Corporate Governance in Malaysia : Issues and Challenges

Corporate Governance in Malaysia: Issues and Challenges
The scenario revolving around SME’s
2/3/2020
University
Student Credentials

Corporate Governance 1
Corporate Governance in Malaysia: Issues and Challenges
The SME’s or the Small Medium Enterprises are something that is very necessary for
the growth of the economy, especially in the economies that are emerging. In almost every
country, they are the ones that are the highest contributors towards the GDP as well as assist
with the employment generation as well. Corporate Governance is an element that helps or
assists the proper regulation and working of the firm. In order to control and monitor the
shareholders as well as the firms, corporate governance is required and these practices need
to be implemented.
The situation in relation with the SME’s in Malaysia is such that the ownership
concentration helps the majority in various ways but for the minor shareholders it provides no
or less protection. This situation occurs often as most of the SME’s are governed or being
administered by the families (Iskandar, Hassan, Sanusi, & Mohamed, 2017). The
shareholders whole higher levels are being held by the family members, in such a scenario,
the maximum number of shareholders or the highest shares holding shareholders are in some
or the other manner associated with the act of expropriation. This ultimately results in the loss
money, as well as the loss of trust of the minority shareholders (Mokhber, Gi, Rasid,
Vakilbashi, Zamil, & Seng, 2017). In countries like the Malaysia, there is no certain
documented code that takes care of the corporate governance of the SME’s which ultimately
results in occurrence of issues like the above mentioned or the expropriation. As per the
research almost 72 per cent of the SME’s in the country of Malaysia consist of the businesses
that are handled or administrated by the families (Yong, 2017). Due to this there are high
chances of the minority shareholders to get robbed or lose money as well as power in the
company. And this is not just one drawback to it, but, it also generates major issues such as
the restriction of competency amongst people and firms, skills as well as there is restriction of
the expertise of the owners of the business. According to the research, the SME’s also were
not able to practice corporate governance in the best possible manner and these lacks led to
the certain kinds of fraudulent activities and certain malpractices as well, hence, leading
towards bad performance of the firm. It is the side effect of the same majority shareholders
being the family members resulting in, ownership concentration (Umrani, Johl, & Ibrahim,
2015). Accordingly, it the below discussion assesses the similar issues in concern with the
SME’s and also takes in consideration of the other challenges as well faced by the economy
of Malaysia.

Corporate Governance 2
The scenario revolving around the working and the importance of the board of
directors in general is something that has already been acknowledged in the recent times by
most of the regulators, researchers, investors and also the other industrial players. The
organizations that already have definite corporate governance according to which the firms or
organizational decisions are made and regulated are said to face a lot less of issues with the
management. These tend to face difficult situations with much more strategized and apt
methods. Hence resulting in, achievement of organizations goals faster as well as assist with a
better sustainable growth. Financial shocks can be sustained in these kinds of situations quite
well as the firm has a specific way to lead (Abdullah, 2019).
In accordance with the above, the governments of the developed as well as certain
developing countries have initiated various ways to deal with firm’s or SME’s issues in a
much organised way. It is not just the governments but also certain international
organizations that have realised the need for specific guidelines in order to practice the
corporate governance so that there is a certain common ways to deal with issues as such.
Though the drawback here is that these guidelines are not entirely for the SME’s or the Small
and Medium Enterprises and mostly focus on the companies that are public listed (Umrani &
Johl, 2016). The point made here is that the size of the business does not matter. It is the
governance system it holds that is of concern. Each and every business or firm needs a
working code of governance in order to function in an orderly manner in order to ensure the
accountability, transparency as well as disclosure when required regarding the enterprise’s
financial systems.
While initiating the whole idea behind the development of a specific code of
governance, Malaysia introduced the same in the march of 2000’s. In respect with the same,
the MCCG 2000 or the Malaysia Code on Corporate Governance 2000 came into existence,
the purpose of which was to facilitate a flexible as well as a constructive approach so as to
raise the bar or the level of Corporate Governance in a similar fashion (Bhatt, 2016). When
MCCG 2000 was launched, it was introduced with an intention of establishing a certain set of
best practices over the structures as well as certain principles that may be used in order to
work along the framework that has been aligned due to the governance in order to yield the
best possible results. All of these processes as well as the structures are the ones that are
present at the micro –level of the organization. Now, this can be related to or be composed of
the issues that in some or other manner affect the board or the compositions of the same, the
whole process through which the directors get recruited as well as the remuneration paid to

