CHAPTER 5

CORPORATE GOVERNANCE
AND
CORPORATE SOCIAL
RESPONSIBILITY
 LEARNING OBJECTIVES
5.1 Define corporate governance and social responsibility
5.2 Explain the concept corporate governance
5.3 Explain the importance governance and social responsibility in organizations
5.4 Discuss on developments in corporate governance
5.5 Discuss on the best practice in effective corporate governance
5.6 Explain reporting of corporate governance and corporate social responsibility
5.7 Examine the interaction of ethics, law governance and social responsibility
5.1 DEFINE CORPORATE GOVERNANCE
AND SOCIAL RESPONSIBILITY
 Corporate governance
The system of rules , practices and processes by which a
company is directed controlled. Corporate governance
essentially involves balancing the interest of the many
stakeholders in a company.

**A stakeholder in a company is

someone who has an interest or stake
in it, and is affected by what the
company does.
The Definition of Corporate Governance
Governance” refers to the way in which an entity or body of people
is governed and to the functions of governing, such as
The structural framework
The procedures and the way power and actions are carried out by
various authorities and people that forms the groups being
governed, with CERTAIN OBJECTIVES
Example: The governance of a country refers to the powers and
actions of the legislative assembly, the executive government and
the judiciary. The democratic process of election for members to sit
in parliament as representatives of the citizens, the sharing of
powers executed within the legal framework
Example: The governance of a country refers to the powers and actions of the legislative
assembly, the executive government and the judiciary. The democratic process of election
for members to sit in parliament as representatives of the citizens, the sharing of powers
executed within the legal framework
The official definition of corporate governance in Malaysia as adopted by
the Malaysian Code on Corporate Governance (2000) 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 realizing long-term shareholder value, whilst taking into account
the interests of other stakeholders”
 Corporate Social Responsibility
 It is important to recognize that all types of
businesses – small and large, sole proprietorships and
partnerships as well as large corporations –
implement social responsibility initiatives to further
their relationship with their:
Customers
Employers
Community at large
 The concept of corporate social responsibility
This concept is based in the root of the term responsibility,
meaning “to pledge back”, creating a commitment to give back
to society and the organization’s stakeholders

Corporate social responsibility (CSR) means that firms are not

only responsible to shareholders but also accountable for the
effect of their actions on various stakeholder groups.

Firms are required to adopt CSR for which their actions affect
the welfare of the stakeholders.
Example….
 Example: Sport shoes' company
 Sells athletic shoes, clothing and accessories to customer
They also donates used shoes (which customers have traded
in for discounts on new shoes) to the community’s poor and
homeless
The company also sponsors walk / run events

Social responsibility fulfils society expectations

In early 2011, Berjaya Corporation Berhad founder and one
of the richest men in Malaysia, Tan Sri Vincent Tan, pledged
to donate at least half of his wealth to charity.

In 2008, Tan Sri T. Ananda Krishnan contributed about

RM5million to the opening of the Montfort Girls Centre that
included a dormitory and training centre where girls could
learn baking, computer repair, graphic design and other
vocations.

Tan Sri Syed Mukhtar Albukhary, a major shareholder of

Malaysia Mining Corporation and the sole donor of
Albukhary Foundation, a Muslim charity that assist the
disadvantaged, contributed funds to conduct remedial
classes in English, Science and Mathematics for 20,000
underashieving students from rural families each year.
Examples of Socially responsible activities
Offers safe and good quality Provides safe working
products environment
Donates to charitable firms Promotes ethical practices at
workplace
Provide healthcare to poorest Commitment to prevent
people pollution
Gives scholarship to student Responds quickly to customer
complaints
Allocates funds to help address Sponsors skills training
social programmed programmed for local youths
and underprivileged women
Its compulsory for all public listed company to disclose CSR initiatives
in the financial reports in a form of a CSR statement
 CSR framework highlights four dimensions of sustainable practices as shown
below:
Community – Investment or donations in capital , time, products, services,
management knowledge and other resources that bring positive impact on local
communities
Workplace – Activities to maintain high standards of recruitment, development
and retention of employees
Marketplace – Activities to encourage and influence shareholders, vendors and
customers to behave in a sustainable manner across the value chain
Environment – Initiatives to converse the ecosystems and biodiversity and to
manage the effect of a firm’s operations on the environment
 THE CONCEPT CORPORATE GOVERNANCE
AGENCY THEORY
◦ Jensen and Mackling (1976) defined “agency relationship” as a contract under which one party ( the principal) hires
another party (the agent) to undertake specified functions on the principal’s behalf.

