Corporate governance is the system of rules, practices and processes by which a company is

directed and controlled. Corporate governance essentially involves balancing the interests of a
company's many stakeholders, such as shareholders, management, customers, suppliers,
financiers, government and the community.
The topic of corporate governance has entered the agendas of many boards of directors in recent
years. It is no longer a topic for idealists or academics. More corporate leaders are convinced by
the necessity of good corporate governance. The Asian financial crisis, that started in 1997,
partly originating from the prolonged recession in Japan in the early 1990s (Sachs, 1998),
adversely affected the performance of many East Asian economies. It not only introduced the
term of corporate governance but also drew attention of the public about the weaknesses of
Malaysian corporate governance practice. Malaysia was not spared from the contagious effects
that followed throughout 1998. It is generally believed that a lack of sound corporate governance
was, to a certain extent, a major reason for this economic crisis in the East Asian region. The
recent US accounting scandals associated with the global financial crisis (notably the Lehman
Brothers bank failure) hastened the understanding of the wide-ranging effect that poor corporate
governance can have on a countrys economy through its effects on the capital markets. Such
incidents adversely affected public confidence in the reliability of corporate reporting.
After 1998, Malaysian government decided to adopt corporate reforms that could enhance the
quality of good corporate management practice. This included the introduction of the new
Malaysian code and rules for corporate governance(MCCG). The debate of corporate governance
in Malaysia are often limited to agencies involved directly in law enforcement such as the
Ministry of Finance, Kuala Lumpur Stock Exchange (KLSE), Securities Commission (SC) and
Registrar of Company.
Principle 1 Establish clear roles and responsibilities
Clear roles and responsibilities of the directors, which includes clear roles and leadership are
established. This draws the clear line of the directors duties in the company and ensures that the
BOD do not interfere with the operations of the company.
Principle 5 Uphold integrity in financial reporting
The Audit Committee should ensure financial statements comply with the applicable financial
reporting standards. If a fraud would occur, the financial statements would be the one affected by
it. The profit and income values could be overstated, or its expenses could be understated.
Detailed information on how these figures are obtained are shared in the annual report. This
promotes transparency as the companys figures on its financial statements are known, and no
hidden costs or profits are not unreported.
Principle 6 Recognize and manage risks
An internal audit function must be present which reports directly to the Audit Committee. The
internal audit function promotes transparency as an audit is carried out on the company. Any
hidden profits, costs or even activities would be uncovered by the audit team, and this ensures
transparency of the company.

Principle 7 Ensure timely and high quality disclosure

The board should have appropriate corporate disclosure policies and procedures as well as use
information technology to disseminate the information. The high quality disclosures disclose the
activities undertaken by the company. Appropriate parties are informed of its activities through
IT and would know the daily activities of the company. If a fraud were to take place, the
appropriate parties would know of it straight away if disclosed. Profits and losses are disclosed
appropriately, and shareholders would know the details of the company
Principle 8 strengthen relationship between company and shareholders
The encouragement of shareholder participation at general meetings and effective
communication and proactive engagements with shareholders allows the shareholders to know
more about the company, including its operations to ensure that they are willing to continue
investing in that company, or undertake its risks. This improves transparency as companies
would have to disclose their operational activities, and cant hide any suspicious activities as the
shareholders would find out.
Impact of transparency on Internal Control
A sound system of internal control should facilitate: the effective and efficient control of the company so as to enable it to respond to
any significant risks in view of attaining the companys objectives of safeguarding
assets from inappropriate use or loss or fraud so that liabilities are identified and
managed.
The sound system of internal controls should thus ensure the quality of both the management as
well as reporting of the company and to ensure its compliance with the laws and regulations
governing the conduct of business. The controls should also be an integral part of the companys
operating procedures so as to enable quick response to any emerging risks during company
operations as well as also include procedures for reporting immediately to management in case
of any control failures so as to facilitate the early application of corrective action.
The Turnbull Report, 1999 states that the process of reviewing the effectiveness of
the internal control system is an essential part of the boards responsibilities but
that it might be delegated to the Audit Committee. The review of internal control
should be carried out at least once a year with the Board having to satisfy itself that
the internal control system adapts itself to changing circumstances. As long as the
management identifies these weaknesses and takes the corrective measures to
manage the risks, the board can feel reassured that the internal control system is
effective. Risks can be avoided or mitigated by taking appropriate measures so as
to reduce the financial losses. Risk in business is something that is not planned for
and is unexpected. Thus management should be systematically made aware of the
risk and procedures as well as steps included in the companys policies and
procedures. Failure to monitor, control and contain risks could lead to financial
collapse. The possibility of poor judgment in decision making, human error, control
processes being deliberately circumvented by employees and the management