Corporate Governance 3
them, the need for the board committees, and also the requirements they have along with their
activities. This kind of approach assists the directors with focusing upon the form instead of
the finding the best kind of governance practice for their own firms or the companies. There
are certain definite approaches that can be used in order to comply and deal with the issues of
the company, but it is easier said than done. The issue arises when there are ways to deal with
issues with the help of corporate governance but they are not complied with in timely order
for the damage control (Abdullah S. N., 2016).
In Malaysia, there is a huge competitive environment in accordance with which
evolution in the codes and certain laws is done. In such scenarios, if there is a specific plan or
rough sketch relating to the implementation of the Corporate Governance in any way, it needs
to be taken seriously. In cases as such, the ideas by the directors specifically need to be taken
in regard, so that the ultimate result is the benefit of the firm or the business. In various cases,
the board of these SME’s is the one to realise the lack as well as the need for improvement in
the initial stage. This kind of strict and specific corporate governance will facilitate the
organization or the SME’s as such to become reliable for the banks, the venture capitalists
and also will attract the investors hence, helping contribute to the economy of the country as
well. In Malaysia, the SME’s are bifurcated in two major types or recognised in two ways;
one is the sales turnover of the firm throughout the year as well as the number of employees
working full time in the firm. When considered as the firm that is based on the manufacturing
or as such services, SME’s are the ones that has less than 150 full time employees or annual
sales turnover less than RM 25 million. Meanwhile if other industry related services from
other sectors are considered apart from the manufacturing, then this amount changes to less
than RM 5 million or the number of full time workers working needs to be less than 50
people (Wasiuzzaman, Nurdin, Abdullah, & Vinayan, 2019).
Such rapid development in the SME’s or the Small and Medium Enterprises has
played a very important role in enhancing the economic situation of Malaysia. The last few
years have been spent by the Malaysian government in promoting the SME’s so as to resolve
various issues of the country, such as unemployment as well as the GDP (Zainol Abidin,
Mohd Shariff, Ibrahim, & Yusof, 2016). In the recent time, it has been recorded that an
approximate of 97.3 per cent of the whole business community consists of the SME’s.
Governmental actions have exclusively helped the scenario revolving around the SME’s
grow in every way possible. Around 60 agencies and 15 ministries of the government have

Corporate Governance 4
been a huge part of these promotion schemes by the government as well as international
powers (Radzi, Shamsuddin, & Wahab, 2017).
Though there has been a rapid growth as such in the SME situation throughout the
country, there are also various issues and certain situations that work as a hindrance to the
whole SME growth fiasco. Few of the major issues include, adoption of innovation and
technology which also includes slow updates upon the newer technology aspect, development
of human capital this includes lack of job readiness as well as not optimum utilization of the
training that people or the employees have and non -existence of a competitive nature
amongst the employees, broader access towards the market as in the large companies and the
government being procuring also the barrier of information revolving around the exports and
a stagnant and very little thought being provided to the main aspects such as the marketing
and branding, another aspect is the infrastructure which includes clearance related to trade
and system of facilitation along with the trade volume being infrequent and very low,
legalities revolving around the concept of SME’s which includes evaluating the need for legal
aspects as well as the guidelines and regulations imposed by the law that need to be rendered
to so as to work towards the goals of the enterprise, and freedom to be financed in an apt
manner depending upon the creditworthiness of the firm in the eyes of the financial
institutions (Taghizadeh, Rahman, & Ramayah, 2017).
In order to deal with all of these above mentioned issues, there is an urgent need of
group of professionals to guide the SME’s or the Small Medium Enterprises to deal with all
these certain issues. There is an urgent need for a guideline to be prepared for these SME’s so
as to work in a better and efficient manner. In order to yield the best results possible, these
guidelines need to be followed and regarded to in the situations when financial or any kind of
haphazard situation occurs. In order to achieve the objectives of the organization and its
targets, the regulation of these guidelines is a necessity (Umrani, Johl, & Ibrahim, 2017).
There is also a requirement of the board of directors to realise the situation revolving around
the SME’s and at least try to fix it according to the situation in the best possible manner.
Since, the Board of Directors are the ones that can realise the lack and work on it in the best
manner possible and also make and remove or make changes according to the situation. Here
the regulation of the corporate governance is something that can actually save the company or
the business without much harm. All needs to be done is to take care that the regulation of
these codes or the guidelines is done regularly so that there is no lack (Rahman, Yaacob, &
Radzi, 2016).

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When these corporate governance guidelines are followed and regular regulation of
these is taken care of, then there are very few chances where the firm lacks as they keep on
evolving according to the market scenario. Changes here are done by the board as well as
other advisories in order for the SME to be prepared for the worst case scenarios and the
achievement of the targets that these Small Medium Enterprises have set. Apart from all
these, there is also the need for the disclosure of the necessary information in the annual
report relating to the situation of the company or the firm or the business entity so that the
lacking areas are in sight of the directors and apt actions can be taken according to the
situation. It is not just the directors that need to be aware of the situation of the business or
the firm or the company, but also the shareholders and other stake holders just as the public
companies. In this manner, the investors will be aware of the situation revolving around the
company and they can take apt decisions as well as in case where improvement is necessary
the steps towards improvement will be provided as soon as possible. Corporate governance is
the way to deal with such scenarios. Regulation of these guidelines in the best way possible is
what the Small Medium Enterprises requires in the country of Malaysia as the situation right
now is good, but the efficient and the best output can be derived only when the firms and the
small business entities are put to use in the best way possible.

Corporate Governance 6
Bibliography
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