◦ The principal delegates some decision making authority to the agent to enable said agent to perform the assigned
tasks.

◦ The agents are expected to protect the interest of the principal and discharge their duties diligently

◦ Agency Theory attempts to explain the nature of the relationship between shareholders and professional
managers.

◦ Agency theory proposes that corporate governance problems exist due to the selfish tendencies of the professional
managers that prompt them to engage in conflict of interest situations

◦ Managers that prioritize their self interests tend to engage in activities that will reduce the wealth of shareholders.
THE CONCEPT CORPORATE GOVERNANCE (cont…)
STEWARDSHIP THEORY
◦ Stewards whose motives are aligned with the objectives of their principals.

◦ A steward’s behavior will not depart from the interests of his / her organization.

◦ Control can be potentially counter productive, because it undermines the pro- organizational behavior of the
steward, by lowering his / her motivation.

◦ “Stewardship refers to the responsibility of the board to oversee the conduct of the business and to
supervise management which is responsible for the day-to-day conduct of the business. In addition, as
stewards of the business, the directors function as the catch-all to ensure no issue affecting the business and
affairs of the company falls between cracks.” Canadian Guidelines

◦ Inspired by sociologists and psychologists to address the limitations of Agency Theory, particularly the non-
economic assumptions (Doucouliagos, 1994)

◦ Explains what causes principal-agent divergent interest to align.

THE CONCEPT CORPORATE GOVERNANCE (cont…)
STAKEHOLDER THEORY
◦ Traditionally, corporate objectives tend to give priority to creating value for shareholders
as the main supplier of capital

◦ In the Agency Theory the bilateral relationship between shareholders and controllers is
paramount

◦ Stakeholder theory offers a more inclusive approach to corporate governance by

broadening the accountability of the professional managers to serving both the interests
of shareholders as well as other stakeholders

◦ This theory argues that corporations should serve a broader agenda of maximizing wealth
for shareholders and protecting the welfare of stakeholders

◦ This wider objective is necessary because the company’s action and decisions on the well
being of their stakeholders

◦ The larger the size and operations of a corporation, the greater the impact of its actions
or decisions on stakeholders
 STAKEHOLDERS ?
A stakeholder in a company is someone who has an interest or
stake in it, and is affected by what the company does.

 The balance of power between different stakeholder group, and

the way in which power is exercised, are the key issues in
corporate governance.
A public company has a number of different stakeholder groups:
1. Equity Shareholders
2. The Board of Director
3. Management
4. Employees and the Workforce
5. Lenders and creditors
6. Investors
7. Supplier and vendors
8. General Public/communities
9. Representatives or fund managers of investing
ADVANTAGES OF CORPORATE GOVERNANCE
Enhanced Performance
helps a company improve overall performance.
Without corporate governance, a company tends to be weak and sluggish.

Access to Capital
The better corporate governance a company has, the more easily it can access outside capital
that the business can use to fund its projects.
Since corporate governance includes major shareholders, it connects investors with the
business itself, and these investors use their resources and contacts to support the company
monetarily.
ADVANTAGES OF CORPORATE GOVERNANCE
Better Standards
Corporate governance makes many decisions about business operations, but one of the most
important decisions involves corporate standards.
Standards affect the quality of products and the goals that the business has in technology,
customer service, and marketing.

Better Talent Utilization

With a strong corporate governance structure, people can find positions that utilize their
talents more effectively, and the board of directors and top leaders of the business are always
looking to add more talented people to their numbers.
ADVANTAGES OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
More effective than advertising
CSR can be more effective than traditional advertising when communication to customers

Lower staff turnover

The employees today are craving more value and reason behind their jobs.
They stay in their job due to several reasons such as job satisfaction, the good environment and
good prospects.
ADVANTAGES OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
Cont.
Increase Customer Loyalty
CSR can improve corporate image and immediately taking steps to improve customer loyalty.

