied Set up Risk Management Unit to build capabilities
to track continuous and strategic risks X

1 – Significant gaps; 2 – Meets requirements; 3 – Best practice

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
CHAPTER 3 : CONDUCTING AN ASSESSMENT OF GLC BOARD EFFECTIVENESS

THE BOARD’S ASSESSMENT OF ITS EFFECTIVENESS

Average rating
Structuring a
high-performing Board 3 2 1

Structures the Board to match the

X Strengths
company’s requirements Well structured Board of 10 Directors
with skills and experiences that are
Defines committees’ role, structure relevant to the Bank
and composition to complement X
the Board’s requirements Appropriate number of Directors in Board
committees and Directors have neces-
Selects and nominates Directors sary skills to execute responsibilities
using a disciplined process X
Board provides sufficient input into
strategy setting and at the right time so it
Evaluates the Board as a whole is in sync with management’s planning
and each Director regularly X cycle

Ensuring effective Board

operations and interactions

Makes every Board meeting

productive
X
Weaknesses
Despite the existence of a Board Charter
Ensures the quality and timeliness that clearly defines the Board’s role,
of all Board information
X Board discussions tend to cover many
operational issues and discussions
Builds trust via positive interaction consistently run over the allocated time
dynamics and open X
communication within the Board Voluminous amount of material sent to
and with management Board without clear synthesis and
without sufficient pre-reading time
Fulfilling the Board’s fundamental
roles and responsibilities Development of future leaders and
human capital management did not
sufficiently feature on the Board’s
Contributes to corporate strategy
X agenda especially considering the
development and setting of targets
importance of having a strong pool of
leaders to expand the Bank
Upholds a strong corporate
performance management system X Performance management reports were
difficult to navigate and discussions were
not focused on identifying and rectifying
Oversees development of the the root causes that led to targets being
company’s future leaders and X missed
human capital

Understands and manages the

X
company’s risks

Adopts shareholders’ perspective

when making decisions
X

Balances valid stakeholders

interests
X

56 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 CASE EXAMPLE - BANK CONTOH

CASE EXAMPLE – BANK CONTOH

SELECTED FINDINGS FROM THE ASSESSMENT

Strengths Board provides sufficient input into strategy setting and at the right time so it is in sync
with management’s planning cycle
Board dedicates sufficient amount of time for deep and thorough discussions on strategy
development. There are three specific sessions: 1) at the beginning of the planning cycle,
a knowledge sharing session is facilitated by external industry experts to help the Board
shape strategic direction, 2) a 2-day offsite is held to debate the strategic plan put
forward by management, and 3) a final 4-hour session is allocated to approve the targets,
budget and operating plan for the following year.
Review of the agenda and minutes from the strategy sessions indicate that Board members
posed questions to appropriately challenge some key management assumptions (for
example, the growth rate of insurance products). In addition, the Board was proactive in
jointly working with management to identify potential threats and challenges in the
upcoming year (for example, potential competitor movements).
However, it was agreed that in hindsight, the Board should have spent more time discussing
and challenging management’s assumptions on the timing and magnitude of synergies
from the acquisitions.
Consequently, the Board determined that their rating on this dimension was between a ‘2’
(meets requirements) and a ‘3’ (best practice)

Weaknesses Despite the existence of a Board Charter that clearly defines the Board’s role, Board
discussions tend to cover many operational issues and discussions consistently run over
the allocated time
An analysis of how the Board spends its time during meetings revealed that actual Board
deliberations are focused disproportionately on operational matters. Consequently, to
make time for discussing other, more critical, topics meetings overran the allocated time.

Split of time spent at main Board meetings

100% = 50* 73 110

Other 5 10 5
5
20 3 10
HCM 7
13 10
Risk 10
20 25
Performance 34
management
Strategy
25
45
33
Operations 20

Target Plan as Actual

based on per agenda
priorities

* Approximately 8 meetings at 6 hours each

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
CHAPTER 3 : CONDUCTING AN ASSESSMENT OF GLC BOARD EFFECTIVENESS

CASE EXAMPLE – BANK CONTOH

Weaknesses Further analysis indicated that the Board was spending more than the allocated time on
operational matters as Directors were probing more deeply into understanding the
company’s operations – as they felt that it was their key role and responsibility to do so.
It was discovered that if the Board was clearer as to what its role should be, particularly
relative to management, and had greater clarity about what the Board priorities should
be, then less time would be spent on operational matters.

Consequently, the Board determined that their rating on this dimension was between a ‘2’
(meets requirements) and a ‘1’ (significant gaps)

Development of future leaders and human capital management did not sufficiently
feature on the Board’s agenda especially considering the importance of having a strong
pool of leaders to expand the Bank
The Board needs to have greater visibility on HCM issues, especially as a number of major
initiatives have not met internal targets due to poor execution capabilities. In addition, the
Bank has seen a significant rise in attrition rates among high-performing executives.
With the continued strategy of making domestic and regional acquisitions, the quality of
the pool of future leaders is critical to overall success.
During the last year, HCM discussions only featured twice in Board meetings: 1) to appoint
several senior executives and 2) to approve the overall company-wide bonus payout.
However, the discussion on compensation structure was brought to the Board too late into
the cycle, which led to the Board having to approve both the outcome of the performance
evaluations and compensation structure at the same time. This was not ideal as it limited
management’s ability to properly differentiate rewards and consequences.

Consequently, the Board determined that their rating on this dimension was a ‘1’
(significant gaps).

58 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 CASE EXAMPLE - BANK CONTOH

CASE EXAMPLE – BANK CONTOH

HOW THE BANK CREATED ITS ACTIONABLE IMPROVEMENT PROGRAM

Based on the identified gaps, the Board prioritised its improvement program around four main areas. In developing
this program, it considered the capacity of Board and management resources to implement and deliver results.

Proposed activities for Board improvement program: as at March 2005

Gaps identified Priority Proposed actions

1. Board unclear of its High • Assess company’s current situation and future
priorities, resulting in aspirations to determine company’s priorities
unclear focus and at times • Based on that, derive Board priority topics and revise
overstepping into Board Charter
management’s roles
• Focus Board meeting agenda on priority topics and
delegate operational issues to management

2. Insufficient intensity in High • Allocate more time upfront to discuss reports

performance management • Request management to produce quarterly 1-page
discussions ‘flash reports’ that describe current performance levels
• Focus discussion on identifying and rectifying root
cause of material variances
• Ensure that rectification plans include timeline and clear
accountabilities

3. HCM not sufficiently Medium • Dedicate 2 half-days to HCM so that Board can (i)
featured on Board agenda agree on performance management philosophy,
despite its importance to including distribution of rewards and consequences;
overall strategy and (ii) review and debate the leadership gap
(including any plans to reduce it)

4. Board papers are difficult Medium • Board to convey expectations and criteria for good
to navigate with varying Board papers to management
quality of analysis • CEO and Company Secretary to agree on 1-page
template for executive summary
• Board to rate quality of papers and provide written
feedback to management

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
CHAPTER 3 : CONDUCTING AN ASSESSMENT OF GLC BOARD EFFECTIVENESS

CASE EXAMPLE – BANK CONTOH

Improving this Board’s effectiveness is long-term journey. However, the actionable improvement program focused
on achieving specific milestones within 12 months. For each action, specific milestones and individuals were
assigned to lead the implementation.

