obu research & analysis project

Oxford Brookes University

An Assessment of the Quality of Corporate Governance

Within Bursa Malaysia Bhd and the Impact on

The Organizations Key Stakeholders

(6528 words)

Being a Research and Analysis Project

Submitted in Partial Fulfillment of the Requirements of

BSc (Hons) in Applied Accounting

Oxford Brookes University

Name : Loh Jia Ying

ACCA Registration Number : 2513940

Submission Period : 10th May 2013

Oxford Brookes University Research and Analysis Project

Loh Jia Ying (2513940) Page 2

Table of Contents

PART 1: PROJECT OBJECTIVES AND OVERALL RESEARCH APPROACHPAGE

1.1 Topic Area 5

1.2 Reasons for Choice of Topic 5

1.3 Organization Background 6

1.4 Reasons for Choice of Organization 6

1.5 Project Objectives and Research Questions 7

1.6 Overall Research Approach 8

PART 2: INFORMATION GATHERING AND ACCOUNTING/BUSINESS TECHNIQUE

2.1 Sources of Information 10

2.2 Methods of Information Collection 10

2.3 Limitations of Information Gathering 11

2.4 Ethical Issues 12

2.5 Accounting and Business Techniques Used 13

PART 3 RESULTS, ANALYSIS, CONCLUSIONS AND RECOMMENDATIONS

3.1 Extent of Compliance with the Malaysian Code on Corporate Governance 17

3.1.1 Establish Clear Roles and Responsibilities 18

3.1.2 Strengthen Composition 20

3.1.3 Reinforce Independence 23

3.1.4 Foster Commitment 24

3.1.5 Uphold Integrity in Financial Reporting 25

3.1.6 Recognise and Manage Risk 26

3.1.7 Ensure Timely and High Quality Disclosure 27

3.1.8 Strengthen Relationship between Company and Shareholders 29



3.2 Identification of Key Stakeholders 30

3.3 Impact of Good Corporate Governance On Companys Key Stakeholders

3.3.1 Government and Regulatory Authorities 32

3.3.2 Shareholders 33

3.3.3 Employees 36

3.3.4 Community 37

3.4 Conclusions and Recommendations 39



PART 1: PROJECT OBJECTIVES

AND OVERALL RESEARCH

APPROACH



1.1 TOPIC AREA

The topic that I have chosen for my Research and Analysis Project is Topic 17, An

Assessment of the Quality of Corporate Governance within an Organization and the

Impact on the Organizations Key Stakeholders.

One of the earliest attempts to define corporate governance (CG) is made by The

Cadbury Report (1992) in which it is defined as the system by which companies are

directed and controlled.

In Malaysia, the High Level Finance Committee on Corporate Governance (1999,

p.20) define CG as the process and structure used to direct and manage the

business and affairs of the company towards enhancing business prosperity and

corporate accountability with the ultimate objective of realizing long term shareholder

value, whilst taking into account the interests of other stakeholders. This is a clear

indication that CG is not only applicable to shareholders but has a profound impact

on other stakeholders as well.

1.2 REASONS FOR CHOICE OF TOPIC

One of the main reasons I have chosen this topic is in view of the worldwide

increased understanding and emphasis placed on CG and its role in assuring

suppliers of finance to receive adequate returns on their investment (Shleifer and

Vishny, 1997). High profile corporate scandals for the past decade, ranging from

Enron and Worldcom to the more recent Olympus and Hewlett Packard cases have

further elevated the awareness of the importance of good CG.

The long lasting debate on the correlation between CG and a companys financial

and non-financial performance also stirred my interest in further exploring existence

of such relationship.

I have gained prior exposure to the topic of CG through ACCA Paper F4 Corporate

and Business Law and Paper F8 Audit and Assurance. During my last semester,

further in depth studies on the topic was undertaken through ACCA PaperP1

Governance, Risk and Ethics. Researching on this topic provides me the opportunity



of applying all my previous studies in practical context in real life situations and

instills a more holistic understanding on this topic.

1.3 ORGANIZATION BACKGROUND

Bursa Malaysia is an approved exchange holding company under Section 15 of the

Capital Markets and Services Act 2007. A public company limited by shares under

the Companies Act 1965, Bursa operates a fully-integrated exchange with about

1,000 companies across 50 economic activities, offering equities, derivatives,

offshore listings, bonds as well as Islamic products, and provides a diverse range of

investment choices globally (MIDA, 2012).

Established in 1973, the Kuala Lumpur Stock Exchange changed its name to Bursa

Malaysia Berhad in 2004 following a demutualisation exercise to enhance its

competitive position and to respond to global trends in the exchange sector by being

more customer-driven and market-oriented. On 18 March 2005, Bursa was listed on

the Main Board of Bursa Malaysia Securities Berhad (Bursa, n.d.).

Committed to make the Malaysian capital market attractive to investors worldwide,

the exchange places great emphasis in ensuring a fair and orderly market at all

times, with high priority on investor protection. Its strength lies in its progressive

regulatory approach to ensure that high standards of conduct are practiced by

market players (MIDA, 2012).

1.4 REASONS FOR CHOICE OF ORGANIZATION

Together with the Securities Commission (SC), Bursa Malaysia is one of the two

main regulators of Malaysian capital markets which have the responsibility of

maintaining the proper functioning of the market. Being publicly listed, Bursa is

accountable to its shareholders but as a market regulator, it is also ultimately

accountable to the general public and investors. Such delicate balance of different

stakeholders interest has attracted my interest in researching on this organization.



Malaysia has made significant progress in CG over recent years, especially where

corporate culture is finally showing signs of openness (ACGA, 2012). It would be

interesting to see how Bursa has actually walked the talk. Its governance practice

could also have a profound impact on CG development within the country.

Moreover, Bursa has won numerous awards in terms of CG best practice (The Edge,

2011) whileits annual reports havealso been forthcoming and provides extensive

coverage on governance issues. Such transparency and easy access of reliable

information would save precious time in information gathering and allow me to focus

on assessing its governance quality and impact on its stakeholders.

1.5 PROJECT OBJECTIVES AND RESEARCH QUESTIONS

The objectives of this research are as follows:

To assess Bursa Malaysias extent of compliance with the Malaysian Code on

Corporate Governance (MCCG)

To evaluate the impact of CG practices on Bursas key stakeholders

To assess methods taken by a listed market regulator in discharging its

accountability to different groups of stakeholders

To identify the relationship between quality of CG practice and companys

financial and non-financial performance

The following are research questions relevant to the objectives set:

What is the extent of Bursas compliance with MCCG? Is it merely in terms of

codes and rules or in spirit and substance?

What are the impacts of CG and how they affect stakeholders of the company?

How does a market regulator balance the interests of different stakeholders

and discharge accountability?

What is the relationship between CG practice and companys performance?



1.6 Overall research approach

Generally, a primary research via surveys or interviews would result in more specific,

relevant and up-to-date data collection (Onkvisit & Shaw, 2009). However, due to

cost and time constraints, analysis of secondary data has been chosen as the more

pragmatic approach to relieve the otherwise extensive demand expected of a

primary research. Moreover, there are various sources of secondary data available

to allow critical assessment of Bursas CG practice.

In the process of secondary analysis, a literature review has been conducted by

reviewing journals, articles and researches produced by relevant professionals in the

governance topic, including the latest pronouncement by relevant authorities such as

the Securities Commission, Malaysian Institute of CG and the Minority Shareholder

Watchdog Group. These provided me extensive insights and facilitated my

understanding on the topic background before proceeding on my research.

