The revised Malaysian Code on Corporate Governance (MCCG) released by the Securities Commission Malaysia (SC) has been welcomed by the International Integrated Reporting Council. This follows a shift in the code's reporting approach to embracing integrated reporting.

The IIRC said integrated reporting is increasingly becoming a principle of 21st century corporate governance, often referenced in codes as regulators seek to encourage a meaningful dialogue between businesses and investors focused on the strategic drivers of long term value creation. This endorsement of Integrated Reporting by the Securities Commission Malaysia is a further evidence of this trend, the IIRC said.

Richard Howitt, chief executive, IIRC said, “I am delighted that Malaysia is joining the long list of countries that recognise the very real value of businesses adopting Integrated Reporting. Developing countries around the world look to Malaysia as a prime example of how to accelerate towards becoming a fully developed economy and I urge them to follow Malaysia’s lead in using corporate governance and reporting reform to unlock new potential in the market.”

The SC said that a key feature of the new code was the introduction of the Comprehend, Apply and Report (CARE) approach, and the shift from “comply or explain” to “apply or explain an alternative”. This, the SC said, was meant to encourage listed companies to put more thought and consideration when adopting and reporting on their corporate governance practices. The code has 36 practices to support three principles namely board leadership and effectiveness; effective audit, risk management, and internal controls; and corporate reporting and relationship with stakeholders.

The revised code places greater emphasis on the internalisation of corporate governance culture, not just among listed companies, but also encourages non-listed entities including state-owned enterprises, small and medium enterprises (SMEs) and licensed intermediaries to embrace the code, according to the SC.

SC Chairman Tan Sri Ranjit Ajit Singh said: “This new code is an important milestone in Malaysia’s continued journey in promoting good corporate governance to ensure the sustainability and resilience of the capital market. It serves as a compass for boards to steer their companies forward and deepen understanding on the importance of corporate governance.”

The MCCG now identifies certain practices and reporting expectations to only apply to companies in the FTSE Bursa Malaysia Top 100 Index and those with a market capitalisation of RM2 billion or more. The aim is to apply the code in a proportional way and to make account of the differing size and complexity of listed companies. The code also recommends ways that companies can improve their corporate governance further such as having totally independent audit committees and establishing a risk management committee.The MCCG took immediate effect with the first companies to report against will be those with financial year ending 31 December 2017

The SC has also launched a three-year strategic plan to further improve corporate governance in Malaysia. It said it would work with stakeholders to establish the Institute of Corporate Directors Malaysia (ICDM) to provide a professional development pathway for directors. A Corporate Governance Council will be established to coordinate all corporate governance initiatives, the SC said.

Other projects planned by the SC are the promotion of gender diversity on boards and work to embed good corporate governance practices into small and medium-sized companies through the development of a corporate governance toolkit. The SC will also work with technology companies to facilitate electronic voting and remote shareholders participation, and to develop an online platform for monitoring and reporting of corporate governance practices.