Build public trust

CSR may influence public trust about the company especially when the company utilize the
social media and getting involved by their employees in order to promote good practices.
Public trust leads to higher brand awareness, which leads to more loyal customers.
ADVANTAGES OF CORPORATE SOCIAL RESPONSIBILITY (CSR)
Cont.
Increase Profits
Increased profits go hand in hand with increased customer loyalty, public trust and lower staff
turnover.

Attractive the Investors

Investors are searching for businesses that they feel they can get behind. More over,
stakeholders want to feel hat their investment is solid.
CSR sets the company apart and makes it more attractive to potential investors.
 5.4.1 HISTORICAL DEVELOPMENT
CADBURY COMMITTEE
The Committee on the Financial Aspects of Corporate Governance,
better known as the Cadbury Committee, was set up in May 1991 to
address the concerns increasingly voiced at that time about how UK
companies dealt with financial reporting and accountability and the
wider implications of this.
The Committee was sponsored by the London Stock Exchange, the
Financial Reporting Council and the accountancy profession. It published
its final report and recommendations in December 1992.
Central to these was a Code of Best Practice and the requirement for
companies to comply with it or to explain to their shareholders why they
had not done so.
The recommendations and the Code provided the foundation for the
current system of corporate governance in the UK and have proved very
influential in corporate governance developments throughout the world.
While academics and practitioners have explored and discussed the
developments in corporate governance since 1992, little attention has
been paid to the processes of code and policy development.
The issues which the Committee addressed are still of great concern: the
complex relationships through which corporations are held to account
have profound effects on all our lives.
The Committee provided a framework for thinking about these issues and
established a process through which such thinking could be articulated
and continue to evolve.
 GREENBURY / REMUNERATION COMMITTEE
The Greenbury Committee was established in 1994 by the Confederation of British Industry
in response to growing concern at the level of salaries and bonuses being paid to senior
executives.
Its key findings were that Remuneration Committees made up of non-executive directors
should be responsible for determining the level of executive directors' compensation
packages, that there should be full disclosure of each executive's pay package and that
shareholders be required to approve them.
Remuneration should be linked more explicitly to performance, and set at a level necessary
to 'attract, retain and motivate' the top talent without being excessive. It also proposed that
more restraint be shown in awarding compensation to outgoing Chief Executives, especially
that their performance and reasons for departing be taken into account.
Again this code of conduct was to be voluntary in the hope that self-regulation would be
sufficient to correct things. It was judged that shareholders were not so much concerned
with exorbitant amounts being paid out to executives than that the payouts be more closely
tied to performance.
 SARBANES OXLEY (SOX) ACT
The Sarbanes-Oxley Act of 2002 is a law the U.S. Congress passed on July
30 of that year to help protect investors from fraudulent financial
reporting by corporations.1 Also known as the SOX Act of 2002 and the
Corporate Responsibility Act of 2002, it mandated strict reforms to existing
securities regulations and imposed tough new penalties on lawbreakers.
The Sarbanes-Oxley Act of 2002 came in response to financial scandals in
the early 2000s involving publicly traded companies such as Enron
Corporation, Tyco International plc, and WorldCom.2 The high-profile
frauds shook investor confidence in the trustworthiness of corporate
financial statements and led many to demand an overhaul of decades-old
regulatory standards.
The act took its name from its two sponsors—Sen. Paul S. Sarbanes (D-
Md.) and Rep. Michael G. Oxley (R-Ohio)
The rules and enforcement policies outlined in the Sarbanes-
Oxley Act of 2002 amended or supplemented existing laws
dealing with security regulation, including the Securities
Exchange Act of 1934 and other laws enforced by the Securities
and Exchange Commission (SEC).5 The new law set out reforms
and additions in four principal areas:
a) Corporate responsibility
b) Increased criminal punishment
c) Accounting regulation
d) New protections
5.4.2 REFORM OF CORPORATE GOVERNANCE
The establishment of the High Level Finance Committee marks a
significant milestone in Malaysia’s journey to address corporate
governance issues in the aftermath of the 1997/98 Asian Financial
Crisis.
The report of the High Level Finance Committee published in 1999
outlined a comprehensive agenda which provided the basis for a
holistic and concerted approach to corporate governance reform.
The report signaled the beginning of progressive efforts by