Milestones for actionable improvement program: updated on December 2005

Proposed 3/05 6/05 9/05 12/05 3/06 6/06 9/06

actions Responsibility

1 Prepare
analysis
Clarify for stock CEO, Head
Board‘s take Strategy (lead)
priorities
Agree Review Director B
Board Board
priorities priorities
2
Increase
intensity Management
to produce -1 Provide profit drivers to CEO, CFO
of perfor- Board and focus discussion
mance page ‘flash (lead)
report’ New on root causes 1 hour session on Director A
manage-
flash performance management with
ment
report increased intensity
3
Increase Critical leadership gaps • Directors get acquainted with
Board identified, management respective ‘target’ talent Chairman
partici- completes pre-determined • Review personal Nomination
pation 1/2 day analysis for Board development plans Review
Committee;
in HCM offsite progress
SVP HR
to determine 1/2 day
performance offsite to
management discuss
philosophy leadership
development
4
Improve • Develop Board paper Agenda for FY06
quality of template planned to improve CEO,
Board • Coach senior mgmt on efficiency of meeting Management
papers improving quality gaps time Committee
Board 60% of 80% of Board
‘rates‘ Board papers rated >3;
papers papers meetings finish
verbally rated >3 on time

60 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 CASE EXAMPLE

CASE EXAMPLE  BANK CONTOH

HOW THE BANK IMPLEMENTED ITS IMPROVEMENT PROGRAM

In the meeting where the Board discussed the Board Effectiveness Assessment, it also set up a dedicated
‘Improvement Program’ team, comprising the Company Secretary, and representatives from both management and
the Board. Although, ultimately, the Chairman remains accountable for implementation, another Director was
appointed to facilitate and support the Board through its improvement journey.

This was what the team implemented in the first 9 months.

1. Gained alignment on the Board’s priorities

The facilitating Director set up a small task force from the strategy function to prepare the required analysis
before the Board met and discussed their priorities.
The analysis included a stock-take on the company’s current situation, which included internal and external
perspectives on the industry and company’s performance. A peer group of regional banks were chosen and
key financial and operational indicators were benchmarked with this peer group.
Management provided different aspiration options – growing domestic market share to be at least 20% in
all major products or focus growth on two niche products in both the domestic and regional market. Manage-
ment also detailed their internal capabilities and identified any gaps for each option.
Within 2 months, the Board met for a dedicated offsite session to discuss and deliberate the options and
then collectively agreed on the bank’s priority: to establish a clear market leadership position in the consoli-
dating domestic banking sector.
This then formed the basis for the Board’s priorities: to focus its efforts for the first 12 months – capturing
cost reduction/synergies, intensifying performance management, developing human capital, and
managing credit risks.

2. Intensified performance management

Management created flash reports that are synthesised and holistic to better facilitate performance
management discussions.
The Board requested management to prepare root-cause analyses for major variances and to propose a
rectification plan with clear accountabilities.
The Board was provided with a profit driver analysis to identify the major ‘levers’ of the business and specific
sessions were organised over the course of 3 months for the Board to interact with the respective business
units and understand these levers in more detail.

3. Increased its visibility in the area of human capital management

The Board organised its first HCM offsite meeting to discuss and agree on a performance management
philosophy, including the distribution of ratings, rewards and consequences.
Another session was organised 6 months later to discuss the Bank’s leadership gap.
The facilitating Director spent 4 to 6 weeks working with the Senior Vice President, HR to prepare the
analyses required for the meeting.
During this session, the Board discussed potential options to reduce this leadership gap – including
implementing development plans for executives with the highest potential.

In addition, the Board agreed to kick-off a series of ‘quick-wins’ to improve the Board’s operating mode – such as
agreeing on a one-page template for an executive summary to immediately improve the quality of Board papers.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
 APPENDIX 1
. . . . . . ............... .............................. . . . . .
TEMPLATE AND ASSESSMENT GRID
TO DETERMINE CURRENT LEVEL OF EFFECTIVENESS

15 . . . . . . . . .............................................. . . .
15 . . . . . . . . .............................................. . . .
 APPENDIX 1

BOARD EFFECTIVENESS ASSESSMENT AT A GLANCE

Average rating
Structuring a
high-performing Board Strengths Weaknesses Best Practices to adopt 3 2 1

