Rising expectations of independent directors amidst escalating economic uncertainties in Malaysia

The International Monetary Fund (IMF) released late last month yet another downward revision for the global economic growth for this year, predicting the lowest growth since World War II as global output and trade fell dramatically.

Global growth is, however, expected to pick up next year to 3.0% but one just wonders if IMF will revise this downward over time, just like what it did to its 2009 growth estimates, from a high of 4.4% it predicted in Jan 08 to a miniscule 0.5% 12 months later.

Table 1: IMF Global Growth Estimates – Any more downward revision?



No matter what, the latest figures for 2009 suggest escalating economic uncertainties would have an impact on investor sentiment, hence the future performance of equity markets, Malaysia not excluded.

Investors who brace themselves holding on to shares of their favourite listed companies would certainly need more updates on the performance and outlook of the companies from time to time – transparency is key to any decision whether or not to hold on to these investments.

One of the avenues for them would certainly be the independent non-executive directors (INEDs) of public listed companies (PLCs). Quoting Practice Note No 13/2002 of Bursa, an “independent director” means a director who is independent of management and free from any business or other relationship which could interfere with the exercise of independent judgment or the ability to act in the best interests of a PLC.

And quoting Securities Commission managing director and executive director Dato’ Dr Nik Ramlah Mahmood in her speech in October 2006, independent directors could do more towards enhancing shareholders' value and the long-term viability of a company by being proactive. They must be able to challenge and question decisions at board meetings to ensure that decisions made serve the interests of the company and minority shareholders.

Granted, most INEDs are not well paid by PLCs, drawing only a small fraction compared to the remunerations of MDs/CEOs and executive directors (EDs), but their role is enormous, especially to minority shareholders and employees – minority shareholders on company operations and returns expectation, and employees on remuneration, working environment as well as retrenchment or pay cut exercises, if any.

This month, most PLCs in Malaysia will be releasing their Oct-Dec 08 quarter results, where most MDs/CEOs or EDs will be having analyst and media conferences, enhancing what they have announced in the results.

However, we have not seen INEDs being quoted on the results and prospects of the companies on which they serve as directors. Either they do not attend the briefings or they are not questioned by the representatives of the minority shareholders, i.e. the financial/corporate journalists.

It is high time indeed minority shareholders are fed with statements by the INEDs, either through news reports written by the journalists or for the exchange to make it mandatory for PLCs to include statement by INEDs in all the quarterly releases as well as annual reports.

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Article Contributed By Ameer Ali Mohamed. Ameer is Director, Financial Research of NextVIEW. He has a total of 20 years experience as a corporate journalist, investment analyst and fund manager, including as research head of two stockbroking firms and CEO/CIO of a funds management company.

Republished with permission.
This article was published in the Just Say It column in Shares Investment (Malaysia edition) February 2009. You can get the latest copy of Shares Investment (Malaysia edition) at leading bookstores in Malaysia.