A triangulation process in which qualitative data is combined and integrated with

quantitative data is used to minimize their respective limitations and complement

each other (Taylor, 2005).A benchmarking of Bursas CG practice against best

practices or relevant companies in the same industry has also been conducted to

understand the organizations current position and identify potential

recommendations for improvements to be made.



PART 2: INFORMATION

GATHERING AND

ACCOUNTING/BUSINESS

TECHNIQUE



2.1SOURCES OF INFORMATION

There are two main sources in which information can be collected for a research:

Primary Source

Primary source provides first-hand testimony or direct evidence concerning a topic

under investigation (Yale University, n.d.). Use of such source would have allowed

relevant information being presented in a more specific context. However, due to

concerns over time and cost pressure, it is not used in this project.

Secondary Source

A secondary source is a report on the findings of the primary source. While not as

authoritative as the primary source, it often provides a broad background and readily

improves ones learning curve (Stacks, 2011). Due to its nature, information obtained

from such source may suffer from potential limitations such as credibility issues or

being out of date. Nevertheless, it is preferred in the preparation of this project due to

its relative ease of access.

2.2 METHODS OF INFORMATION COLLECTION

Internet

The internet plays an increasingly important role in this era of advancement in

information technology. With the assistance of search engines such as Google and

Yahoo!, information from various sources can be obtained. With easy access to

relevant scholarly articles, e-books, e-journals and researches, this allows wide

ranging exposure which facilitates the overall research process.

Many information specific to Bursa Malaysia has been obtained from its corporate

website: http://www.bursamalaysia.com/corporate/.The website provides access to

the most recent annual reports, sustainability reports and other investor relations

information which are not available elsewhere. Committed to high standards of

integrity and transparency as a market regulator, Bursa has dedicated almost half of

its annual reports to governance and sustainability issues. All these formed the

fundamental bases of information for this project.



Library

The Sunway Universitys College library facility has been useful in the process of

preparation for this project. With an extensive collection of books, periodicals,

journals and other reference books, it provided me with great amount of relevant and

reliable resources. The presence of e-databases also makes information collection

much more efficient and effective.

2.3 LIMITATIONS OF INFORMATION GATHERING

Reliability of information

One of the main concerns of utilizing secondary data is reliability of information

obtained. Information obtained directly from Bursas website, while comprehensive,

may suffer from element of management bias. The company may present itself in

better light while there are limited avenues for me to verify the credibility of such

information. Such concern applies to other sources of information as well, especially

those extracted from the Internet, as there are relatively lack of standards and

controls on their accuracy (University of Illinois, n.d.).

Such potential limitation is overcome by cross-referencing the information obtained,

ensuring only those consistent throughout various sources are being utilized. There

is also a conscious effort to avoid data in which author or original source cannot be

traced.

Timeliness of Information

As Bursas financial year (FY) 2012 Annual Report is only released on 28/2/2013, it

is not available at the time when this research was started. However, since the new

set of Malaysian Code of Corporate Governance (MCCG) is only applicable for

annual reports from FY2012 onwards, I have decided to utilize the latest annual

report to gain exposure on the latest MCCG.

Significant difficulties are faced in the initial stage of this research due to non-

availability of certain information. Therefore, I have adapted my research approach

by first doing extensive background reading on CG topics and collection of other



relevant information before incorporating context specific information from the latest

annual report.

It is also a challenge to assess Bursas performance. It is the only exchange holding

company in Malaysia and there are no other comparable companies. London and

Singapore Stock Exchanges have been chosen as the main proxies for

comparisons. However, all three companies have different year ends and thus

adjustments are needed on the financial results. While less than ideal, this is

nonetheless the most practical way for like-to-like comparisons to be made.

Ease of Access

Much of the internal information on governance of Bursa used in this project is not

available elsewhere and only accessible through the companys annual reports. As

noted above, use of information provided by the company has its limitations although

careful scrutiny has been undertaken to ensure critical and objective assessment of

their validity.

Besides, access to certain CG reports or findings is restricted where payments are

required. Consequently, data from other alternative sources are collected to ensure

full understanding on the topic is not being compromised.

2.4 ETHICAL ISSUES

Plagiarism

While past years research paper submissions are sampled to obtain a clearer idea

on the project approach, I have been vigilant to avoid any unconscious act of

representing any of the students ideas as my own.

Proper citations and references of published information used in this project are also

conducted through the Harvard Referencing System to ensure the original works of

the authors are being acknowledged.



Objectivity

Due to the heavy reliance of secondary information, there is risk of undue influence

by authors who may have vested interest in the company. Personal bias due to the

companys reputation may also affect the validity of judgements and conclusions

made. Therefore throughout the research, a clean state of mind is maintained and

information used is corroborated from different sources to confirm their credibility.

Professional Competence and Due Care

It is crucial that one is well versed and knowledgeable in the topic of research. While

I have exposure to CG through previous studies, extensive read up on the topic was

nevertheless carried out to ensure adequate technical knowledge and skills for a

proper research. It is also important to keep abreast with the latest developments,

such as the revamp of the Malaysian Code on Corporate Governance alongside with

revisions on other guidelines.

2.5 ACCOUNTING AND BUSINESS TECHNIQUES USED

Malaysia Code on Corporate Governance (MCCG) 2012

As a listed company, Bursa is required to report on its compliance with MCCG

provisions and thus the Code is used as the main benchmark to assess the quality of

Bursas CG. MCCG 2012 is preferred as it supersedes the 2007 Code (Securities

Commission Malaysia, 2012).

However, use of such national Code has potential limitations as its application is

country-specific and thus any comparisons with foreign companies practices would

have certain difficulties.

Mendelows Matrix

Mendelow's matrix provides a way of mapping stakeholders based on the power to

affect the organisation and their interest in doing so. It identifies the responses which

management needs to make to the stakeholders in the different quadrants

(Management Accountant Blog, 2008) as seen in the diagram below:



Diagram 1: Mendelows Matrix

Source: Mendelow (1991)

However, there are certain limitations in application of this framework as it is very

difficult to measure power and interest of Bursas stakeholders and thus involve

inherent elements of subjectivity (BPP Learning Media, 2010). Furthermore, over

time, the ongoing fluctuations in stakeholders power and interest would render such

static approach inadequate (CRC Construction Innovation, 2009).

Ratio Analysis

Ratio analysis, both horizontal and vertical, is performed to compare Bursas

performance against past trend as well as performance of other companies in the

same industry. The main ratios analyzed in this project include earnings per share,

dividend per share, share price growth and total shareholders return.

While easy for understanding and comparisons, ratio analysis also has its limitations

as ratios of companies with different accounting policies and practices would be

distorted and unsuitable for analysis. Besides, it only provides an indication of

companys performance without offering any potential underlying reasons. Further



analysis and judgment would be needed to identify and assess the reasons behind

such favorable or unfavorable variances.



PART 3 RESULTS, ANALYSIS,

CONCLUSIONS AND

RECOMMENDATIONS



3.1 ANALYSIS OF EXTENT OF COMPLIANCE WITH THE MALAYSIAN CODE ON

CORPORATE GOVERNANCE

The MCCG draws from the United Kingdoms (UK) experience set out in the Hampel

Report. Best practices are prescribed for compliance and reasons of non-compliance

will need to be disclosed.

Such approach establishes sound principles for CG but yet accord the flexibility for

each company to develop its own procedures and alternatives that may be just as

sound. However, if relevant matters are not disclosed in a companys annual report,

actions can be taken against the company of its directors as set out in the Listing

Requirements of Bursa Malaysia.