Structures the Board to match the

company’s requirements

Defines committees’ role, structure

and composition to complement
the Board’s requirements

Selects and nominates Board

members using a disciplined
process

Evaluates the Board as a whole

and each of the directors regularly

Ensuring effective Board

operations and interactions

Makes every Board meeting

productive

Ensures the quality and timeliness

of all Board information

Builds trust via positive interac-

tions dynamics and open
communication within the Board
and with management

Fulfilling the Board’s fundamental

roles and responsibilities

Contributes to corporate strategy

development and setting of targets

Upholds a strong corporate

performance management system

Oversees development of the

company’s future leaders and
human capital

Understands and manages the

company’s risks

Adopts shareholders’ perspective

when making decisions

Balances valid stakeholders

interests

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
APPENDIX 1

1. STRUCTURING A HIGHPERFORMING BOARD

3 – Best practice 2 – Meets requirements 1 – Significant gaps

Structures the Size is right
Board to match Board is large enough to Although size might ‘feel Too large (e.g. more
the company’s fulfill all roles and right’, there has never than 10), resulting in
responsibilities yet small been a conscious ineffective discussion
requirements enough to ensure open decision about the and/or decision making
constructive discussion and number of Directors
debate required by the Board Too small (e.g. less than
6) makes Directors feel
10 Directors or less unless over-stretched
special circumstances exist
which allow up to 12
. ................................. ............ . . .
Board composition is balanced
– and at least one-third is
independent
Mix of Directors ensures (As per best practice) Less than one-third of the
that no individual or small Board is independent
group of individuals
dominate decision making Includes more than two
Executive Directors or
Sufficient representation greater than 30% of
from significant shareholders Board (or three where
special circumstances
At most, there are two apply)
Executive Directors or up to
30% of Board, unless special
circumstances allow for three
. ............... .............................. . . .
Clear separation of Chairman
and CEO
Agreed separated roles are Clear distinction between No clear separation of
adhered to the roles of Chairman and roles between Chairman
CEO, and adherence to and CEO
These roles and these boundaries, but
responsibilities are reviewed never regularly reviewed
regularly (e.g. every 2 to 3
years) or when changes in
company’s strategy,
operations, performance or
management make it
necessary
. ............... .............................. . . .
Skills and experiences in line
with company’s requirements
Collectively, Directors’ Directors’ backgrounds Directors’ backgrounds
backgrounds and and experiences have and experiences not
experiences are relevant to been the right mix in the balanced or relevant to
the nature of the business past but perhaps do not current or future needs
and stage of the company’s serve the company’s best of the company
development. Include interests today
sufficient functional skills Chairman selected from
(e.g. marketing) and/or Chairman selected among the Directors
based on industry without consideration for without need for
knowledge or commercial’ additional leadership additional leadership
experience qualities qualities
Compensation aligned to Number of directorships Number of directorships
skill sets required of in listed companies in listed companies
directors capped at 5, and non- greater than 5, and/or of
listed capped at 10 non-listed greater than
Chairman has stature and 10
leadership skills required

Number of directorships in
listed companies capped at
5, and non-listed capped at
10
. . . . . . . . . . ................ ................. .............. . .

64 . . .. . . . . ......... ....... .............................. . . .

 APPENDIX 1

3 – Best practice 2 – Meets requirements 1 – Significant gaps

Defines Only those committees (As per best practice) Committees either not
committees’ necessary are established formed or not used
role, structure The committees adhere to effectively
and composition clear charters as
to complement established by Board
the Board’s
requirements Committees are composed
of the ‘right’ Directors –
both in terms of number
and type
. . . . . . . . ................ ................... ........... . . . . .
Selects and Clear selection criteria
nominates exists
Directors using Selection criteria exists Selection criteria exists Selection criteria is
a disciplined formulated based on
process Criteria is tailored to meet the pool of available
current and future needs of candidates, rather than
the company the company’s needs
.............. ............................... . . . .
Nomination process is
objective
Nomination Committee (As per best practice) Nomination Committee
identifies and objectively puts forward only
evaluates potential candidates pre-
candidates against identified by an external
selection criteria party with vested
interest
Candidates are put forward
for approval by the Board and
then by the shareholders

Nomination process is
transparent
.............. ............................... . . . .
Finds candidates from likely
and unlikely sources
Nomination Committee (As per best practice) Nomination Committee
proactively maintains a does not proactively
‘pipeline’ of potential identify potential Board
candidates sourced from candidates
both current channels, as
well as from ‘unlikely Only relies on proposals
sources’, such as received through
professionals within normal channels
Malaysia, Malaysian
expatriates abroad,
experienced overseas
directors, etc.
. . . . . . . . ................ .............................. . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
APPENDIX 1

3 – Best practice 2 – Meets requirements 1 – Significant gaps

Evaluates the Clear performance

Board as a evaluation criteria exists
whole and each Criteria exists for individual Criteria exists for No formal performance
Director Directors and Board as a evaluating individual evaluation criteria
regularly whole Director and collective exists for individual
Board performance – but directors or the Board
Criteria reflects company’s criteria does not fully as a whole
current and expected reflect company’s current
position and environment, and expected position and
and is in line with environment
company’s requirements

Criteria communicated to all

Directors, including possible
consequences
. ............................................. . . .
Nomination Committee
leads the process
Nomination Committee Nomination Committee No formal evaluation
might be assisted by leads the process (and reports generated
external support might use external
support) and reports back
Nomination Committee to the Chairman
reports back to Chairman
Reports incorporate
Evaluation reports include anonymous feedback
anonymous feedback (peer from peers only
and management) as well
as recommendations
. ............................................. . . .
Chairman leads the
follow-up process
Chairman discusses results Chairman reviews results Limited, if any, follow
with each Director and and discusses implica- through on evaluation
creates a personalised tions, including areas of reports conducted
action plan for the coming development, with each
year director

Board develops a board

improvement program after
discussing and exploring its
collective strengths and
weaknesses
. ............................................. . . .
Training addresses
development areas
Training programs are Training programs are put Limited, if any, training
tailored to areas identified together but not targeted programs
as requiring improvement to key development areas

Directors proactively Participation in training

participate in these training programs a ‘box checking’
sessions exercise

. . . . . . . . . . ................ .............................. . . .

66 . . .. . . . . ......... ....... .............................. . . .

 APPENDIX 1

2. ENSURING EFFECTIVE BOARD OPERATIONS AND INTERACTIONS

3 – Best practice 2 – Meets requirements 1 – Significant gaps

Makes every Follows a set schedule

Board meeting Board calendar with draft Board calendar with draft Board calendar is not
productive agendas set 12 months in agendas set 12 months in set in advance
advance and synchronised advance and
with management planning synchronised with some
cycle key events in
management cycle
Board revisits calendar on a
regular basis (e.g. quarterly)
to ensure topics are still
relevant and to identify
areas for
improvement
.................................. ........... . . . .
Chairman determines agenda in
consultation with CEO
Chairman determines Chairman determines CEO or Company
agenda with assistance agenda with assistance Secretary responsible
from Company Secretary in from Company Secretary for board agenda
consultation with CEO in consultation with CEO
Not enough focus given
Agenda addresses priority to priority issues and
strategic issues, and not never enough time for
detailed operational issues, rich discussion
and allows enough time for
rich discussion
.................................. ........... . . . .
Adheres to a clear charter
There is a well-defined There is a well defined There is a charter, but
charter which is adhered to charter which is adhered Directors are largely
and reviewed at least every to unaware of it and it has
2 years to test applicability no bearing on how the
to company’s current There is no formal Board manages its
situation mechanism for its review operations
and tends to only be
Board charter reflects Board reviewed when there is an Board rarely reviews or
roles and priorities, which extraordinary event or updates the charter
are aligned with the crisis unless required to do so
company’s overall short- to by law or regulations
medium-term priorities

Board charter also reflects

mandate provided to CEO

. . . . . . . . ................ .............................. . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
APPENDIX 1

3 – Best practice 2 – Meets requirements 1 – Significant gaps

Ensures the Board papers are clear and

quality and relevant
timeliness of Board papers are set out Board papers are set out Board papers are poorly
all Board logically and contain clearly and do contain organised and contain
information synthesised information and critical analyses but are either too much
pertinent critical analyses often too long with not information or not
and enough synthesis enough

Board papers are preceded Additional information is Board passively

by a 1- to 2-page executive only provided if receives what it is given
summary specifically requested

Additional information is No formal or regular

provided when required to mechanism to provide
assist decision making feedback on quality of
board information
Board papers ‘rated’ by
Board and constructive
feedback provided
.................................. ............ . . .
Board given appropriate notice
Meeting agendas distrib- Pre-reading material is Board papers and
uted 14 calendar days in distributed at least 5 pre-reading material are
advance calendar days before distributed just prior to,
Board meeting or at, the board
Board papers and meeting
pre-reading distributed at
least 7 calendar days
before board meeting
. . . . . . . . . . ................ .............................. . . .

