Bursa Malaysia seeks feedback on Proposals relating to Directors of Main Market and ACE Market Companies

Key Contacts:
To-Puan-Janet-Looi-web.jpg Vanessa-Ho_3.jpg
To’ Puan Janet Looi  Vanessa Ho

Bursa Malaysia Berhad (‘the Exchange’) released 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 (“CP No. 1/2021”) on 21 July 2021.
In essence, CP No. 1/2021 comprises two proposals applicable to companies that are listed on the Main Market or the ACE Market of the Exchange, namely:
  1. to limit the tenure of an independent director (“ID”) to not more than a cumulative period of 12 years (“Proposal 1”); and
  1. to require a listed issuer to have and publish a fit and proper policy for the appointment and reappointment of directors of the listed issuer and its subsidiaries (“Proposal 2”).
Proposal 1
Currently, the Main Market Listing Requirements and the ACE Market Listing Requirements (collectively “LR”) do not contain provisions that limit the tenure of office of an ID.1
While acknowledging the importance of IDs as a check and balance to ensure that board decisions are made objectively and without undue influence from management or interested parties, the Exchange at the same time recognised that a long period of service2 may compromise the independence and objectivity of IDs.3
Proposed Amendment
To address the issues outlined above, the Exchange proposes to limit the tenure of an ID to 12 years by amending the definition of “independent director” in paragraph/Rule 1.01 of the LR to stipulate that an ID is one who has not served as an ID of a listed issuer or its related corporations4 for a cumulative period of more than 12 years from the date of his first appointment as an ID. It is to be noted that an ID’s service on the board of a subsidiary of a listed issuer will also be included in the calculation of the 12-year tenure.
According to the Exchange, implicit in this amendment is that the 12-year period will be “refreshed” once an ID has observed a cooling-off period of a minimum of three years.5
Proposal 2
The LR currently 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;6 and
  1. disclose in its annual report, a statement about the activities of the nominating committee (“NCS”), including how the requirements in sub-paragraph 1 above are met; and the board nomination and election process as well as board and director assessment, together with the criteria used.7
The Exchange had noted various shortcomings in the practical application and compliance with the above requirements, including the following:
  1. the actual aspects of “character”, “experience”, “integrity”, “competence” and “time” being evaluated remain relatively opaque; and
  1. the disclosures relating to board election and assessment in the NCS being “process-centric” rather than elaborative on the actual criteria adopted.
Proposed Amendments
To address the shortcomings mentioned above, the Exchange proposes to introduce a new paragraph/Rule 15.01A to the LR that requires a listed issuer to:
  1. establish a fit and proper policy for the appointment and reappointment of directors of the listed issuer and its subsidiaries;
  1. ensure the policy addresses board quality and integrity; and
  1. make available the policy on its website.
In addition, it is proposed that paragraph/Rule 15.08A(3) of the LR be amended to require a listed issuer to disclose the application of the fit and proper policy in the NCS.
According to the Exchange, the fit and proper policy will form the basis of the review and assessment by the nominating committee of any board appointment or reappointment, as well as shareholder approval. The application of the policy to the subsidiaries of a listed issuer will promote board quality holistically across the listed issuer’s group.
To assist listed issuers in implementing Proposal 2, the Exchange proposes to specify in its Corporate Governance Guide, the various aspects of the fit and proper policy together with illustrations, and the practices relating to the policy which a listed issuer must put in place. Among the aspects being considered by the Exchange are the following:
  1. Character and integrity
  • Probity
  • Personal integrity
  • Financial integrity
  • Reputation
  1. Experience and competence
  • Qualifications, training and skills
  • Relevant experience and expertise
  • Relevant past performance or track record
  1. Time and commitment
  • Ability to discharge role having regard to other commitments
  • Participation and contribution in the board or track record
Implementation date
The Exchange proposes to provide a grace period of 12 months for listed issuers to comply with the requirements under Proposals 1 and 2.
Closing of public consultation
The consultation period ends on 1 September 2021.
The proposed amendments in CP No. 1/2021 are to be welcomed. As stated by the Exchange, Proposal 1 will encourage board renewal and enhance board independence while Proposal 2 will improve board quality and promote greater transparency in the appointment and reappointment of directors.
Alert prepared by To’ Puan Janet Looi (Partner) and Vanessa Ho (Associate) of the Corporate Practice of Skrine

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.

1 Provisions relating to the tenure of an ID are contained in the Malaysian Code on Corporate Governance (2021 edition) (“MCCG 2021”) issued by the Securities Commission Malaysia (“SC”) which, inter alia, recommends that (a) if the tenure of an ID exceeds a cumulative period of nine years, the board should seek annual shareholders’ approval to retain the ID through a two-tier voting process; and (b) companies seeking to achieve a higher standard of governance excellence should limit the maximum tenure of an ID to nine years. Our write-up on the amendments introduced under the MCCG 2021 can be read here.
2 The SC reported in its Corporate Governance Monitor 2020 that as at 1 January 2019, there were 498 IDs with tenure of more than 13 years on the boards of 312 listed companies. The Exchange added that, based on latest data from the SC as at 30 June 2021, 463 IDs have tenures of more than 12 years, out of which 91 IDs have served on the same board for more than 20 years.
3 A similar concern was expressed in Guidance 5.3 of the MCCG 2021 where the SC stated that a long serving ID’s close relationship with the board and management may result in such ID being too sympathetic to management’s interests or too accepting of management’s work.
4 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.
5 The Exchange explained that the 3-year cooling-off period for an ID is in line with the existing policy of allowing an officer or adviser of a listed issuer or a person transacting with the listed issuer, to be appointed as an ID after such person has observed a 3-year cooling-off period.
6 Paragraph/Rule 2.20A of the LR.
7 Paragraph/Rule 15.08A(3) of the LR