Diagram 2: Main Principles of CG in Malaysia

Source: Securities Commission (2012)

MCCG 2012

Establish Clear Roles and

Responsibilities

Uphold Integrity in Financial Reporting

Strengthen Composition

Recognise and Manage Risk

Reinforce Independence

Ensure Timely and High Quality Disclosure

Foster Commitment

Strengthen Relationship

between Company and Shareholders



3.1.1 ESTABLISH CLEAR ROLES AND RESPONSIBILITIES

Clear Functions, Roles and Responsibilities

Unclear roles and responsibilities may result in unclear source of authority, lack of

accountability and commitment (HRA Consulting, n.d.). In Bursa, the Governance

Model (Appendix 1) and Authority Limits Document (ALD) are prepared. These

documents clearly distinguish the functions and relevant matters reserved for the

board, board committees and management (Bursa Malaysia, 2012, p. 56). Both

documents are reviewed and amended as and when required to adapt to the

companys changing circumstances.

Bursas boards charter is embedded in the Governance Model document which is

easily available on Bursas corporate website. The charter is a source reference and

primary induction literature, providing insights to prospective board members and

senior management (SC, 2012).

Bursas board takes on the key responsibilities as recommended in MCCG 2012.

Among those, management strategies and plans are deliberated and challenged by

the board before approval. Independent advice by PricewaterhouseCoopers

Advisory Services Sdn Bhd is also sought to review the 2012 Corporate Balanced

Scorecard (CBS) which is then used by the board to oversee the conduct of the

companys business (Bursa Malaysia, 2012, p.57).

Code of Ethics

As the nations securities exchange, Bursa would naturally attract high public

scrutiny. The company responded by formulating Codes of Ethics for directors and

employees to govern the ethical standards and conducts expected, particularly in the

areas of information confidentiality, conflict of interest and securities dealing. A

whistleblower policy and report form is also in place and available on Bursas

website. Audit Committee (AC) oversees implementation of the policy while all

reports are addressed to the Non-Executive Chairman or Senior Independent Non-

Executive Director.



It is also noteworthy that Bursa signed the Corporate Integrity Pledge during the year.

The pledge is encouraged by the Malaysian Anti-Corruption Commission to combat

corruption and enhances the confidence among foreign investors (The Star, 2012a).

The act of signing demonstrates Bursas commitment to integrity and good

governance in its operations.

Sustainability

Bursa promotes the application of sustainability practices. This can be seen through

its participation in various global environmental, social, governance and sustainability

initiatives such as Earth Hour, the Carbon Disclosure Project and Global Reporting

Initiative (GRI). Responsible use of resources and the importance of environmental

protection are promoted among its employees and stakeholders.

Unlike certain countries such as Australia and France which mandate sustainability

reporting, there is no such requirement in Malaysia. Nevertheless, Bursa produced

its inaugural Sustainability Report in 2011. On a broader scale, Bursa is also

contributing towards drafting a Framework for Greenhouse Gas (GHG) Reporting for

Malaysian companies (Bursa, 2012).

Access to Information and Advice

All directors in Bursa have individual and independent access to advice and support

services of the company secretary. The directors may also seek direct interaction

with management or independent professional advice at the companys expense in

furtherance of their duties.

Company secretaries play an important role in advising and supporting the board to

discharge its functions effectively. While details of the training programs undertaken

by Bursas company secretaries during the year are not provided, the secretaries are

members of The Malaysian Institute of Chartered Secretaries and Administrators

(MAICSA) and thus should be professionally competent.



3.1.2 STRENGTHEN COMPOSITION

Nominating Committee

Bursa combines both nomination and remuneration roles into one Nomination and

Remuneration Committee (NRC), which is less ideal than 2 separate committees

discharging the separate functions. All 5 members of NRC are non-executive

directors (NEDs) of who three are independent and the other two are Public Interest

Directors (PID). This is in compliance with the MCCG (2012) which states that the

committee should comprise exclusively of NEDs, a majority of whom must be

independent.

Directors Recruitment and Annual Assessment

Bursas board composition is regularly reviewed to enable progressive refreshing

and effective functioning. It has established a pool of potential directors for its

reference when considering new appointments. As an exchange holding company,

Bursas recruitment process is slightly complicated by the need of obtaining the

concurrence of the Securities Commission for the proposed appointments

(Malaysian Government, 2007, s10(1)(b)).

Bursa takes the annual assessment of directors and committee members seriously.

A Board Effectiveness Evaluation (BEE) is carried out each year by the NRC while

an external consultant is engaged every three years for assistance (Bursa Malaysia,

2012, p.62). The results will form the basis of NRCs recommendation to the board

for re-election at the next AGM.

In 2012, the NRC recommended for 4 directors to retire and 3 suitable candidates to

replace them. The recommendation is approved by the board and shareholders. The

change has positive effects on the boards overall age profile and tenure as seen in

Appendix 2.

The gender diversity of Bursas board is non-satisfactory in comparison with fellow

stock exchanges in Singapore and London. While marginally higher than the

average women participation rate on the board in Malaysia of 7.1%, it is far from the

30% target set by the Malaysian government (The Star, 2012b). As the market



regulator, Bursa would have been expected to take the lead in heeding the

governments call.

Table 1: Number of Women Directors in the Board

Bursa SGX LSE

Number of women directors in board

1/12 2/14 2/12

Percentages 8% 14% 17%

Source: Bursa Malaysia, Singapore Stock Exchange, London Stock Exchange

Annual Reports (2012)

The company plans to achieve its target of having three female directors by 2016

through the progressive refreshing of the board yet none of the three newly

nominated directors are female. It appears that there are no concrete plans or

actions in place to achieve such targets.

Remuneration Policies

The incentives of top management have been characterized as an important

mechanism of corporate governance as it ensures the alignment of the management

and the shareholders interest (John et al 2004, cited in Abdul Hadi, M. Fazilah,

MdIshak, n.d.).Bursas NRC is responsible for recommending the remuneration

policy. Its policies are formal and transparent as individual directors remuneration

breakdowns is disclosed (Appendix 3).

While directors fees have not increased since 2009, the meeting allowances are

revised during the year, with an increase of 33%-67% (Table2). This partially

contributed to the worrying increase in directors remuneration in recent years

(Appendix 3).



Table 2: Bursas Meeting Allowances

Meeting

Allowance

Board of Directors Board Committees

2011 2012 Increase 2011 2012 Increase

Chairman RM 3,000 RM 4,000 33.3% RM 1,500 RM 2,500 66.7%

Member RM 1,500 RM 2,000 33.3% RM 1,000 RM 1,500 50%

Source: Bursa Annual Report (2012)

However, the main cause of such increase is the change in CEO. The salary was

increased from RM 1.2 million in 2009 to RM 5.1 million in 2012 (Table 3). Salaries

are fixed in nature and should attract higher scrutinisation from shareholders as they

are non-performance related.

Bursas current CEO was previously Managing Director of RHB Bhd and was then

enjoying a remuneration of around RM 3 million. Further investigation would reveal

that RHB Bhd has almost RM 152 billion in assets and generates Earnings per

Share (EPS) of 69 cents compared to Bursas RM 2 billion and 28 cents respectively

(RHB Capital, 2011). While there are heavy responsibilities placed on a stock

exchanges CEO, it is still baffling that a company with smaller asset base and profits

is paying its CEO more than 60% higher than his previous corporate position.