68 . . .. . . . . ......... ....... .............................. . . .

 APPENDIX 1

3 – Best practice 2 – Meets requirements 1 – Significant gaps

Builds trust Positive Boardroom

via positive dynamics and environment
interaction The Directors trust each Board can behave as a Board functions as a
dynamics other and functions as a cohesive team, but this group of individuals
and open cohesive team tends to rely on the rather than as a
communication personalities at any time cohesive team
within the Board Board dynamics encourage rather than as a result of
and with and promote participation a dedicated team-building Discussion regularly
management from all Directors ethic dominated by 1 or 2
individuals; others
Discussions are productive Board dynamics tacitly discouraged from
and effective: topics are encourage participation participating
raised, discussed, then from all Directors
closed or ‘resolved’ Issues raised but
While discussions are without clear resolution
Clarity and alignment on constructive, topics are
decisions and action not always clearly No clarity or alignments
required ‘resolved’ on decisions reached

Regular and constructive

feedback shared among
Directors to improve
individual and overall
participation
.............. .................... ........... . . . .
Constructively challenges and
champions management
Discussions are open and Discussions with Overly critical of
constructive even when management are always management and tends
challenging management’s open and constructive to focus more on
views or results shortcomings than on
Focus of discussions on options or potential
Focus of discussions on root root causes of issues and solutions
causes of issues and actively problem solve to
actively problem solve to find solutions Board provides no
find solutions coaching of
However, not consistently management
Supportive of management proactive in its support of
once next steps are decided management and does
Chairman (and/or Directors) not look for opportunities
provides regular coaching to provide coaching and
and feedback sessions with feedback outside of
management formal processes
.............. ............................... . . . .
Board decisions communicated
promptly to management
All Board decisions captured Board decisions captured Board decisions are
in the minutes, including in minutes but details included in the minutes
rationale for each decision, tend to be disseminated but lack clarity and
next steps, clear timeline, more through discussion precision
and the individuals than through rigorous
responsible documentation Minutes extracts take
longer than 3 working
Verbal communication of days to reach
key Board decisions to management
management within 1
working day, followed by
Minutes extract
disseminated within 3
working days of Board
meeting
. . . . . . . . ............................................... . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
APPENDIX 1

3. FULFILLING THE BOARD’S FUNDAMENTAL ROLES

AND RESPONSIBILITIES

3 – Best practice 2 – Meets requirements 1 – Significant gaps

Contributes to Guides the strategic

corporate direction
strategy Provides guidance and input Provides guidance and Strategic direction and
development & on overall strategic direction input on overall strategic aspirations are set by
setting of and aspirations early on in direction and aspirations management
targets the planning cycle when required

Plans and attends Challenges and debates

dedicated session each year strategic options, but this
to challenge and debate is done ad hoc rather
strategic options with than through a dedicated
management session
. . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
‘Co-owns’ the strategy with
management
Questions both Challenges views and Board ratifies the
management and Board assumptions proposed by strategy proposed by
perspectives to ensure management but does management with
success of chosen strategy not contribute to the limited discussion or
resolution of issues or debate
Challenges and clarifies doubts
management’s views and
assumptions to ensure
shared ownership by both
Board and management
. . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sets targets for management
Tests the CEO’s and senior Discusses, and agrees, Agrees with targets
management’s targets to baseline targets recommended by
ensure that targets reflect recommended by management in
industry trends and internal management in its business plan
capabilities – and provide business plan but does
sufficient stretch and not test for stretch Occasionally sets
aspiration targets with limited
business rationale

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

70 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 APPENDIX 1

3 – Best practice 2 – Meets requirements 1 – Significant gaps

Upholds a strong KPIs provide balanced view

corporate
performance Board ensures that Corporate KPIs include Corporate KPIs are
management corporate KPIs reflect the both historical skewed and do not
approach company’s historical performance metrics and balance financial and
performance and includes leading indicators – but operational indicators,
leading indicators some KPIs do not reflect or complement
the company’s strategic historical performance
objectives or its current indicators with leading
operating environment indicators
......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reviews progress and
follows up
Board receives regular Board receives Board ‘acknowledges’
performance reports that performance reports that performance against
indicate status of all KPIs indicate status of all KPIs corporate KPIs

Board focuses discussion on Board focuses discussion Board focuses

any ‘missed’ targets and on any ‘missed’ targets discussion on financial
constructively challenges reporting results only as
management to verify root per requirements of
causes and propose action Bursa Malaysia
plans to get back on track
No clear action plan to
Board agrees on the resolve ‘missed’ targets
accountabilities and
timeline and this
information is documented
in the minutes

‘Out-performance’ is noted
and discussed to determine
how such performance can
be sustained
.. ............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
APPENDIX 1

3 – Best practice 2 – Meets requirements 1 – Significant gaps

Oversees Selects CEO and proactively

development of plans CEO succession
the company’s Establishes CEO selection Establishes CEO selection No clear CEO selection
future leaders criteria criteria criteria
and human
capital Establishes succession Aware of various models CEO succession not
model for CEO for CEO succession, but part of formal Board
chooses ‘best individual’ agenda
Reviews full fact-base of based on context and
leadership achievements available pool, rather than Board has limited
and development needs on pre-determined awareness of any of the
before short-listing criteria top tier candidates
candidates

The Board, through Board gets to know top

individual Directors, knows tier candidates in
each candidate personally company either from
and dedicates sessions exposure at Board
each year with candidates meetings or at informal
‘social’ events
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reviews performance
management philosophy
Ensures appropriate Applies differentiation in Limited differentiation
differentiation in performance, but link to in performance and
performance, rewards and rewards and rewards and
consequences in HR plan consequences is weak consequences
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Evaluates CEO performance
Sets clear expectations for Performance measured No clear criteria or
the CEO, aligned with the against explicit KPIs and targets established to
company’s priorities pre-agreed targets that measure CEO
include terms of performance
Multiple inputs obtained in performance-linked
conducting review of compensation
performance, including that
of senior management

Performance measured
against explicit KPIs and
pre-agreed targets
contained within CEO
contract that includes terms
of performance-linked
compensation
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

