1. Home
  2. Insights
  3. Alerts
  4. January 2022

Bursa Malaysia Amends Listing Requirements to Enhance Board Effectiveness and Diversity

25 January 2022

Bursa Malaysia Berhad (‘the Exchange’) announced amendments to the Main Market Listing Requirements (‘Main LR’) and the ACE Market Listing Requirements (‘ACE LR’) (collectively ‘LR’) on 19 January 2022.
 
In essence, the amendments introduce three new requirements to the LR, namely:

  1. imposing a 12-year limit on the tenure of an independent director (‘ID’); 

  2. requiring a fit and proper policy for the appointment and re-election of directors of a listed issuer and its subsidiaries (‘Directors’ Fit and Proper Policy’) to be established and published; and   

  3. requiring the board of directors of listed issuers to have at least one director who is a woman. 
The first two amendments mentioned above were the subject of consultation under Consultation Paper No. 1/2021 on the Proposed Amendments to the Main Market and ACE Market Listing Requirements in relation to Director Appointment and Independence issued by the Exchange on 21 July 2021. The third amendment relating to gender diversity was announced by the Minister of Finance in his 2022 Malaysian Budget Speech1 in October 2021.
 
Further details on these amendments are set out below.
 
A.  12-Year Limit on Tenure of ID
 
Both the Exchange and the Securities Commission Malaysia (‘SC’) recognised that a long period of service may compromise the independence and objectivity of an ID. To ensure that IDs continue to play a meaningful role in ensuring that board decisions are made objectively and without undue influence from management or interested parties, the LR has been amended to impose a 12-year limit on the tenure of an ID.
 
To this end, the definition of ‘independent director’ in paragraph/Rule 1.01 of the LR has been amended to stipulate (among other criteria) that the director concerned:

  1. is not, and has not been within the last three years, an ‘officer’ (see below) of an applicant, a listed issuer or any related corporation2 of such applicant or listed issuer (each referred to as ‘said corporation’); and 

  2. has not served as an ID in any one or more of the said corporations for a cumulative period of more than 12 years from the date of his first appointment as an ID. 
For the purposes of the said definition, an ‘officer’ refers, inter alia, to (a) any director, secretary or employee of a corporation; (b) a receiver and manager appointed under any instrument over any part of the undertaking of a corporation (excluding a receiver who is not also a manager and a Court appointed receiver and manager); and (c) any liquidator appointed in a voluntary winding up (excluding a liquidator appointed by the Court or by the creditors of the corporation) and in each of the above circumstances, excludes a director who has served as an ID in any one or more of the said corporations for a cumulative period of less than 12 years.
 
Two points are to be noted with regard to the definition of an ‘independent director’. First, an ID’s service on the board of a related corporation of a listed issuer will be included in the calculation of the 12-year tenure. Second, the 12-year period will be ‘refreshed’, i.e. commence afresh, once an ID has observed a cooling-off period of a minimum of three years.
 
Consequent upon the amendment of the definition of ‘independent director’:

  1. Appendix 8A of the LR has been amended to introduce a new sub-paragraph (h) to paragraph 1 (details of an individual standing for election as a director (excluding directors standing for a re-election)) which requires a statement justifying the nomination of an individual as an ID, and explaining why there is no other eligible candidate, if that individual has cumulatively served as an ID of the listed issuer or any one or more of its related corporations for more than 12 years and observed the three-year cooling off period; 

  2. Appendix 9A of the LR has been amended to introduce a new sub-paragraph (g) to Part A (contents of announcement relating to the appointment of a director) which requires a statement justifying the appointment of the individual as an ID, and explaining why there is no other eligible candidate, if that individual has cumulatively served as an ID of the listed issuer or any one or more of its related corporations for more than 12 years and observed the three-year cooling off period; and 

  3. Practice Note 13 of the Main LR / Guidance Note 9 of the ACE LR has been amended to reflect the amendments to the definition of ‘independent director’. 
The amendments referred to in Part A of this article are to be implemented on or after 1 June 2023.  However, the Exchange has strongly encouraged listed issuers with IDs of more than 20 years3 to replace or re-designate these IDs as soon as possible before 1 June 2023.
 
B.  Directors’ Fit and Proper Policy
 
The LR requires a listed issuer to, among others:

  1. ensure that its directors possess the character, experience, integrity, competence and time to effectively discharge their respective roles (paragraph/Rule 2.20A of the LR); and 

  2. disclose in its annual report, a statement about the activities of the nominating committee (“NCS”), including how the requirements in paragraph/Rule 2.20A of the LR  are met; and the board nomination and election process as well as board and director assessment, together with the criteria used (paragraph/Rule 15.08A(3) of the LR). 
The above requirements have been augmented by a new paragraph/Rule 15.01A that requires a listed issuer to:

  1. establish a Directors’ Fit and Proper Policy; 

  2. ensure the Directors’ Fit and Proper Policy addresses board quality and integrity and will aid the listed issuer to comply with paragraph/Rule 2.20A of the LR; and 

  3. make available the Directors’ Fit and Proper Policy on its website. 
The requirement for a listed issuer to publish its Directors’ Fit and Proper Policy on its website is to be implemented on or after 1 July 2022.
 
Paragraph/Rule 15.08A(3) of the LR is amended to require the nominating committee to disclose in the NCS as to how the nominating committee applied the Directors’ Fit and Proper Policy in the nomination and election of directors during the relevant financial year. This disclosure requirement will apply to annual reports issued by a listed issuer for any financial year ending on or after 31 December 2022.
 
C.  Requirement for at least one Woman Director
 
To give effect to the statement made by the Minister of Finance in his 2022 Malaysian Budget Speech, paragraph/Rule 15.02(1) of the LR has been amended to introduce a requirement for a listed issuer to have at least one director who is a woman.
 
Listed issuers with a market capitalisation of RM2.0 billion and above as at 31 December 2021 will be required to implement the requirement in Part C of this article on or after 1 September 2022, and all listed issuers that do not meet the above market capitalisation criterion are to implement the requirement on or after 1 June 2023.
 
Comments
 
The amendments to the LR will enhance the effectiveness of the boards of directors and the nominating committees of listed issuers and introduce diversity to the aforesaid boards.
 
Further information
 
Further information on the amendments relating to the Main LR can be accessed here, here and here; and those relating to the ACE LR can be accessed here, here and here.
 
Alert prepared by To’ Puan Janet Looi (Partner) and Vanessa Ho (Associate) of the Corporate Practice of Skrine. 
 
1 Paragraph 96 of the 2022 Malaysian Budget Speech.
2 Paragraph/Rule 1.01 of the LR provides that a related corporation of a listed issuer refers to: (a) the holding company of the listed issuer; (b) a subsidiary of the listed issuer; or (c) a subsidiary of the holding company of the listed issuer.
3 According to the Exchange, the latest data from the SC as at 30 June 2021 shows that 91 IDs have served on the same board for more than 20 years.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

  • Proud to be a member of
  • connect with us
  •  
  •