Table 3: Executive Directors Remuneration Breakdown

Executive Directors Remuneration (RM000) 2009 2010 2011 2012

Salaries and other emoluments 1243 1322 4729 5095

Defined contribution plan EPF 192 187 354 418

Share options granted under ESOS 3 - - -

Estimated money value of benefit-in-kind 31 31 32 32

Total 1469 1540 5115 5545

* Current CEO is appointed on 1 April 2011

Source: Bursa Malaysia Annual Report (2012 & 2010)



Furthermore, CEOs remuneration alone is more than double the total remuneration

of all other directors in Bursa. Simple comparison with other stock exchanges (Table

4) can also show that Bursa has indeed grossly over-remunerated its CEO. No

plausible explanations are given and there is cause for concern on misusing of

shareholders funds.

Table 4: Comparison of Salaries

Comparison of Salaries Bursa LSE SGX

CEOs Salary (RM// S$ 000) 5095 675 755

Market Capitalization (RM// S$ billions) 1465 3500 934

Remuneration: Market Capitilization 3.5 0.2 0.8

* Calculations focus on fixed salaries and not total remuneration * Market capitalization refers to combined market capitalization of all listed companies in respective exchanges as an indication for extent of responsibilities

Source: Bursa Malaysia, Singapore Stock Exchange, London Stock Exchange

Annual Reports (2012)

3.1.3 REINFORCE INDEPENDENCE

Assessment of Directors Independence

The BEE assessment is used to ensure directors ability to exercise independent

judgment at all times. A senior independent director is also appointed in the board.

As a result of the adoption of a nine-year policy for independent NEDs, 3 directors

retired in the recent AGM without seeking re-appointment. However, 2 directors who

have served for more than 9 years are reappointed and consequently, re-designated

as a non-independent director.

Separation of Chairman and CEO

Concentration of power in one individual could lead to decisions made in their own

self-interest at the expense of shareholders. Separation of roles would promote

accountability and facilitates division of responsibilities among them (SC, 2012). In

Bursa, the Chairman and CEO have distinct and separate roles, with a clear division

of responsibilities which is in line with the recommendations in MCCG 2012.



Board Composition

Although there are no conclusive results thus far, Adams and Mehran (2003)

suggested that increases in proportion of outside directors on the board would

increase performance due to the greater effectiveness in monitoring of managers.

Bursas board composition is partly influenced by the regulatory requirements of the

Capital Market Services Act (2007) where one-third of the members of the board

must be appointed by the Minister of Finance as PIDs and one of them shall be

appointed as the non-executive chairman. Together with the high proportion of

independent NEDs (Chart 1), there should be adequate safeguards to ensure

protection of investors and public interest.


3.1.4 FOSTER COMMITMENT

Time Commitment

To ensure that its directors have adequate time to fulfill their roles and

responsibilities effectively, Bursa capped other Public Listed Companies (PLCs)

directorships at not more than 5. Directors are also required to provide an update of

their other directorship status every quarter. The attendance record of the directors

during the year (Appendix 4) should suggest that they have devoted sufficient time to

their roles.

1

7

4

Chart 1: Directors' Independence

Executive Director

Indendent Non-Executive Directors

Public Interest Directors*

* Appointed by the Minister

of Finance pursuant to

Section 10 of the Capital

Market Services Act 2007



Directors Continuing Education

Directors are charged with critical responsibilities to act as advisors to companies

and safeguard shareholders interests, and as such, it is important that they are

sufficiently knowledgeable, experienced and well-trained (Singapore Institute of

Directors, 2005).Being at the forefront of the securities market, Bursa acknowledges

the importance of its directors continuing education. A dedicated training budget is

provided each year and board policy is set that each director must attend at least 3

training sessions each year on capital market developments (Bursa Malaysia, 2012,

p.65). In 2012, all directors attended at least 6 training programs (Appendix 5).

3.1.5 UPHOLD INTEGRITY IN FINANCIAL REPORTING

Compliance with Applicable Financial Reporting Standards

Bursas audited financial statements and quarterly financial reports are in compliance

with the Malaysian Financial Reporting Standards (FRS) and International FRS as

well as requirements of the Companies Act. It has never been issued a qualified

audit report and the external auditors have never raised any issues or complications

during their audit engagements.

The Audit Committee (AC) is made up of 4 independent NEDs and 2 PIDs. Together

with their accounting or financial related qualification and experience (Appendix 6),

they fulfill the Listing Requirements and are in good position to review the financial

statements as well as provide relevant recommendation to the board and

shareholders.

Assessment of External Auditors

Bursa adopted an Auditors Independence Policy since 2006 which requires the lead

and concurring audit engagement partners to be subject to a 5-year rotation with a 5-

year cooling off period. The last rotation of partners from Messrs Ernst & Young (EY)

was in 2010.



RM000

Gul and Teoh(1986) suggests that the provision of non-audit services reduces public

confidence in auditors independence. Bursa appears to recognize this and has

reduced the proportion of non-audit fees over recent years (Chart 2),The AC also

undertakes an annual assessment and is satisfied with EYs technical competency

and audit independence.

Chart 2: Bursa Auditors Remuneration Breakdown


3.1.6 RECOGNISE AND MANAGE RISK

Risk Management

A nationwide survey on Risk Management Practices in Malaysia has revealed that

companies are placing increasing importance on risk management as it aid in

business decision-making and enhance shareholder value (IIA Malaysia &EY, 2011).

In Bursa, the risk management committee (RMC) oversees, reviews and makes

relevant recommendations to the board on the Enterprise Risk Management

framework and policies. The framework is reviewed periodically to ensure that it is

relevant and adequate to manage the evolving risk Bursa is exposed to in the

changing business environment.

0

100

200

300

400

500

600

700

800

900

2009 2010 2011 2012

Audit

Non-audit



Having previously suffered trading system failure in 2008 and 2000 (New Straits

Time, 2008, cited in Malaysian Bar, 2008), a comprehensive Business Continuity

Plan, including a Disaster Recovery Plan is prepared and tested annually to prevent

repeat of such incidents.

Internal Audit

Since 2008, Bursa has mandated all listed companies in Malaysia to establish an

internal audit function and report directly to AC (MIA, 2008). Bursa has complied with

such requirement.

Bursas AC is tasked to review the adequacy and effectiveness of internal controls.

There ispractice of segregation between the companys commercial and regulatory

functions. Internal policies, standards and procedures are also in place to ensure

compliance with internal controls and relevant laws and regulations applicable to the

company.

3.1.7 ENSURE TIMELY AND HIGH QUALITY DISCLOSURE

Disclosures

For disclosure of material information, Bursa has set clear roles, responsibilities and

levels of authority for all employees, including directors and CEO. Besides, due to

sensitive nature of an exchange, there are internal control policies to avoid leakage

or improper use of confidential information.

Bursa is determined to disclose reliable financial results in timely fashion (Table 5).

While there are no legal obligations for auditors involvement, external auditors are

engaged to conduct a limited review on the quarterly results. Besides, the results are

released well within the stipulated time period (2 months for quarterly results and 6

months for Annual Report) and in par with Public Bank Bhd which is a frequent

winner of corporate governance excellence awards.