regulators, working closely with industry, to promote good
corporate governance in Malaysia and led to the incorporation of
many aspects of corporate governance into a sound regulatory
framework
The Malaysian Code on Corporate Governance (CG Code) was introduced in
2000, as a result of which improvements were made to the then Kuala Lumpur
Stock Exchange Listing Requirements in 2001.
Over the years, Malaysia’s corporate governance framework was continuously
strengthened through enhancements to securities and companies laws, and
regulations focusing on protecting the interests of investors.
Whistleblowing provisions were introduced in 2004. The CG Code was revised
in 2007 and in tandem with this, the responsibilities of boards and audit
committees were augmented.
In 2010, the Capital Markets and Services Act 2007 (CMSA) was amended to
include sections 317A and 320A which gave the Securities Commission
Malaysia (SC) the power to act against directors of listed companies who cause
wrongful loss to their company and against any person who misleads the public
through falsely preparing or auditing the financial statements of companies
The Audit Oversight Board (AOB) was established and became operational
on 1 April 2010 to provide effective oversight of auditors of public interest
entities.
In 2011, the Securities Industry Dispute Resolution Center (SIDREC) was
established to facilitate the resolution of small claims by investors.
Malaysia has also committed to achieving full convergence with the
International Financial Reporting Standards (IFRS) by January 2012
Malaysia continues to move forward with plans to transform into a
developed economy by 2020. In tandem with national economic plans, the
Capital Market Masterplan 2 (CMP2) was launched in April 2011 to expand
the role of the capital market in invigorating national economic growth. It
is a major philosophy of CMP2 that growth is only sustainable if it is
underpinned by a proper system of accountabilities and governance.
5.4.3 FRAMEWORK OF CORPORATE GOVERNANCE
Our ever-evolving business landscape presents a set of risks to
our business and financial performance.
Our Risk and Compliance Division actively monitors these risks,
which we have classified into four categories to facilitate
oversight and control.
The Division makes regular assessments of each risk and reports
these to the Management Committee, Management Risk and
Audit Committee, Risk Management Committee and Board to
ensure an enterprise-wide understanding of the risks we face and
how we mitigate their potential impact on our performance.
The Enterprise Risk Management Framework was designed in accordance
with ISO 31000:2009 Risk Management Principles and Guidelines while
the Integrity Governance and Compliance Framework was designed based
on the internationally recognized ISO 19600 Compliance Management
System.
Business Continuity Management Framework was developed in line with
ISO 22301 standard. In addition, the Group adopts the Guidelines on
Financial Market Infrastructures issued by the SC Malaysia and Principles
for Financial Market Infrastructures (PFMI) issued International
Organization of Securities Commissions (IOSCO), to manage the risks of its
business and operations.
One of the key features of the risk management framework is the
implementation of the three lines of defense comprising established and
clear functional responsibilities and accountabilities for the management
of risk.
A. REGULATORY BODIES – Bursa Malaysia
Bursa Malaysia is the frontline regulator of the Malaysian capital market and
has the duty to maintain a fair and orderly market in the securities and
derivatives that are traded through its facilities.
As an integrated exchange, Bursa Malaysia also has the duty to ensure
orderly dealings in the securities deposited with Bursa Malaysia, and
orderly, clear and efficient clearing and settlement arrangements for
transactions cleared and settled through its facilities.
In furtherance of these duties, Bursa Malaysia has put in place a
comprehensive and effective regulatory and supervisory framework to
regulate the market and its participants, including the listed issuers and
their directors and advisers, Participating Organizations, Trading
Participants, Clearing Participants, Authorised Depository Agents and
Authorised Direct Members.
In this respect, Bursa Malaysia has issued various sets of rules to stipulate the
requirements that need to be met by the regulated entities either upon
admission and/or on a continuing basis.
It administers and monitors compliance with these rules and takes strict,
prompt and objective enforcement action for breaches of these rules. Bursa
Malaysia actively supervises the listed issuers and the brokers. It also
undertakes surveillance over the trading activities in the marketplace.
Bursa Malaysia’s overriding objectives, in addition to discharging its statutory
duties, are investor protection, transparency, high standards of conduct and
governance, market integrity and that all relevant persons can participate in our
market with confidence
 Website Bursa Malaysia

