11 November 2011

Bloody Tulips Caused the Bloody Corporate Governance? What da' Heck


In 1593 tulips were shipped from Turkey to Holland..... and wallah! the first modern economic recession came to life!

n 1593 tulips were shipped from Turkey to Holland. They were so attractive that the Dutch went crazy over it. Demand was sky high but the supply from Turkey was limited - therefore highly priced. The tulips then contracted a non-fatal virus, mosaic, which resulted in "flames" of colour to appear on the petals - enhancing the rarity of an already unique species. Price continue to rise to the extent of people selling their land, life savings, and anything else they could liquidate to get more tulip bulbs, in hope of reselling at a higher price for profits, which they did at a twenty-fold increase in value in a month! not reflecting the true value of tulips.

Economically conservative Dutch begin to sell those tulips to realise profits which then caused a ripple effect spiraling down the price. The Dutch went panic and started on a selling-spree regardless of losses. And wallah! the first modern economic recession came to life! In 1637 the Dutch Government had to step in to rectify the recession. This may have been the precedent case for Government intervention in macroeconomics. The word "Recession" then somehow continue to reappear in people's life subsequently - The Great Depression of 1929-1939, Dot.Com burst in the 90's, US subprime meltdown in 2009/2010 and many more!

Wow! mankind has evolved quite significantly from Moses' (pbuh) 10 commandments to Corporate Governance's 1,000 commandments.

Economists and Governments of this world had to find a formula to control such melancholy moments by prevention measures. Just like the craze over tulips, the whole world now going crazy over Corporate Governance...... Sorry! Say What?..... C O R P O R A T E B L O O D Y G O V E R N A N C E ! .... Names such as IFRS, Cadbury Report, COSO, Turnbull, PCAOB, Sarbanes Oxley and a whole host of regulations came down to Earth as if God was punishing Pharoahs. In 1998/1999, Malaysia introduced Malaysian Code of Corporate Governance (MCCG) and in 2000 they created Minority Shareholders Watchdog Group (MSWG). All in the name of Corporate Governance. Wow! mankind has evolved quite significantly from Moses' (pbuh) 10 commandments to Corporate Governance's 1,000 commandments.

Is God done punishing us? Heh!... I don't think so.... What are we expecting for 2011/2012? Well, the Securities Commission of Malaysia released a blueprint for Corporate Governance. Gone are the days where ex-civil servants or ex-politician can comfortably sit on the Board of Directors of listed companies to earn their retirement annuity in the form of Directors' fees. The rules will become more stringent. Publicly listed companies (PLC) will be forced to appoint Directors who are experts in areas that matters. Generally, professionals like Accountants, Lawyers and Bankers will be sought after to ensure that due care and diligence is addressed for the sake of Corporate Governance.

The blueprint has the below salient points:

1. Proportion of Independent Directors: At least 2 or one third of the Board of Directors, whichever is the higher, has to be Independent Directors. This will be Bursa Malaysia's requirement. Currently it is believed that 60% of the PLCs in Malaysia are NOT in compliance yet.

2. Long Serving Independent Directors: If Independent Directors serve more than 9 years, they are deemed not independent. 30% of PLCs in Malaysia are yet to subscribe to this concept as it is not yet mandatory.

3. Separate Chairmanship from Chief Executive Officers' roles: Again, this is a guide not yet being made mandatory. There will be a public consultation on this. Imagine those PLCs that are "owned" by rich families (To name a few: YTL & Genting). Wouldn't this be a problem? Hell yeah. Might as well delist these companies. After all, their public shareholding spread may be close to 25% anyway (Not sure, just guessing).

4. The minimum size of Board of Directors : This may be set to be at 7 Directors with guidance on its mix: gender, race, expertise. If I am not mistaken, recently Dato' Sri Najib Razak did announce that a 30% female representation on the Board of Directors should be the aim for PLCs.

Fuhhhh!!!! No wonder I have "What da' Heck" in my blog-post title. At least there is one good news: Malaysia may follow The UK in abolishing quarterly announcements for PLCs. I certainly hope so because, as I am writing this blog-post, I have a set of Bursa announcement next to me waiting to be reviewed. Such is life. We get stressed over man made worries - Hence why I consume Kopi Hang Tuah like nobody's business.

Malaysia achieved ranking #6 for East Asia on Corporate Governance

It seems that it is not enough that Malaysia achieved ranking #6 for East Asia on Corporate Governance. Ladies and Gentlement, be prepared for more to come. After saying all this, my mind went back to that one bloody historical fact: ...... the bloody tulips caused the bloody Corporate Governance..... What da' Heck!

* kopihangtuah
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