Table 5: Comparison of Days to Release Financial Results

Financial Results

2012

Bursa Public Bank Berhad

Date of Issuance

Number of days after reporting date

Date of Issuance

Number of days after reporting date

Q1 19/4/2012 19 18/4/2012 18

Q2 18/7/2012 18 23/7/2012 23

Q3 19/10/2012 19 18/10/2012 18

Q4 31/1/2013 31 6/2/2013 37

Annual Report

28/2/2013 59 21/2/2013 52

Source: i3investor.com (2013)

Leverage on Information Technology

Bursa Malaysia has revamped its website in 2012 and divided it into the corporate

and market sections to provide a clear differentiation of its dual role as a listed

company and an exchange marketplace (The Star, 2012c). The corporate section

enhances the investor relations function by providing all needed information and

announcements from Bursa. There are also dedicated areas for corporate

governance and investor relations in the website.

The company leveraged on information technology through the Bursa Listing

Information Network (LINK). It has proven to be a much broader and effective

dissemination of information to shareholders as well as the investing public.

Diagram 3: Flow of Listing Information Network (LINK)

Source: Bursa Malaysia (n.d.)



3.1.8 STRENGTHEN RELATIONSHIP BETWEEN COMPANY AND

SHAREHOLDERS

Encouraging Shareholder Participation

Bursa has committed to dispatch its Annual General Meeting (AGM) notice at least

28 days in advance, well above the regulatory requirement of 21 days. Besides,

Bursa has also attempted to encourage shareholder participation by allowing

participation either in person, corporate representative, proxy or attorney. To further

promote participation, the company recently amended its Articles of Association to

explicitly include the right of proxies to speak at AGMs.

The recent AGM was held in Putra World Trade Center which is easily accessible.

However, being held on a Thursday morning (28/3/2013) deters participation of

shareholders who are working on weekdays.

Poll Voting

Electronic voting is currently unavailable although Bursas board indicated that it will

consider adoption of such technique to facilitate greater shareholder participation

(Bursa Malaysia, 2012, p.69).

Resolutions in Bursa were put forth for shareholders approval merely by show of

hands. No poll voting is employed, possibly due to the clear majorities obtained in

approval. However, it is encouraged by MCCG 2012 to put substantive resolutions to

poll and Bursa should emulate fellow Singapore Stock Exchange which has

implemented electronic poll voting since 2009.

Effective Communication and Proactive Engagements

Q&A session is provided during AGM as directors, management and external

auditors are all present to respond to the any shareholders queries. The CEO also

shared the companys response to questions submitted in advance of the AGM by

the Minority Shareholder Watchdog Group. Overall, the engagement with

shareholders seems genuine.



3.2 IDENTIFICATION OF KEY STAKEHOLDERS

Stakeholder is defined by Freeman (1984) as any group or individual who can affect

or be affected by the achievement of an organizations objectives. Stakeholder

theory emphasizes that companies are not merely shareholders private property, but

also a forum of interaction between various stakeholders. For Bursa, its 4 key

stakeholders include government and regulatory authority, shareholders, employees

and the community (Diagram 4).

Diagram 4: Stakeholder Mapping

Source: Mendelow (1991)

The Government and Securities Commission of Malaysia are highly interested in

Bursas running as an exchange-holding company. Besides, the government yields

high power through the control of almost 43% direct and indirect stakes in Bursa

(Table 6). Moreover, the Capital Market and Services Act (2007) grant the Securities

Commission and Minister of Finance direct power and influence, ranging from the

appointment of Bursas directors up to the review of its annual report.



Table 6: Substantial Shareholders as at 31 January 2013

No. Name % of Issued Shares

1. Capital Market Development Fund 18.55

2. Minister of Finance Incorporated 16.20

3. Employees Provident Fund Board 8.64

Total 43.39


Unlike other public listed companies, shareholders of Bursa only have limited power

as they are prohibited from acquiring more than 5% voting shares without prior

approval of the Minister (Malaysian Government, 2007, s25(1)). Therefore, despite

their interest, they have limited power over the direction of the company.

Nevertheless, they should be kept informed on progress of the company and their

investments.

Employees and the community also fall within the quadrant of high interest, low

power. The former is concerned with job security and benefits while the latter would

be concerned of how public interest is being safeguarded. Considering the absence

of strong trade unions or public voice out mechanism, both groups of stakeholders

have little power over Bursas governance.



3.3 IMPACT OF GOOD CORPORATE GOVERNANCE ON COMPANYS KEY

STAKEHOLDERS

3.3.1 Government and Regulatory Authorities

With Malaysia striving to be a high income nation by 2020, the government has

identified the capital market as a key driver of the Economic Transformation Program

(PEMANDU, n.d.). 2012 was an exciting year as a result of Bursas strong

governance and leadership. The benchmark FBM KLCI Index ended the year at

historic high and the Islamic market retained its global leadership position for the 4th

consecutive year. Moreover, the ASEAN Exchange is set up to facilitate freer flow of

capital across borders while Bursa was also the worlds 4th largest IPO

destination(Bursa, 2012).

With its unique role as a front-line regulator, Bursa is expected to take the lead in

enhancing CG standards of Malaysias PLCs. During the year, Bursa has aligned the

Listing Requirements and Corporate Governance Guide for PLCs to reflect the new

principles and recommendations of MCCG 2012. A series of CG initiatives are

championed as well to promulgate the importance of embracing CGs best practices

among PLCs (Bursa, n.d.).

As a result, the CG Watch 2012 Report saw Malaysias rankings improved to

4th(ACGA, 2012) while the country is also recognized by World Bank as a regional

leader in CG (Business Times, 2013). Bursa itself is included in the Top 50 CG

ranking of mid/small caps in Asia Pacific by ACGA (Bursa, 2012).

With the appointment of PIDs, regulatory committees and presence of strong internal

controls, Bursa has managed to comply with all the relevant regulations and

standards in both form and in substance. This would be in line with demand of the

Securities Commission for Bursa to uphold its statutory duty by acting in public

interest, having particular regards for the need for investor protection.



RMmillion RMcents

3.3.2 Shareholders

Shareholders who invested in Bursa would be interested in financial returns and

protection of their investments. Recent years have been challenging for the financial

industry but Bursas operating performance has been resilient. While some foreign

exchanges have experienced reduced revenues and profits, Bursa has managed to

achieve a compound annual growth rate (CAGR) of 6.5% and 9.4% for its revenue

and earnings per share respectively in the last 5 years.

Chart 3: Revenue and EPS


However, Bursa has been less satisfactory in terms of shareholders returns. From a

5-year perspective, its share price underperformed fellow London Stock Exchange

(LSE) and Singapore Exchange Limited (SGX).In 2012 alone, the share price also

underperformed by dropping 7% from RM 6.70 to RM 6.22 mainly due to foreign

fund selling as Bursa is reclassified from MSCI Mid-Cap Index to Small-Cap Index.

0

5

10

15

20

25

30

0

50

100

150

200

250

300

350

400

450

FY 08 FY 09 FY 10 FY 11 FY 12

Revenue Earnings per share



Chart 4: Bursa Share Price Performance

Source: Yahoo Finance UK, Bursa (2013)

After taking into account dividend, Bursa has still failed to enhance shareholders

value during 2012 (Table 7). It is worth noting that share prices are often affected by

many different factors not wholly within the control of the company. It would be

grossly unfair to blame the company especially when it has improved the operating

performance and increase its dividend year on year (Chart 5).