72 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 APPENDIX 1

3 – Best practice 2 – Meets requirements 1 – Significant gaps

Oversees Endorses development

development of plans of those in pivotal
the company’s Strong fact-based Limited (more anecdotal Little, if any,
future leaders understanding of than fact-based) participation from
and human performance, competencies understanding of Board on plans for
capital and potential of employees employees holding pivotal employees holding
(continued) in pivotal positions positions, endorses pivotal positions
management plans with
Endorses the performance little debate or discussion
and development plans put
forward by management
........ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .
Understands pool of future
leaders
Understands the existing Board gets regular Human capital
leadership gap to execute updates from HR and is management is a low
against chosen strategy ‘aware’ of top talent in priority on Board
company agenda
Board dedicates time to
understanding strength and
depth of leadership bench
in company and by business
unit / subsidiary / job level,
(e.g. for top 50 to 100)
.................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
APPENDIX 1

3 – Best practice 2 – Meets requirements 1 – Significant gaps

Understands Sets the company’s risk

and manages parameters
the company’s Establishes risk parameters, Risk parameters, Company’s risk
risks thresholds and boundaries thresholds and parameters, thresholds
for company boundaries are set for and boundaries are
company but not always unclear
Ensures overall corporate adhered to
risks are measured and
thresholds are controlled
within pre-determined limits
. . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Understands major risk
exposures
Board aggregates risks to a Board understands key Board has limited
common metric (such as risks by category rather understanding of key
‘cash flow at risk’ or ‘value than on an aggregate risks even at the
at risk’) level category level

Ensures mitigation plan Mitigation plans exist but Some mitigation plans
exists for all major risks – lack robustness around exist but lack
which includes accountabilities accountabilities and robustness around
and implementation timelines accountabilities and
timelines timelines

For major risks, Board has a For major risks, Board has Board is not fully aware
good sense of the costs and a good sense of the costs of the costs and
benefits of risk mitigation – and benefits of risk benefits of risk
which take into account the mitigation mitigation
probability and magnitude
of the impact of the risk
. . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Considers the risk factors in
all major decisions
Role-models desired Risk analysis is provided Risks for major
behaviour by ensuring there for major investment investment and/or
is in-depth risk analysis and/or strategic strategic proposals are
performed for all major proposals, but the quality addressed superficially
investments and/or of analyses varies and the and are not embedded
strategic decisions Board’s ability to interpret within quantitative
the information is uneven analysis
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

74 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 APPENDIX 1

3 – Best practice 2 – Meets requirements 1 – Significant gaps

Adopts a Takes into account capital (As per best practice) Unclear if decisions
shareholders’ market perspectives and made by Board take
perspective expectations when making into account
when making decisions perspectives and/or
decisions expectations of capital
Considers views of the markets
majority or significant
shareholder and adopts Biased towards making
them where aligned with the decisions in favour of
interests of all shareholders majority or significant
shareholder or biased
Protects minorities’ interest towards making
(e.g. related-party decisions in favour of
transactions are on minority shareholders
arm’s-length basis and only
are disclosed)
Unclear if related-party
transactions are at
arm’s-length basis as
details are often not
disclosed

.. ................ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balances valid Understands economic Understands needs of Decisions do not
stakeholders impact of stakeholders’ major stakeholder groups balance needs of all
interests interest on shareholder – but the ‘understanding’ relevant stakeholders –
value is not always based on for example, some
objective facts nor stakeholders feature in
properly quantified decisions more than
others
Actively balances conflicting Considers all views of
interests between stakeholders, but does
stakeholders and not always consider
shareholders and makes trade-offs
appropriate trade-offs

Proactively supports Supports management in

management in managing, managing, and where
and where necessary, necessary, containing,
containing, stakeholders stakeholders
.. ................ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
APPENDIX 1

THE BOARD EFFECTIVENESS ASSESSMENT AT A GLANCE

Structuring a
high-performing Board Strengths

Structures the Board to match the

company’s requirements

Defines committees’ role, structure

and composition to complement
the Board’s requirements

Selects and nominates Board

members using a disciplined
process

Evaluates the Board as a whole

and each of the directors regularly

Ensuring effective Board

operations and interactions

Makes every Board meeting

productive

Ensures the quality and timeliness

of all Board information

Builds trust via positive interaction

dynamics and open
communication within the Board
and with management

Fulfilling the Board’s fundamental roles

and responsibilities

Contributes to corporate strategy

development and setting of targets

Upholds a strong corporate

performance management system

Oversees development of the

company’s future leaders and
human capital

Understands and manages the

company’s risks

Adopts shareholders’ perspective

when making decisions

Balances valid stakeholders

interests

76 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 APPENDIX 1

Average rating

Weaknesses Best Practices to adopt 3 2 1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
APPENDIX 1

ACTIONS TO RESOLVE GAPS IDENTIFIED

Gaps identified Priority Proposed actions Timing/sequence

1.

2.

3.

4.

5.

6.

78 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 APPENDIX 1

KEY MILESTONES OF THE ACTIONABLE IMPROVEMENT PROGRAM

Proposed
activities Timeline Responsibility

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
 APPENDIX 2
..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TMO CONTACT DETAILS

15 ....... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15 ............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 APPENDIX 2

WHERE GLC BOARDS CAN OBTAIN ASSISTANCE

The Transformation Management Office (TMO), as secretariat to the PCG, is the central point of contact for any
questions and for all implementation assistance.

Phone : 03 2034 0000

Email : [email protected]
Website : www.pcg.gov.my

The level of support and assistance needed by Boards will vary. The TMO may be able to provide Boards with more
information and assistance depending on their situation and context, including:

Assistance to Boards and Company Secretaries on how to use the tools illustrated in this Green Book
Suggestions of potential external consultants who can facilitate the Board Effectiveness Assessment,
including the development of an actionable improvement program

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
 APPENDIX 3
............................ . . . .
USEFUL TOOLS AND TEMPLATES

15 . . . . . . . . .............................................. . . .
15 . . . . . . . . .............................................. . . .
 APPENDIX 3

EXECUTIVE SUMMARY: SAMPLE TEMPLATE

A synthesised executive summary presented with every board paper provides a good holistic view of key issues

BOARD PAPER AGENDA ITEM

Topic:
Action required:
Submitted by: Reviewed by:

Objective Risks/ challenges

• •

Context/ analysis Implementation plan

• •

Other options considered and recommended decision

Options Details
• •

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
APPENDIX 3

BOARD FEEDBACK FORM: SAMPLE TEMPLATE

Using a feedback form after every presentation of a Board paper provides a transparent and helpful mechanism
for each Director to recommend follow-up and improvement actions for management

Topic:
Submitted by:
Reviewed by:

Rating* Supporting Remarks Recommendations

Board paper __



Conciseness

Clarity

Structured

Analytically
robust

Rating* Supporting Remarks Recommendations

Presentation/ __


Discussion

Use of time

Quality of
articulation

Focused on
core issues

* Scale of 1 to 5, where 5 is highest

84
8 . . .. . . . . ......... ....... .............................. . . .
 APPENDIX 3

PERFORMANCE MANAGEMENT REPORT: SAMPLE TEMPLATE

A structured report provides a clear overview of root causes of the underperformance of each KPI, and clarifies
accountabilities and timeline to rectify the situation