[Link]
REGULATORY BODIES – Securities Commission (SC)
(SC) is dedicated towards promoting the internalization of a culture of good
governance amongst capital market participants. Greater emphasis is being
placed on self and market regulation to complement the existing
comprehensive regulatory framework.
We believe that a strong corporate governance culture must be premised on a
dynamic synthesis of efforts between regulators and the market.
The Corporate Governance Strategic Priorities 2021 – 2023 (CG Strategic
Priorities) is a critical component of the Capital Market Masterplan 3 (CMP3),
anchored on six key development and regulatory priorities.
The CG Strategic Priorities will focus on five thrusts and 11 strategic
initiatives to among others, strengthen board capacity in addressing
sustainability, scale up investor stewardship, enhance availability of
corporate governance (CG) data through the use of digital tools, and
further develop the collaboration with universities to deepen engagement
with youth on corporate governance.
The CG Strategic Priorities focus on supporting listed companies in
responding to the rise of the stakeholder economy that calls for businesses
to create value for a wider spectrum of stakeholders, including the society,
and to have conscious consideration for their impact on the environment
and vice versa
REGULATORY BODIES – Suruhanjaya
Syarikat Malaysia (SSM)
statutory body formed as a result of a merger bet​​ween the Registrar of
Companies (ROC) and the Registrar of Businesses (ROB) in Malaysia which
regulates companies and businesses.
SSM came into operation on 16 April [Link] main activity of SSM is to
serve as an agency to incorporate companies and register businesses as
well as to provide company and business information to the public.
As the leading authority for the improvement of corporate governance,
SSM fulfils its function to ensure compliance with business registration and
corporate legislation through comprehensive enforcement and monitoring
activities so as to sustain positive developments in the corporate and
business sectors of the Nation.
 Website SSM
[Link]
 REGULATORY BODIES – Malaysian
Institute Corporate Governance (MICG)
MICG was established in March 1998 following recommendation by the High
Level Finance Committee on Corporate Governance. The Institute was
incorporated as a company limited by guarantee, with founding members
consisting of the Federation of Public Listed Companies (FPLC), Malaysian
Institute of Accountants (MIA), Malaysian Institute of Certified Public
Accountants (MICPA), and Malaysian Institute of Chartered Secretaries and
Administrators (MAICSA).
MICG’s principal activities are to promote and encourage corporate
governance development, provide education and training for the benefit of
its members and other interested institutions or bodies in Malaysia.
 Website MICG
[Link]
 B. STATUTORY BODIES
Our function as a statutory body means that we must have, first and foremost,
“institutional integrity”. By “institutional integrity”, we mean sound governance and
the highest of internal standards throughout our Corporation
The work of statutory bodies has a significant impact on the community. There is no
specific set of governance and accountability policies applicable to statutory bodies,
except broad recommendations and principles on accountability for public sector
entities2 .
For companies in the private sector, it is clear what the primary role of the
corporate board is, and to whom it is accountable. The Board represents its
shareholders, and it is to shareholders that the corporate board is accountable.
For a statutory body, the position is more complex. Our Board’s broad goals are clear from our
mandate and the powers conferred on them as set out in the Malaysia Deposit Insurance
Corporation Act 2005 (“MDIC Act”).
However, our stakeholders are many and their interests are varied. What is more, not all statutory
bodies operate within the same legislative framework or have the same business models.
Accordingly, the model of governance and accountability framework, while guided by similar
principles, would need to address unique features of each such entity
The design of the MDIC Act and our explicit objects clearly contemplate the need for PIDM to
operate in a vigorous and enterprising manner. In keeping with the MDIC Act, we are to operate as a
separate legal entity, with a wide ranging set of powers.
This flexibility and range of powers enable us to achieve our mandate. Given this flexibility and wide
powers, we are keenly aware of the need to operate within a strong framework of effective
governance and accountability
5.4.4 FEATURES OF POOR GORVERNANCE
Domination by a single individual. Sometimes the single
individual may bypass the board to action their own interests.
Lack of involvement of board.
Ineffective internal audit function.
Lack of supervision.
Lack of independent scrutiny.
Emphasis on short-term profitability.
[Link]
details/corporate-governance/the-cost-of-poor-corporate-
governance
5.4.5 RISKS AND REPORTS ON POOR CORPORATE