RMcents

Chart 5: Dividend Payout Ratio and Dividend per Share


Table 7: Total Shareholders Return

Bursa (%) SGX (%) LSE (%)

2012 (3.7) 18.8 40.5

2011 (10.8) (24.0) (1.9)

2010 0.2 5.0 (20.2)

2009 58.6 68.2 45.6

2008 (62.2) (60.0) (73)

Total (48.4) (37.6) (53.1)

Detailed calculations shown in Appendix 7

Source: Yahoo Finance UK (2013)

10

12

14

16

18

20

22

24

26

28

86

87

88

89

90

91

92

93

94

95

96

FY 08 FY09 FY10 FY 11 FY 12

Dividend Payout Ratio Dividend per Share

%



3.3.3 Employees

As Bursa strives to achieve leadership in the marketplace, it places great emphasis

on its employees development and well-being. It practices a system of total rewards

management which encompasses not only compensation and benefits but also

performance recognition, work-life integration as well as professional development

and career progression (Bursa, 2012).

Bursas total pay philosophy is positioned at the market 50th percentile for total pay

while outstanding employees are distinguished and positioned at the market 75th

percentile (Bursa, 2010, p.55). A share grant plan is also introduced as part of the

long term incentive to reward and recognize employees contribution.

There are also excellent staff training and talent development programs in Bursa.

252 development programs were held in 2012 and thus it is no surprise that its

employees are able to register 4.9 training days, which is 63% higher than its target

of 3 training days (Bursa, 2012, p.40).

There are also training facilities, knowledge centers available in Bursa while

coaching and mentoring opportunities are offered. Work-life balance is obtained by

providing gymnasiums and indoor sports court for employees.

Bursa provides promotion opportunities internally and set up frameworks for

succession planning (Diagram 5). Various consultative programs such as Individual

Development Plans and Customized Accelerated Development Programs are crafted

based on individual employees behavioral and technical competence, forming the

foundation for short to middle-term career progression.



Diagram 5: Succession Planning Framework

Source: Bursa Malaysia Annual Report (2012)

To gain insight on the employees views and gauge their feedbacks, an annual

Employee Engagement Survey (EES) is conducted by an external firm. The score is

on an increasing trend since 2008, reflecting that employees are generally pleased

with Bursas efforts. Post EES intervention initiatives would also be taken to address

any areas below benchmark norms.

However, there is important information regarding employees which is not included

in Bursas annual report. Unlike London and Singapore Stock Exchange, Bursa has

not disclosed its employee turnover rate. It is one of the common indicators on

employee satisfaction and thus should be disclosed to enhance transparency.

3.3.4 Community

Nowadays, corporations are realizing that their activities could have a pervasive

impact on the local and global community. As an exchange holding company, Bursa

has a statutory duty to act in public interest (Malaysian Government, 2007, s11 (3)(a))

and would be expected to be socially responsible in areas such as marketplace,

community, environment and workplace.

Bursa has pursued various initiatives to ensure market quality and integrity. Besides,

it serves the community through act of philanthropy where scholarships, internships



and trainings for unemployed graduates are provided. In 2012, Bursa also co-

sponsored The Edge-Bursa Malaysia Rat Race and held The Great Cookout Day

which raised more than RM 2.2 million to be distributed to 26 beneficiary

organizations. Employee voluntarism is encouraged as well through its community

outreach programs to assist the less fortunate.

On environmental issues, Bursa has committed to reduce its environmental impact

by minimizing operational carbon footprint. It promotes sparing in electricity usage,

business air travel and paper consumption to reduce its greenhouse gas (GHG)

emissions (Diagram 6). It manages to reduce GHG emission by 4.49% and 2.1% in

2011 and 2012 although the latter is below the 3% reduction target set by the

company. As recognition of its environmental efforts, Bursa is being recertified for

ISO 14001:2004 during the year.

Table 8: Greenhouse Gas Emission

Source: Bursa Sustainability Report (2011)

Bursa has also taken the lead in participation of projects such as the Carbon

Disclosure Project, Global Reporting Initiative etc. and this should set an example for

all other PLCs. The ongoing drafting on GHG Reporting Framework for Malaysian

companies could also potentially have a wider impact in the preservation of

environment.



3.4 CONCLUSIONS AND RECOMMENDATIONS

In conclusion, Bursa embraces good governance in spirit and in substance,

demonstrated through its various initiatives and proactive actions. These in turn have

largely met the demands of the key stakeholders, keeping them pleased and

satisfied.

There are strong elements of segregation within Bursa as it strives to balance the

stakeholders demands both as a public listed company and a market regulator. It is

always conscious of its role and responsibility and thus avoids any potential conflict

of interest.

The relationship between corporate governance quality and companys financial and

non-financial performance is not conclusive for Bursa. While the operating

performance has been impressive, this is not reflected from the market sentiments

on its share price. Besides, it is unlikely to be appropriate to conclude on any such

relationships merely based on results of a single company.

Nevertheless, there are some areas which still have room for further improvement.

The NRC currently oversees nomination and remuneration matters. It is

recommended for the committee to be split into 2 separate committees, allowing its

committee members to specialize and not being overburdened. Besides, concrete

plans and active steps are needed to address the gender diversity issue in the board.

Moreover, Bursa should provide justifications regarding the CEOs remuneration

steep increase over the last 2 years. Specific reasons should be given to

shareholders on why such increases are considered appropriate.

Bursa should also make better use of AGM by considering holding it on weekends.

The current date and time chosen are inconvenient for shareholders who are

working on weekdays. Poll voting and electronic voting should also be considered to

further encourage shareholder participation.



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Appendix 1: Governance Model

Source: Bursa Malaysia (n.d.)



Appendix 2: Age Profile and Board Tenure

Name Age Board Tenure

Tun Mohamed Dzaiddin bin Haji Abdullah 75 9 years

Dato Tajuddin bin Atan 53 1 year 11 months

Datuk Dr. Syed Muhamad Bin Syed Abdul Kadir

66 2 years 7 months

Dato' Dr. Thillainathan A/L Ramasamy* 68 8 years 10 months

Datuk Dr. Md Tap Bin Salleh 63 2 years 11 months

Encik Izham Bin Yusoff* 45 8 years 10 months

Dato' Wong Puan Wah @ Wong Sulong 65 6 years 3 months

Encik Cheah Tek Kuang* 65 8 years 10 months

Dato' Saiful Bahri Bin Zainuddin 51 4 years 8 months

Tan Sri Ong Leong Huat @ Wong Joo Hwa* 68 4 years 8 months

Tan Sri Datuk Dr. Abdul Samad bin Haji Alias 70 1 year 8 months

Datuk Puteh Rukiah Binti Abd Majid 60 1 year 9 months

Datuk Karownakaran @ Karunakaran a/l Ramasamy#

62 -

Chay Wai Leong# 49 -

Ghazali bin Darman# 48 -

Current Average 62 5 years 2 months

Revised Average 60 2 years 10 months

* Outgoing Directors

# Incoming Directors




Appendix 3 Directors Remuneration 2009-2012




Appendix 4: Attendance Record of Directors in the Board and Committees

Board

Board Committee




Appendix 5: Directors Training Programmes

Corporate Governance

Malaysian Code on CG 2012, 10 & 16 May 2012 / 21 November 2012 (Attended by Tan Sri Ong

Leong Huat / Dato' Wong PuanWah @ Wong Sulong)

CG Today and the Directors Moving Forward, 14 June 2012 (Attended by Datuk Dr. Syed

Muhamad bin Syed Abdul Kadir)

CG Blueprint and Malaysian Code on CG 2012, 18 June 2012 (Attended by Datuk Dr.Md Tap bin

Salleh, Datuk Puteh Rukiah binti Abd Majid and Encik Izham bin Yusoff)

Malaysian Code on CG 2012: The Implication and Challenges to PLCs, 3 July 2012 (Attended by