Month YTD
KPI status status Root causes Actions to rectify Responsibility Timeline

•




R R

Y Y



G G

•




R R

Y Y



G G

•




R R

Y Y



G G

•




R R

Y Y



G G

•




R R

Y Y



G G

•




R R

Y Y



G G

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
APPENDIX 3

BOARD EVALUATION FORM: SAMPLE TEMPLATE

An annual assessment of the Board – facilitated by an external consultant if necessary – allows an overall
evaluation of the Board’s effectiveness

BOARD EVALUATION CRITERIA

Board structure 5 4 3 2 1 Comments

1. Board composed of Directors with appropriate mix of

skills to match company’s requirements

2. Directors are given appropriate adequate training and

development opportunities

3. Committees have been assigned appropriate tasks

4. Committees are effectively fulfilling their functions

a. Audit
b. Nomination
c. Remuneration
d. _____________
e. ______________

5. I am satisfied with my committee assignments

Board operations and interaction 5 4 3 2 1 Comments

Board meetings
1. Board meetings are at the about right frequency (x times per
annum) and length

2. Allocation of time for items on the agenda is about right

3. I find sitting on the Board stimulating and rewarding

Board papers
4. Board papers are well synthesised with critical analyses

5. Board papers have been consistently handed out with

sufficient time for preparation

6. Board papers have sufficient content and coverage on

a. Strategic direction
b. Performance against the annual financial plan
c. Performance of key business units
d. Management of key risks
e. Management of human capital
f. Management control systems
g. Technology issues
h. Legal issues & compliance
i. Financial disclosure

Board communication
7. Conduct of board meetings allow for an open and constructive
communication style (encourages focused discussion,
questioning and expression of various viewpoints)

8. I have sufficient access to the Chairman

9. I have sufficient access to the management

5 = Strongly Agree 4 = Agree 3 = Neutral 2 = Disagree 1 = Strongly Disagree

Source: Korn/Ferry International, PricewaterhouseCoopers, The Boston Consulting Group , McKinsey & Company

86 . . .. . . . . ......... ....... .............................. . . .

 APPENDIX 3

BOARD EVALUATION FORM: SAMPLE TEMPLATE (CONTINUED)

BOARD EVALUATION CRITERIA

Board roles and responsibilities 5 4 3 2 1 Comments

1. I have a clear understanding of how my role differs to that of

management

2. Board has successfully delivered value to shareholders and

other stakeholders

3. Board ensures effective policies on investor relations

program to all relevant stakeholders

Strategy planning
4. Board has an appropriate level of involvement in developing
the company’s strategy
5. Board has sufficient understanding in external trends,
competitive threats and opportunities critical to company’s
future performance

6. Board has sufficient knowledge about the major business

issues to provide adequate advice and probing

Performance management
7. Board effectively monitors KPIs throughout the year

8. Board effectively follows-up on implementing issues raised in

previous meetings

Human capital management

9. Board has sufficient visibility of pool of future leaders (e.g.
identified leadership gap to execute chosen strategy)
10. Board ensures succession planning and the appointment,
training and motivating of the CEO
11. Board ensures succession planning and the appointment,
training and motivating of key executives
Risk management
12. Board has adequate risk management procedures in place

Overall comments
1. Please describe any area of expertise that you think would be beneficial to our Board that is not represented in the current membership.

2. If for some reason you could no longer serve on the Board, whom would you recommend as your successor?

3. Is there anyone else you would recommend for the Board in any area of expertise?

4. What, if any, is the most significant change that you would recommend for our Board’s practices?

5 = Strongly Agree 4 = Agree 3 = Neutral 2 = Disagree 1 = Strongly Disagree

Source: Korn/Ferry International, PricewaterhouseCoopers, The Boston Consulting Group, McKinsey & Company

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
APPENDIX 3

ANNUAL DIRECTOR EVALUATION FORM: SAMPLE TEMPLATE

An annual assessment of the Directors provides the opportunity to identify areas of improvement

DIRECTOR SELF/PEER EVALUATION

Director

A B C D E F G H I J
Contribution to interaction

1. Shares information or insights

2. Participates actively in board activities, works constructively with peers
3. Takes strong constructive stands at board or committee meetings where
necessary
4. Encourages feedback from Board
5. Encourages meetings to focus on the agenda
6. Confronts conflicts and participates in finding a resolution

Quality of input
7. Provides logical honest opinions on issues presented
8. Provides unique insight to issues presented – has valuable skills
9. Prioritises context of issues to be in line with objectives
10. Motivates others to get things done, is decisive and action-oriented
11. Provides realism and practical advice to board deliberations
12. Applies analytical and conceptual skills to the decision-making process
13. Communicates persuasively in a clear and non-confrontational manner

Understanding of role

14. Adds value to board meetings – attends meeting well prepared

15. Takes initiative to request for more information
16. Ensures that individual contribution is relevant – up-to-date with developments
17. Focuses on accomplishing the objectives
18. Assess and link short-term issues to the long-term strategy

19. Ensures performance of financial and human capital, keeping in mind the
strategic plan when making investment decisions

Chairman’s role

20. Chairman is able to lead the Board effectively – encouraging contribution from
all members

21. Chairman and CEO have a good working relationship

22. Chairman and CEO understand their respective roles

5 = Strongly Agree 4 = Agree 3 = Neutral 2 = Disagree 1 = Strongly Disagree

Please state the names of the Director numbered above

A. Chairman
B. CEO
C.
D.
E.
F.
G.
H.
I.
J.

5 = Strongly Agree 4 = Agree 3 = Neutral 2 = Disagree 1 = Strongly Disagree

Source: PricewaterhouseCoopers, McKinsey & Company

88 . . .. . . . . ......... ....... .............................. . . .