GOVERNANCE
Risk management is about understanding the nature of such events and where
they represent threats, making positive plans to mitigate them.
Fraud is a major risk that threatens the business, not only in terms of financial
health but also its image and reputation.
Risk management is also an increasing important process in many businesses and
the process fits in well with the precepts of good corporate governance.
In recent years, the issue of corporate governance has been a major area for
concern in many countries.
Effective governance is very important and poor governance has often led
financial disasters for individual companies, and even whole economies.
Governance is the system by which companies are directed and controlled,
and accountability is assured.
While the concept is usually associated with corporate governance, that is
the governance of large listed corporations, similar governance principles
should apply to all enterprises.
8 KEY EFFECTIVE CORPORATE GOVERNANCE
Governance Frameworks
Governance Documentation
Policies in line with law and applicable regulations
Documenting processes and procedures
Effective board reporting
Agenda and minutes
Director training and board evaluations
Subsidiary governance policies
 GOVERNANCE FRAMEWORKS
Governance frameworks can often be overlooked, however,
they are the bedrock of how a company/organization is
governed and should be designed so as to ensure:
[Link] boards,
[Link] around roles and responsibilities,
[Link] to, and engagement with, stakeholders, and
[Link] sustainable business practices.
 GOVERNANCE DOCUMENTATION
It is imperative that governance documentation is accurate
and kept up to date.
These documents establish the rules by which the business is
governed, set out the rights and obligations of the
shareholders/owners, and provide evidence for
regulators/stakeholders of the governance
processes/procedures in place.
 POLICIES IN LINE WITH LAW AND
APPLICABLE REGULATIONS
Policies and guidelines are important because they address pertinent issues, such as
rules and principles for day-to-day operations.
They ensure compliance with laws and regulations, reflect the culture of the
organization, give guidance for decision-making, risk appetite and streamline
internal processes.
These policies and guidelines should be current and in line with
legislation/regulations as well as with the goals and strategy of the organization.
Additionally, these should be made easily available to ensure that everyone
understands the way things should be done and how they are expected to behave.
 DOCUMENTING PROCESSES AND
PROCEDURES
It is important that governance processes/procedures are
adequately documented.
Often a company/organisation has good corporate governance
practices, however, have gaps in terms of documenting the actual
processes/procedures in place.
 EFFECTIVE BOARD REPORTING
Boards perform best when they receive good quality reports that contain
sufficient information for them to make well-informed decisions and to develop
business strategies for short and long-term growth and overall sustainability of
the organization.
In our experience, the challenges for management in preparing fit for purpose
reports for the board include the following:
[Link]-consuming and inefficient processes,
[Link] styles, and
[Link] in ascertaining the purpose and the output required from the board.
 AGENDA AND MINUTES
It is imperative that the board deals with the most pressing/important strategic matters at
meetings, therefore, we find that by grouping items together under headings and by
putting routine items together for simultaneous approval by the board will ensure that
agenda time can be best utilized during the meeting.
Given that board minutes are the definitive record of a company’s highest decision-
making body, we consider it to be crucial that the quality of those minutes is of the
highest standard and that they are clear, concise and free from ambiguity.
At a minimum, minutes should include:
[Link] key points of discussion,
[Link] made and, where appropriate, the reasons for them, and
[Link] actions, including a record of any delegated authority to act on behalf of the
company/organization.
DIRECTOR TRAINING AND BOARD EVALUATIONS
Directors need to ensure they keep up to date with regulations and legislation, which can prove
challenging. Additionally, increased responsibility and expanding regulatory demands means
higher expectations for board performance.
We set out below common issues identified from board evaluations:
[Link] not spending enough time on strategy and the longer-term plans of the
company/organisation;
[Link] not having a strong mix of skills, knowledge, experience and diversity;
[Link] not being supplied to the board in a timely manner and/or not of an adequate
standard;
[Link] members not having sufficient time to commit to the company/ organisation to
discharge their responsibilities effectively;
[Link] not obtaining any formal induction training and/or ongoing training;
[Link] governance documentation either not being in place and/or not accurately reflecting