Datuk Dr. Md Tap bin Salleh, Datuk Puteh Rukiah binti Abd Majid and Dato' Saiful Bahri bin

Zainuddin)

CG and Whistle blowing, 9 August 2012 (Attended by Encik Izham bin Yusoff)

Risk Management and Audit

Board Audit Committee Forum, 2-4 March 2012 (Attended by Dato' Dr. Thillainathan a/l

Ramasamy)

Role of the Audit Committee in Assuring Audit Quality, 22 May 2012 (Attended by Datuk Puteh

Rukiah binti Abd Majid and Tan Sri Datuk Dr. Abdul Samad bin Haji Alias)

Governance, Risk Management and Compliance: What Directors Should Know, 8 August 2012

(Attended by Dato' Wong Puan Wah @ Wong Sulong)

The Key Components of Establishing and Maintaining World-Class Audit Committee (AC)

Reporting Capabilities, 3 October 2012 (Attended by Dato' Dr. Thillainathan a/l Ramasamy, Encik

Izham bin Yusoff and Tan Sri Datuk Dr. Abdul Samad bin Haji Alias)

What Keeps an AC up at Night, 3 October 2012 (Attended by Dato' Dr.Thillainathan a/l

Ramasamy, Encik Izham bin Yusoff and Tan Sri Datuk Dr. Abdul Samad bin Haji Alias)

Leadership, Legal and Business Management

IDEAS Conference: The Role of the Judiciary as a Key Check and Balance in Malaysia, 11

February 2012 (Attended by Tun Mohamed Dzaiddin bin Haji Abdullah)

International Police Conference on Principled Policing: Rule of Law, Public Order and Sustainable

Development, 13 February 2012 (Attended by Tun Mohamed Dzaiddin bin Haji Abdullah)

Briefing on Goods and Services Tax, 22 March 2012 (Attended by Dato' Dr.Thillainathan a/l

Ramasamy)

Briefing on Personal Data Protection Act 2010, 15 March 2012 / 9 August 2012 (Attended by Tan

Sri Ong Leong Huat / Dato' Saiful Bahri bin Zainuddin)

Briefing on Competition Act 2010, 7 May 2012 / 16 August 2012 (Attended by Tan Sri Ong

Leong Huat / Dato' Saiful Bahri bin Zainuddin)

International Directors Summit 2012: Awakening the Corporate Entrepreneurship for High Income

Economy, 21-22 May 2012 (Attended by Tan Sri Datuk Dr. Abdul Samad bin Haji Alias)

Harvard Business School Management Development Programme, 4 & 7 July 2012 (Attended by

Tan Sri Datuk Dr. Abdul Samad bin Haji Alias)

Human Capital Management in the Boardroom, 14 August 2012 (Attended by Tan Sri Ong Leong

Huat)

Growth Through Innovation, 23 August 2012 (Attended by Datuk Dr. Syed Muhamad bin Syed

Abdul Kadir)

Professionalism in Directorship Programme: What Does It Take to be an Effective Corporate

Director? 26-27 September 2012 (Attended by Datuk Puteh Rukiah binti Abd Majid)

International Malaysia Law Conference 2012: Asian Perspectives, Global Viewpoints, 26-28

September 2012 (Attended by Encik Cheah Tek Kuang)



Khazanah Megatrends Forum 2012: The Big Shift Traversing the Complexities of a New World, 1-2 October 2012 (Attended by Datuk Dr. Syed Muhamad bin Syed Abdul Kadir and Tan Sri

Datuk Dr. Abdul Samad bin Haji Alias)

Khazanah Global Lectures: Institutionalising Knowledge to Build Malaysia's Human Capital, 29

November 2012 (Attended by Datuk Dr. Syed Muhamad bin Syed Abdul Kadir)

Financial and Capital Markets

Bank Negara Malaysia (BNM)'s Annual Report 2011: Financial Stability and Payment Systems

Report Briefing, 21 March 2012 (Attended by Datuk Dr. Syed Muhamad bin Syed Abdul Kadir)

International Financial Reporting Standards Conference, 28 March 2012 (Attended by Encik

Izham bin Yusoff)

Pillar 3 Disclosure on Basel II, 23 April 2012 (Attended by Datuk Dr. Syed Muhamad bin Syed

Abdul Kadir)

BNM Requirements for the Internal Capital Adequacy Assessment Process (ICAAP), 30 April

2012 (Attended by Datuk Dr. Syed Muhamad bin Syed Abdul Kadir)

Understanding BNM's New Liquidity Framework, 9 June 2012 (Attended by Tan Sri Ong Leong

Huat)

Financial Institutions Directors Education (FIDE) Forum, 12 June 2012 (Attended by Tun

Mohamed Dzaiddin bin Haji Abdullah and Tan Sri Ong Leong Huat)

Rating Agency of Malaysia (RAM) Annual Bond Market Conference: Making the Asian Bond

Market a Reality, 12 July 2012 (Attended by Dato' Dr.Thillainathan a/l Ramasamy)

Anti-Money Laundering Act: Financial Crime Risk CIMB Perspective, 10 September 2012 (Attended by DatukDr. Syed Muhamad bin Syed Abdul Kadir)

Briefing on ICAAP, 20 September 2012 & 11 December 2012 (Attended by Tan Sri Ong Leong

Huat)

52nd General Assembly of the World Federation of Exchanges, 14-17 October 2012 (Attended by

Tun Mohamed Dzaiddin bin Haji Abdullah and Dato' Tajuddin bin Atan)

17th Malaysian Capital Market Summit: Malaysia the Rising Star Geared for Growth, 29 October 2012 (Attended by Datuk Dr. Md Tap bin Salleh)

7th China International Oils & Oilseeds Conference, 6 November 2012 (Attended by Dato'

Tajuddin bin Atan)

Global Financial Leadership Conference, 12-14 November 2012 (Attended by Tun Mohamed

Dzaiddin bin Haji Abdullah and Dato' Tajuddin bin Atan)

8th Asia-Pacific New Markets Forum: Enhancing the Quality of Emerging Markets in the Asia-

Pacific Region, 29-30 November 2012 and 1 December 2012 (Attended by Dato' Tajuddin bin

Atan)

Application of Equity Valuation Methods, 8 December 2012 (Attended by Tan Sri Ong Leong

Huat)




Appendix 6: Audit Committee Members Qualifications

Name Status Academic/Professional Qualification(s)

Tan Sri Datuk Dr. Abdul Samad bin Haji Alias (Chairman)

INED

Bachelor of Commerce, University of Western Australia Honorary Doctorate of Philosophy (Accounting), Universiti

Utara Malaysia Institute of Chartered Accountants, Australia (Fellow

Member) Malaysian Institute of Accountants (MIA) (Member) Malaysian Institute of Certified Public Accountants

(MICPA) (Member)

Datuk Dr. Syed Muhamad bin Syed Abdul Kadir

PID

Bachelor of Arts (Hon) and Bachelor of Jurisprudence (Hon), University of Malaya

Master of Business Administration, University of Massachusetts, USA

Masters of Law (Corporate Law), Universiti Teknologi MARA

PhD (Business Management), Virginia Polytechnic Institute and State University, USA

Certificate in Legal Practice (Malaysian Professional Legal Board)

Chartered Institute of Arbitration, United Kingdom (Member)

Dato' Dr. Thillainathan a/l Ramasamy

INED

Bachelor of Arts, University of Malaya Master and Doctorate of Economics, London School of

Economics, United Kingdom

Encik Izham bin Yusoff

INED

Bachelor of Accounting, University of Miami, USA Master of Business Administration (Accounting &