overriding controls and the occurrences of unforeseen circumstances may also be

reasons leading to the companys downfall.
Transparency allows for companies to make sound decisions. It allows for the
management to identify risks and weaknesses properly as nothing is hidden from
them. The chance of a poor judgement is reduced. A company that is not
transparent and uses their assets inappropriately would be found out eventually,
but until then, would use the companys assets for intentions other than business.
This can cause losses to the company as well as increase its risk exposure. While
internal controls can identify these issues, it takes time there are times where it can
be covered up. When it is found out, it would be too late and the company would
already have suffered major losses. Transparency also provides more information for
the use of internal control to carry out their tasks. This makes it easier for them to
evaluate the company.

What is requirement for Internal Control to be implemented

Risk Management.

Responsibility of the Board of Directors

Reviews are conducted regularly

The internal control system of the company must be reviewed

The Listing Requirements of Bursa Malaysia states that a listed company must
ensure that its board of directors include in its Annual Report a statement about
internal controls employed by the company. As a minimum, the report
should disclose whether there is an on-going mechanism for the
identifying, evaluating and managing of risks faced by the company and
whether or not such controls been in place for the year under review. Also
pertinent in the report should be how often the risk management mechanism
is reviewed by the board and whether or not it is in accordance with the Listing
Requirements. The board in its Annual Report should also disclose the process it
has applied to deal with the material internal control aspect in relation to any
significant problems disclosed in the annual report. The Listing Requirements also
require the Board to disclose if it has failed to conduct a review of the
adequacy and the integrity of the companys system of internal control.

Whistleblowing
Whistle blowing is all-pervasive and is pertinent to all organizations, big or small, it also
envelopes all the employees, the ones who indulge into fraudulent or illegal activities. It
generally refers to disclosure of an illegal or corrupt act. According to Ralph Nader, US

Consumer Activist, whistle blowing is an act of a man or woman who, believing that the public
interest overrides the interest of the organization he serves, blows the whistle that the
organization is involved in corrupt, illegal, fraudulent or harmful activity. In a corporate context,
whistleblowing is a disclosure of information by an employee or contractor who alleges willful
misconduct carried out by an individual or group of individuals within an organization.
A PricewaterhouseCoopers (PwC) survey verified the positive contribution of the whistleblowers
in combating misconducts in organizations. According to the survey report, whistleblowers,
auditors, and investigations were responsible for detecting 86 % of all economic crimes. Out of
this 86 %, 50 % of all economic crime detection came from internal or external investigations
and audits and, another 36 % of economic crime detection came from whistleblowers
Another survey of more than 125 chief internal auditors conducted by the University of
Massachusetts and Bentley College concluded that 76 % of employee whistle blowing
complaints were found to be true. To complement whistle-blowing activities, many countries
have drafted laws to encourage more whistleblowers to come forward to report malpractices in
their organizations. One such law is the Corporate and Auditing Accountability, Responsibility
and Transparency Act of 2002 (USA), or more commonly known as the SarbanesOxley Act.
Though this Act was primarily drafted to add more credence to corporate governance, it includes
a whistle blowing section, indirectly recognizing it as an essential component for maintaining
proper governance.
Hence, whistleblowing increases the economic crime detection rate, and this ensures effective
corporate governance in Malaysia as people are encouraged to report the crimes, deterring
higher-ups from abusing loopholes in the corporate governance.
Whistleblower Protection Act 2010
Malaysia has recently passed the Whistleblower Protection Act 2010 which provides protection
to informants who give confidential information to government enforcement agencies. A person
could not seek protection under the Whistleblower Protection Act 2010 if he exposes the
information to the media as it contravenes the sub-section in which the informant was to be given
protection when he revealed information to an enforcement agency. Therefore, the protection for
the informant would be withdrawn if the informant exposed it to the media after disclosing the
information to enforcement agencies. This has been said to protect the person that is suspected of
misconduct as the information could be false and it could also jeopardize the investigation