the actual processes.
SUBSIDIARY GOVERNANCE POLICIES
Subsidiaries are a common feature of today's business structures, as
corporations operate across multiple jurisdictions and business areas. To
ensure that corporate governance principles are cascaded, consistently and
effectively down to its subsidiaries and that subsidiary boards are aware of
their responsibilities, it is important that such organisations:
[Link] a subsidiary governance framework/policy;
[Link] out rules in relation to the oversight of the subsidiaries which respect
the sanctity of subsidiaries and their decision making; and
[Link] guidance to the subsidiary boards on their roles and
responsibilities, and reporting requirements to the parent company.
The narrow focus of corporate governance exclusively upon the internal control
of the firm and simply complying with regulation is no longer tenable. In the
past this has allowed corporations to act in extremely irresponsible ways by
externalizing social and environmental costs.
Corporate objectives described as “wealth generating” too frequently have
resulted in the loss of well-being to communities and the ecology. But
increasingly in the future the license to operate will not be given so readily to
corporations and other entities.
A license to operate will depend on maintaining the highest standards of
integrity and practice in corporate behavior. Corporate governance essentially
will involve sustained and responsible monitoring of not just the financial health
of the company, but the social and environmental impact of the company.
5.6 REPORTING OF CORPORATE GOVERNANCE
Companies should view corporate governance disclosures as an
opportunity to demonstrate to stakeholders that they have holistic and
effective corporate governance arrangements
Shareholders and potential investors require access to regular, reliable,
comparable and integrated information for them to assess the stewardship
of management, valuation of the company and the ownership structure.
Thus, good corporate governance disclosure can, in the long run, help
attract capital and maintain confidence in the capital market.
Companies must provide meaningful explanation on how it has
applied each practice. Where there is a departure from a
practice, the company must–
• provide an explanation for the departure;
• disclose the alternative practice it has adopted and how the
alternative practice achieves the Intended Outcome.
In addition to the above, where Large Companies depart from a
practice, they are also required to disclose–
• actions which they have taken or intend to take; and
• the timeframe required.
Large Companies that depart from any of the practices are
required to identify and disclose a reasonable timeframe for the
adoption of the practice(s).
A short timeframe will signify the commitment and seriousness
of the board in adopting good corporate governance practices.
A timeframe of three years or less would be considered as
reasonable. Non-large companies with departures are also
encouraged to adopt the practices within three years or less.
Boards should disclose the justification for the identified
timeframe and actions that it has or will take to adopt the said
practice..
Shareholders should also hold boards accountable to these
commitments and seek explanation if these commitments are not met
The standard for meaningful disclosure should not solely be what the
board or management considers meaningful but what stakeholders,
including shareholders consider informative and useful.
Companies should carefully consider whether the disclosures would
enable stakeholders to evaluate how the principles and practices of the
MCCG (Malaysian Code on Corporate Governance) have been applied.
FIVE STRATEGIES FOR SOCIAL RESPONSIBILITY
Promoting Healthy and Inclusive Workplace Cultures
Designing Goals with Measurable Impact
Aligning Community Impact Goals with Business
Practices
Socially Responsible Companies Leverage Their Core
Capabilities
Soliciting Feedback and Engagement to Maximize
Stakeholder Value
1. Promoting Healthy and Inclusive
Workplace Cultures
Social responsibility starts with workplace culture and your internal
community. Organizations who keep this in mind, create environments in
which their own employees can thrive and excel.
Those training sessions were a step in the right direction to maximizing
shareholder value. High-visibility training efforts allow companies to
communicate their values across all stakeholder segments, but companies
need to go beyond a one-day focus on diversity and inclusion.
Organizations must recognize HR or diversity training as just one piece of
a larger, ongoing strategy to establish a positive company culture.
2. Designing Goals with Measurable Impact
Socially responsible companies set measurable goals. Measurable goals keep
organizations accountable to themselves and stakeholders.
CSR leaders design goals with multiple priorities in mind. These priorities
include community impact, internal business practices, marketing reach, and
public and government relations.