International Business), University of Miami, USA Institute of Internal Auditors Malaysia (Associate Member)

Encik Cheah Tek Kuang

INED

Bachelor of Economics, University of Malaya Institute of Bankers Malaysia (Fellow Member)

Datuk Puteh Rukiah binti Abd Majid

PID

Bachelor of Economics (Hon), University of Malaya Master of Arts (Economics), Western Michigan University,

USA

*INED Independent Non-Executive Director *PID Public Interest Director




Appendix 7: Total Shareholders Return

Bursa SGX LSE

TR (RM)

ISP (RM)

TSR (%)

TR (S$)

ISP (S$)

TSR (%)

TR ()

ISP ()

TSR (%)

2012 (0.25) 6.7 (3.7) 1.15 6.13 18.8 321.7 795 40.5

2011 (0.84) 7.8 (10.8) (2.02) 8.42 (24.0) (15.7) 838 (1.9)

2010 0.02 7.99 0.2 0.415 8.28 5.0 (144.8) 718 (20.2)

2009 3.018 5.15 58.6 3.465 5.08 68.2 232.4 510 45.6

2008 (8.769) 14.1 (62.2) (8.06) 13.42 (60.0) (1444.6) 1979 (73)

Total (6.821) 14.1 (48.4) (5.05) 13.42 (37.6) (1051) 1979 (53.1)

TR Total returns, comprising dividends and net share price movement ISP Initial share price at beginning of year TSR Total shareholder return, TR/ISP

*SGX & LSE data are adjusted for different year ends

Source: Yahoo Finance UK (2013)



Appendix 8: Income Statement

INCOME STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2012

Group Company

Note

2012

RM'000

2011

RM'000

2012

RM'000

2011

RM'000

Operating revenue 3 388,480 381,503 315,214 291,593

Other income 4 38,603 38,639 24,052 20,928

427,083 420,142 339,266 312,521

Staff Costs 5 (102,481) (104,122) (94,656) (96,275)

Depreciation and amortisation 6 (33,713) (38,444) (30,999) (36,818)

Other operating expenses 7 (74,857) (71,463) (53,815) (65,673)

Profit before tax 216,032 206,113 159,796 113,755

Income tax expense 9 (58,286) (54,779) (9,248) (9,980)

Profit for the year 157,746 151,334 150,548 103,775

Profit attributable to:

Owners of the Company 151,458 146,160 150,548 103,775

Non-controlling interest 6,288 5,174 - -

157,746 151,334 150,548 103,775

Earnings per share attributable to

owners of the Company (sen per

share):

Basic 10(a) 28.5 27.5

Diluted 10(b) 28.4 27.5




Appendix 9: Statements of Comprehensive Income

STATEMENTS OF COMPREHENSIVE INCOME

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2012

Group Company

2012

RM'000

2011

RM'000

2012

RM'000

2011

RM'000

Profit for the year 157,746 151,334 150,548 103,775

Other comprehensive income:

Net fair value changes in AFS financial

assets 160 (16,920) 44 (16,983)

Cumulative loss reclassified to income

statement

(Note a)

- 1,164 - -

Foreign currency translation (99) 59 - -

Income tax relating to AFS financial

assets 14 (25) 54 9

Other comprehensive income for the

year, net of tax 75 (15,722) 98 (16,974)

Total comprehensive income for the

year 157,821 135,612 150,646 86,801

Total comprehensive income

attributable to:

Owners of the Company 151,533 130,446 150,646 86,801

Non-controlling interest 6,288 5,166 - -

157,821 135,612 150,646 86,801

Note a The cumulative loss reclassified to income statement is in relation to a recognition of

impairment loss of an investment security.




Appendix 10(a): Consolidated Statement of Financial Position

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2012

Note 31.12.2012

RM'000

31.12.2011

RM'000

1.1.2011

RM'000

Assets

Non-current assets

Property, plant and equipment 12 209,733 218,397 231,104

Computer software 13 61,274 59,614 73,056

Goodwill 14 42,957 42,957 42,957

Investment securities 16 123,782 93,371 110,404

Staff loans receivable 17 9,140 11,678 13,805

Deferred tax assets 18 1,278 1,034 1,023

448,164 427,051 472,349

Current assets

Trade receivables 19 30,262 27,870 33,526

Other receivables 20 14,281 12,932 10,197

Tax recoverable 4,296 388 4,586

Investment securities 16 54,936 33,441 27,335

Cash and bank balances not belonging

to the Group 22 1,175,000 671,880 710,323

Cash and bank balances of the Group 23 471,503 499,943 449,938

1,750,278 1,246,454 1,235,905

Total assets 2,198,442 1,673,505 1,708,254




Appendix 10(b): Consolidated Statement of Financial Position

Equity and liabilities

Equity

Share capital 24 266,012 265,800 265,700

Share premium 90,505 87,553 86,101

Other reserves 25 26,828 25,429 40,147

Retained earnings 492,106 481,611 460,356

Equity attributable to owners of the Company 875,451 860,393 852,304

Non-controlling interest 15,770 14,232 11,266

Total equity 891,221 874,625 863,570

Non-current liabilities

Retirement benefit obligations 27(a) 24,816 24,311 22,825

Deferred capital grants 28 9,934 11,850 10,986

Deferred tax liabilities 18 9,196 9,886 18,349

43,946 46,047 52,160

Current liabilities

Trade payables 22 1,137,234 636,166 676,576

Clearing funds 22 35,938 34,485 33,543

Other payables 29 80,535 67,330 68,916

Tax payable 9,568 14,852 13,489

1,263,275 752,833 792,524

Total liabilities 1,307,221 798,880 844,684

Total equity and liabilities 2,198,442 1,673,505 1,708,254




Appendix 11: Statement of Cash Flows

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2012

Group Company

2012

RM'000

2011

RM'000

2012

RM'000

2011

RM'000

Cash flows from operating activities

Profit before tax 216,032 206,113 159,796 113,755

Adjustments for:

Amortisation of premium less accretion of

discount 723 152 637 96

Depreciation and amortisation 33,713 38,444 30,999 36,818

Dividend income from investment security (3,038) (930) (3,038) (930)

Grant income (1,916) (2,636) (1,566) (1,547)

Gross dividend income from subsidiaries - - (165,259) (125,131)

Impairment loss on amount due from a

subsidiary - - 3,324 8,527

Impairment loss on computer software - 335 - 335

Impairment loss on investment security - 1,164 - -

Interest income (23,153) (21,267) (11,735) (10,367)

Net gain on disposal of investment

securities (257) (328) (257) (223)

Net impairment loss/ (reversal of

impairment loss) on trade and other

receivables 1,239 (188) 1,043 20

Net (gain)/loss on disposal of property,

plant and equipment (4) 13 - 13

(Net reversal of impairment

loss)/impairment loss on investment in

subsidiaries - - (3,166) 5,734

Property, plant and equipment and computer

software written off 17 836 15 836

Retirement benefit obligations 2,574 1,542 2,574 1,542

Reversal of provision for short term

accumulating compensated unutilised leave (266) (70) (250) (100)

SGP expense 4,488 2,548 4,215 2,342

Unrealised (gain)/loss on foreign exchange

differences (25) 37 - -

Operating profit before working capital

changes 230,127 225,765 17,332 31,720

Decrease/(increase) in receivables 218 7,317 (1,344) (1,699)

Increase in other payables 4,619 1,434 1,615 2,254

Changes in subsidiaries' balances - - (6,952) (6,498)

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