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Significant roles of corporate governance professionals and company secretaries
This is the second instalment of a three-part discourse on governance. StarESG will present the conclusion in the subsequent issue.A GROUP that plays an important role in enhancing and leading the corporate governance agenda is the corporate governance professionals and company secretaries.
They are often considered as advisers and gatekeepers of the board.
As officers of the company, they play a repertoire of roles, that is, advising the board on procedural and compliance requirements; assisting the board in applying good corporate governance practices and serving as the focal point of stakeholders’ communications; and supporting the board in making effective governance-related decisions and in the process, adding value to the board.
Their roles go beyond regulatory compliance as they serve as strategic advisers to the board. Hence, there is a growing importance of this profession as corporate governance will continue to evolve constantly.
FTX case study
Poor leadership and a lack of governance safeguards can plunge a company into chaos. FTX began operations in 2019 and held a significant portion of its assets in crypto tokens.
According to a report last year in the Corporate Governance Institute titled FTX collapse is a case study in bad governance by Dan Byrne, the collapse of FTX consequently sparked a drop in the prices of other major cryptos.
It was evident that FTX had major governance issues.
Firstly, the system integrity was compromised as there was no centralised control of the cash, giving rise to inaccurate bookkeeping and registration of the company’s crypto assets with the government authorities. This was exacerbated by the abuse by employees on luxury purchases using corporate funds.
Using the updated Malaysian Code on Corporate Governance (MCCG) as a point of reference, several salient corporate governance issues can be highlighted.
Firstly, pursuant to Practice note 10.3 -Principle B of the MCCG (11. Risk management and internal control framework), was there an existence of a risk management committee to provide an effective oversight on the company’s risk management framework and policies that could have identified FTX’s system integrity, lack of centralised controls and inaccurate bookkeeping?
Secondly, were there independent non-executive directors on the audit committee to ensure transparency in the disclosure of information in relation to financial reporting?
Was there a separation of powers with no domination from individuals or small groups of individuals?
For example, the guidance notes G9.1 (Principle B-Effective audit and risk management, MCCG) recommends that the chairman of the audit committee and chairman of the board cannot be the same person who may potentially impair the objective review of decisions and recommendations made by the committees.
Finally, did the company establish a board charter and code of conduct and ethics, including declaring potential conflicts of interest?
Ultimately, there appears to be a lack of integrity, accountability and ethical values among top management, which are common factors in corporate failures.
Positive changes during Covid-19
Due to the Covid-19 pandemic and the movement control order, the Securities Commission (SC) had initiated some measures of their own.
For example, on April 18, 2020 the SC issued a guidance note on the conduct of fully virtual and hybrid general meetings.
On the following October 23, it allowed the use of electronic signatures for documents.
Furthermore, on May 5 that same year, with the aim of reducing the spread of Covid-19 at the workplace, the SC issued guidance on health and safety in the workplace, business operations and dealing with external parties.
Key governance issues in emerging industries
The ongoing “digital revolution” invariably raises key governance and risk issues despite making our everyday lives easier, that is, blockchain, artificial intelligence, ChatGPT and more.
Inevitably, there would be unidentified and unintended consequences, and this would pose inherent risks.
This was further emphasised in the working paper prepared by Mark Fenwick and Erik PM Vermeulen entitled Technology and Corporate Governance: Blockchain, crypto, and artificial intelligence. The authors concluded that regulatory models need to adapt to these developments in order to remain effective and remain relevant.
The risk for regulators and other policy makers is that by failing to act, other more creative jurisdictions will gain a competitive advantage in attracting the best new business and more creative “talents”.
As highlighted above, due to the revolution of digitalisation and introduction of blockchains, ChatGPT and more, a host of governance issues are bound to emerge.
Consequently, the regulators will need to continue to be responsive to the constant changes, especially in coming out with policies and best practices from a governance standpoint.
Apart from this, there is also the need to address the governance issue of cybersecurity.
It is worthy to also note that the SC will soon be introducing a “Technology Risk Management” framework to assess the industry technology risk governance and capability.
Simon Yeoh is the president of the Malaysian Institute of Chartered Secretaries and Administrators (MAICSA). The views expressed here are the writer’s own. Stay tuned for part three which will be published in the upcoming issue of StarESG.
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