 APPENDIX 3

THE BOARD CALENDAR: EXAMPLE

The Chairman should set the calendar 12 months in advance, but maintain the flexibility for Directors to make any
necessary amendments

Agenda item March June Sept Dec

Full Board • Approve minutes of previous meetings




• Review actual vs. budgeted financial results




• Review performance vs. competitors


• Approve unbudgeted capital expenditures over RMxmillion




• Review HCM issues




• Review/approve strategic plan



• Approve annual budget




• Approve committee reports

• Litigation review

Audit • Review audit plan

committee • Consider tax planning opportunities

• Assess insurance coverage

• Approve internal audit schedule

• Appoint external auditors


• Meet alone with external auditors

• Review management letter


Remuneration • Approve senior management bonus payments (As per approval schedule)
committee
• Approve stock allocations (As per approval schedule)
• Compare senior management compensation
with industry averages


Nomination • Coordinate board self-assessment

Committee • Present results of board self-assessment

• Propose slate of board and committee appointees

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
APPENDIX 3

AUDIT COMMITTEE CHARTER: EXAMPLE

All committees should adhere to a clear charter as established by the Board

AUDIT COMMITTEE CHARTER

Description
Composition • At least 3 Directors, majority independent
• At least 1 of the Directors must be a Malaysian Institute of Accountants (MIA)
member or have 3 years working experience*:

Passed the examinations specified in Part 1 of the 1st Schedule of the
Accountants Acts 1967

Member of one of the associations of accountants specified in Part II of
the 1st Schedule of the Accountants Act 1967
• No alternate Director as member of the Audit Committee

Responsibilities
Oversee internal control structure to ensure operational effectiveness and

protect company’s assets from misappropriation

Assist the Board to identify and manage principal risks

Review quarterly and year-end financial statements prior to approval by the
Board, focusing on

Changes in accounting policies and practices, and its implementation

Significant adjustments arising from audit

Review the going concern assumption

Review internal audit function to be adequately resourced and able to
undertake its activities independently and objectively

Review external audit function and report to the main Board by making
recommendation on

Appointment of external auditors – considering fees, independence and
objectivity

Audit plan – nature and scope of audit, and co-ordination if more than
one audit firm

Audit report and any letter of resignation from external auditors Review
any related party transactions and conflict of interest situations

Review and follow-up on any issues raised by internal / external auditors –
report to Bursa Malaysia if issue is not satisfactorily resolved

Authority
Explicit authority to investigate matters within its term of reference

Full and free access to company information, records, properties and
personnel; and have sufficient resources to perform duties

Direct communication channels with external auditors and person(s) carrying
out audit function and able to convene meetings with external auditors, without
the presence of executive board members, at least once a year

Flexibility to obtain independent professional advice

Immediate access to reports on fraud / irregularities from internal audit

Attendance of other Directors at the committee’s discretion and invitation only

* Consistent with Chapter 15 of Bursa Securities Listing Requirements

Source: Bursa Securities Listing Requirements, Malaysian GLCs’ Charters

90 ................. ........................................
 APPENDIX 3

REMUNERATION AND NOMINATION COMMITTEE CHARTER: EXAMPLE

All committees should adhere to a clear charter as established by the Board

REMUNERATION COMMITTEE CHARTER

Description

Composition  At least 3 Directors, wholly or mainly non-executive

 Maximum of 6 months for committees with less than the minimum of 3 members
 Chairman who is supportive of company plans and policies

Responsibilities  Review individual remuneration packages for Executive Directors and recommend
to the Board on
 All elements of the remuneration package – terms of employment, reward
structure and fringe benefits
 Annual increments and ex-gratia payments for Executive Directors
 Ensure that Executive Directors abstain from the deliberations and voting on
decisions in respect of their remuneration package
 Endorse remuneration packages for senior management and make
recommendation to the Board to do similarly

Authority  Access to the full company records, properties and personnel

 Obtain independent professional advice and expertise necessary to perform its
duties
 Access to advice and services of the Company Secretary

NOMINATION COMMITTEE CHARTER

Description

Composition  At least 3 Directors, exclusively non-executive, majority of which independent

 Maximum of 6 months for committee to have less than minimum of 3 members

Responsibilities  Recommend to the Board on appropriate board size and ensure that any director
term limits within the Articles of Association are adhered to, including:
 Every AGM, 1/3 of the Board retires, or
 Every Director retires at least once in 3 years
 Review annually Board’s mix of skills and experiences to ensure in line with
company’s requirements
 Coordinates evaluation process of Directors and collective Board
 Proactively maintains a pipeline of potential appointees to the Board and/or
committees

Authority  Access to the full company records, properties and personnel

 Obtain independent professional
Appendix advice
2 and expertise necessary to perform its
duties
 Access to advice and services of the Company Secretary

Source: Malaysian GLCs’ Charters

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
 APPENDIX 4
. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .
STATUTORY, REGULATORY AND LEGAL
RESPONSIBILITIES OF DIRECTORS

15 .................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
15 ............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 APPENDIX 4

THE BOARD LIES AT THE HEART OF CORPORATE GOVERNANCE

‘Corporate governance is the process and structure used to direct and manage the business and affairs of the
company towards enhancing business prosperity and corporate accountability with the ultimate objective of
realising long term shareholder value, whilst taking into account the interests of other stakeholders.’
The Malaysian Code of Corporate Governance

The OECD Principles of Corporate Governance – deemed to be the international benchmark of standards for
corporate governance – established the Corporate Governance Framework, which is built around four main
objectives. At the heart of this framework, is the effective governance of the company’s Board of Directors.

The OECD Corporate Governance Framework

Protect and
Recognise the
facilitate The Board of Directors is responsible for ensuring
rights of all
shareholders’
stakeholders the strategic guidance of the company and effectively
rights
monitoring management while being accountable
to the company and its shareholders.
Effective
governance of
the Board of The Board’s governance roles and responsibilities,
Directors Provide for however, unlike the other corporate governance
timely and objectives, is effected predominantly through
Ensure the fair
accurate
treatment of all codes and recommended practices rather than
disclosure on
shareholders through legislation.
all material
matters

The four objectives outlined in the Corporate Governance framework are covered by a separate and distinct
body of rules. The definition, protection and facilitation of the exercise of shareholder rights are embodied
within the Memorandum and Articles of Associations, the Companies Act and by general common law. The
equitable treatment of all shareholders is codified in the Companies Act while provisions for timely and accu-
rate disclosure on all material matters is provided for via the need for AGMs/EGMs (and other modes of
communication with shareholders) as defined in the Companies Act and by Bursa Securities Listing Require-
ments. Finally, the recognition of the rights of all stakeholders – for example, the rights of creditors and
employees are also enshrined in statute, regulations and common law.

Because of this, and with the Board at the heart of corporate governance, Directors are saddled with a series
of statutory, regulatory and legal responsibilities. A summary of the most critical responsibilities are
highlighted in the following pages.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
APPENDIX 4

STATUTORY, REGULATORY AND LEGAL

RESPONSIBILITIES OF DIRECTORS

LEGAL RESPONSIBILITIES OF DIRECTORS

Section 132(1) of the Companies Act imposes upon Directors the general duty ‘to act honestly and use reasonable
diligence in the discharge of the duties of his office’. However, this statement is not an exhaustive statement of a
Director’s duties. A Director has three broad categories of duties: fiduciary duties; duties of skill, care and
diligence; and statutory duties.

