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An Assessment of the Quality of Corporate Governance Within Bursa Malaysia Bhd and the Impact on The Organization’s Key Stakeholders(Only for academic reference)

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  • 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

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    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

  • Oxford Brookes University Research and Analysis Project

    Loh Jia Ying (2513940) Page 4

    PART 1: PROJECT OBJECTIVES

    AND OVERALL RESEARCH

    APPROACH

  • Oxford Brookes University Research and Analysis Project

    Loh Jia Ying (2513940) Page 5

    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

  • Oxford Brookes University Research and Analysis Project

    Loh Jia Ying (2513940) Page 6

    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.

  • Oxford Brookes University Research and Analysis Project

    Loh Jia Ying (2513940) Page 7

    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?

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    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