Executives should focus first on metrics that relate directly to a CSR program’s
performance. If, for example, a program targets changes in the firm’s supply
chain, executives should set clear and objective benchmarks. The firm should
evaluate supply chain changes through raw numbers, percent changes, and
industry comparable and communicate these changes to internal and external
stakeholders.
3. Aligning Community Impact Goals with Business
Practices
Successful socially-responsible companies identify causes that align with their
corporate mission, employee base, and communities. These organizations then
advance these causes through authentic and sincere actions.
Organizations should evaluate their community impact goals alongside their business
practices. Executives should work toward alignment between these goals and
practices.
Unilever demonstrated alignment between philanthropic goals and business
practices when it launched its Farewell To The Forest campaign in 2015. Unilever
wrote checks to non-profits like the World Wildlife Fund but also went a step further.
The transnational consumer goods company reaffirmed its commitment to significant
supply chain adjustments, including their 2020 goal to source four key commodities
with zero net deforestation.
 4. Socially Responsible Companies Leverage
Their Core Capabilities
Companies also achieve authenticity when they play to their strengths. The most
impactful socially responsible companies take advantage of their strongest assets.
JetBlue’s strongest asset is travel. The airline crafted its Flying It Forward campaign in
2014. The campaign asked a simple question: “If you were given one flight to spread
good, where would you go?”
The campaign offered free flights to passengers who pledged their trip toward
“making the world a little better.” The program flew recipients across the Americas to
serve underserved communities and inspire others. Recipients paid their trip forward
by choosing the next free flight recipient.
5. Soliciting Feedback and Engagement to
Maximize Stakeholder Value
Socially responsible companies must listen to all of their stakeholders
(internal and external communities). The strongest community initiatives
incorporate feedback from employees, consumers, and the individuals that
the initiative impacts.
According to Glassdoor, 75% of employees and job seekers expect their
employer to support local community causes through donations or volunteer
efforts. Employee engagement strengthens the connection between a
company’s social responsibility program and workplace culture.
CSR and HR leaders should educate employees about initiatives and how
they can get involved. Corporate Social Responsibility goals and metrics can
play an important role in these conversations.
Campbell’s “Dollars For Doers” program has successfully engaged
employee volunteers. The company awards a $500 grant to partner
organizations for every 25 hours an employee volunteers.
The program typically logs over 12,000 volunteer hours per year. HR
departments win with social impact strategies that engage employees.
Workforce studies suggest that purpose-oriented employees(opens in
new tab) tend to stay with their companies and are more likely to
promote their employers than their peers.
Consumer feedback can be more difficult to process than employee
feedback, but the former is no less important when it comes to social
impact.
 RELATIONSHIP BETWEEN LAW,
GOVERNANCE SOCIAL RESPONSIBILITY AND
ETHICS
Corporate governance is concerned with holding the balance between economic
and social goals and between individual and communal goals.
The governance framework is there to encourage the efficient use of resources
and equally to require accountability for the stewardship of those resources. The
aim is to align as nearly as possible the interests of individuals, corporations and
society.
This definition highlights the importance of corporate governance in providing
the incentives and performance measures to achieve business success, and
secondly in providing the accountability and transparency to ensure the
equitable distribution of the resulting wealth.
A substantial increase in the range, significance and impact of corporate
social and environmental initiatives in recent years suggests the growing
materiality of sustainability.
Once regarded as a concern of a few philanthropic individuals and
companies, corporate social and environmental responsibility appears to
be becoming established in many corporations as a critical element of
strategic direction, and one of the main drivers of business development,
as well as an essential component of risk management.
 THE END
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