A Director’s fiduciary responsibility to ‘act honestly’ essentially covers three propositions. Pursuant to section 132
(5) of the Companies Act, a Director must act in what he honestly considers to be the company’s interest and not
in the interests of some other person or body. This is a Director’s main and overriding duty. Second, a Director must
not place himself in a position where his duty to the company and his personal interests may conflict. Third, a Director
must employ the powers and assets that he is entrusted with for the proper purposes, and not for any collateral
purpose.

As far as duties of skill, care and diligence are concerned, these duties are merely aspects of a Director’s duty not
to be negligent in the discharge of his functions. And statutory duties are mandated by the Companies Act and, in
the case of listed companies, by Bursa Securities Listing Requirements and the Securities Commission Act (SCA).
The most critical are highlighted below.

Key statutory and regulatory responsibilities of Directors

Topic Responsibility Source

Duty of Directors to disclose interest (direct or indirect) in contracts Section 131, CA

disclosure or arrangements with any company in the Group or property
held which may give rise to a conflict of interest – such
disclosure to be in given in writing to the Board

To disclose any proposals or transactions amounting to a Bursa Securities Listing

Related Party Transaction requiring announcements, Requirements
circulars, or shareholders’ approval, not being in the ordinary
course of business
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Duty to ensure To approve quarterly results and annual audited accounts Section 169, CA and
that accounts Bursa Securities Listing
are properly Requirements
prepared
To approve remuneration of auditors (where, as is usual, Section 172, CA
shareholders have delegated this power to the Board) and
make recommendation for appointment and removal of
auditors after which approvals from the shareholders are to
be sought

To ensure that the accounts of the company are made out in Section 166A, CA
accordance with applicable approved accounting standards

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

94 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 APPENDIX 4

Topic Responsibility Source

Protecting Calling of annual general meetings, extraordinary general Sections 143 & 144
shareholder meetings and approving notices
rights
Making appropriate recommendations in respect of matters Bursa Securities Listing
that are specifically reserved for the approval of shareholders Requirements
in general meetings

Approval of all annual reports, prospectuses, circulars, Bursa Securities Listing

provisional allotment letters and listing particulars Requirements

Approval of announcements, press releases made by the Bursa Securities Listing

company Requirements

Approval of replies to queries from Bursa Securities on any Bursa Securities Listing
non-routine or extraordinary item Requirements
.. ............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .
Changes to Corporate restructuring, mergers and takeovers Section 176, CA and
company’s Section 33B, SCA and
course of Malaysian Code of
business Take-overs and mergers
1998

Submission/applications to regulatory authorities, i.e. SCA

Foreign Investment Committee, Securities Commission,
Ministries for any new issues or other corporate proposals
falling under Section 32B of the Securities Commission Act,
1993 and ensuring institution of proper due diligence
processes
.. ............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .
Amendments to Recommendation of buy-back of company’s own shares Section 67A, CA and
capital structure Bursa Securities Listing
of company Requirements

Changes relating to the company’s capital structure or its Section 176/64 CA and
status as a public listed company Bursa Securities Listing
Requirements
.. ............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .
Delisting and Requests for voluntary delisting Bursa Securities Listing
winding up of Requirements
company
Requests for voluntary suspensions Bursa Securities Listing
Requirements

Winding up of company or any of its subsidiaries Section 217, CA

Appointment of liquidator Section 227, CA

.. ............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
APPENDIX 4

Topic Responsibility Source

Administration Fixing the financial year end of the company Section 169, CA
of company
Setting up of registered office of the company Section 119, CA

Adoption of the Company Seal Section 16, CA

Closure of Company’s Register of Members (for dividend Section 160, CA

payments) Bursa Securities Listing
Requirements

Appointment of Share Registrars Section 48, CA

Allotment of shares Sections 60, 62 and 365,

CA
Capitalisation of reserves or share premium

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 APPENDIX 5
. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .
REFERENCES

15 .................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
15 ............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 APPENDIX 5

REFERENCES

Bursa Malaysia, Listing Requirements of Bursa Securities

Colin B. Carter and Jay W. Lorsch, ‘Back to the Drawing Board: Designing Corporate Boards for a
Complex World’

David A. Nadler, Beverly A. Behan and Mark B. Nadler,

Building Better Boards: A Blueprint for Effective Governance

Finance Committee on Corporate Governance, Malaysian Code of Corporate Governance, 2000

Lee Hishammudin Advocates and Solicitors, ‘Corporate Governance:

A Director’s Practical Legal Guide, Malaysia’

Legal Research Board, Companies Act 1965

Legal Research Board, Malaysian Code of Take-overs and Mergers 1998

Legal Research Board, Securities Commission Act 1965

MAICSA, Model Board Charter

Paul P. Brountas, ‘Boardroom Excellence’

Ram Charan, Boards that Deliver

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
ACRONYMS AND ABBREVIATIONS

BU Business Unit

CEO Chief Executive Officer

CFO Chief Financial Officer

COO Chief Operations Officer

The Code The Malaysian Code on Corporate Governance

ED Executive Director

EBITDA Earnings before interest, tax, depreciation and amortisation

GLC Government-linked Company

GLCT Government-linked Companies Transformation Program

Program

GLIC Government-linked Investment Company

HCM Human Capital Management

HR Human Resources

IFAC International Federation of Accountants

KPI Key Performance Indicators

MAICSA Malaysian Institute of Chartered Secretaries and Administrators

MIA Malaysian Institute of Accountants

MICG Malaysia Institute of Corporate Governance

MD Managing Director

PCG Putrajaya Committee on GLC High Performance

ROCE Return on Capital Employed

SMEs Small-Medium Enterprises

SVP Senior Vice President

TOR Terms of Reference

TMO Transformation Management Office

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
EXHIBITS

1.1 Components of an effective Board

2.1 Boundaries between Board and management: an example

2.2 Characteristics of Exco Board: an example

2.3 Division of roles: Chairman and CEO

2.4 Ideal characteristics of an effective Director

2.5 Composition of directors at Telecom Boards: case examples

2.6 Board composition at Kookmin Bank: a case example

2.7 Skill review of Board composition of a property development conglomerate: a case example

2.8 Five questions that a mandate for CEO and management should answer

2.9 Executive Summary: an example

2.10 Board feedback form: an example

2.11 Agenda for Board strategy offsite session for a conglomerate: an example

2.12 Board’s role during a strategy offsite session: thought starters

2.13 Corporate scorecard: a telecoms example

2.14 Performance management report: an example

2.15 CEO succession models

2.16 Review of performance distribution

2.17 Pivotal positions: an example

2.18 Leadership gap analysis: an example

2.19 Performance evaluation matrix: an example

2.20 Candidate visibility matrix: an example

2.21 Agenda for HCM offsite: an example

2.22 Classifications of risks

2.23 Risk-rating matrix: an example

2.24 Risk mitigation plan for high risk events: an example

3.1 How to raise effectiveness of GLC Boards

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Notes
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