CONTENTS
Page
Forewordii

Messageiii

INTRODUCTION
Background1

Definitions

2

Role of Institutional Investors

3

The Malaysian Code for Institutional
Investors

4

Application and Reporting

5

Monitoring and Review

6

PRINCIPLES OF THE CODE

7

Principle 1
Disclosing Policies on Stewardship8

Principle 2
Monitoring Investee Companies

9

Principle 3
Engaging Investee Companies

10

Principle 4Managing Conflicts of Interest

12

Principle 5
Incorporating Sustainablility Considerations

13

Principle 6
Publishing Voting Policy

15

REFERENCES

17

ACKNOWLEDGEMENT

18

1

Malaysian Code for Institutional Investors

FOREWORDBY TAN SRI DATUK DR SULAIMAN MAHBOBChairman, Minority Shareholder Watchdog GroupThe development of the Code was spearheaded by the Minority Shareholder
Watchdog Group (MSWG) and started a year ago with the formation of a Steering
Committee consisting of chief executive officers and key representatives from theinstitutional investors’ fraternity in Malaysia. They are the Employees Provident
Fund, Permodalan Nasional Bhd, Kumpulan Wang Persaraan (Diperbadankan),
Pertubuhan Keselamatan Sosial (PERKESO), Lembaga Tabung Angkatan Tentera,
Lembaga Tabung Haji, Private Pension Administrator, Malaysian Association ofAsset Managers and Malaysian Takaful Association.
In addition to extensive discussions held at the Steering Committee, theCode took into account feedback and comments by international corporate
governance experts and the public at large through the joint public consultation
paper issued in January this year. Though the Code is voluntary, institutional
investors are encouraged to be signatories to demonstrate their commitment toadopting these best practices. A good take-up and application of the Code byinstitutional investors encourages good governance and long-term sustainabilityof their investee companies which spurs further development of the capital
market.
My sincere appreciation to the members of the Steering Committee, Working
Group, Expert Group and Observers for their invaluable insights and contributions,
Ms Rita Benoy, and the MSWG team who worked on the Code’s formulation.
I would also like to sincerely thank all the stakeholders who provided theirviews on the consultative draft and the Securities Commission Malaysia for the
support extended throughout the development of the Code.

TAN SRI DATUK DR SULAIMAN MAHBOB
June 2014

ii

MESSAGEBY DATUK RANJIT AJIT SINGHChairman, Securities Commission Malaysia

I am pleased to write this message to mark the significant milestone achieved
through this collaborative and collective effort led by the Minority Shareholder
Watchdog Group (MSWG) together with Malaysia’s largest institutional investors
culminating in this Malaysian Code for Institutional Investors (Code).
The formulation of an industry-led Code is a recommendation under the
Corporate Governance Blueprint 2011 to promote leadership in governanceand responsible ownership by institutional investors and is a critical building
block to realising our goal in moving towards greater self and market discipline.
The development of this Code is unique as institutional investors themselves
were primarily involved in its formulation; signifying the culmination of thecommon vision and aspiration of institutional investors who share a passion
and commitment to good corporate governance.
Institutional investors are significant influencers of corporate governancepractices in their investee companies. Active engagement taken collectively
by institutional investors will usher in an ownership culture that ensuresmanagement prioritises the best interest of the company at all times. Malaysia’svision of becoming a high-income nation with inclusiveness and sustainability
will be realised when there is greater leadership to ensure the delivery ofsustainable long-term value for all stakeholders.
I would like to thank members of the Steering Committee, Expert Group,
Working Group and Observers for this concerted effort in developing this Code.
I look forward to the strong commitment by all stakeholders in this initiative
which is an important catalyst to achieving corporate governance excellence.

DATUK RANJIT AJIT SINGH
June 2014iii

Malaysian Code for Institutional Investorsiv

Introduction

INTRODUCTION
Background
1.		In 2011, the Securities Commission Malaysia (SC) issued the Corporate
Governance Blueprint 2011 (CG Blueprint) which outlined strategic
initiatives aimed at reinforcing self and market discipline. The Malaysian
Code for Institutional Investors 2014 (Code) is one of the deliverables of
the Blueprint.
“The formulation of a new industry-driven code can strengthen
the accountability of institutional investors to their own members
and investors. The new code will require institutional investors
to explain how corporate governance has been adopted as aninvestment criteria and the measures they have taken to influence,
guide and monitor investee companies. It is also important for
institutional investors to include governance analysis in theirinvestment appraisal to help identify better governed companies.”-CG Blueprint 20112.

A Steering Committee for the Development of an Institutional Investors
Code for Malaysia (Steering Committee) was formed to undertake theformulation of the Code spearheaded by the Minority Shareholder
Watchdog Group (MSWG). The Steering Committee was headed by the
Chairman of the MSWG while the Working Group was headed by the
Chief Executive Officer of MSWG.

3.

The members of the Steering Committee comprised CEOs and key
representatives from the institutional investors’ fraternity in Malaysia
namely Employees Provident Fund (Kumpulan Wang Simpanan Pekerja),
Permodalan Nasional Bhd, Kumpulan Wang Persaraan (Diperbadankan)(Retirement Fund Incorporated), Lembaga Tabung Angkatan Tentera(Armed Forces Fund Board), Lembaga Tabung Haji (Pilgrims Fund Board),
Pertubuhan Keselamatan Sosial (Social Security Organisation), Malaysian
Association of Asset Managers (Persatuan Pengurus Aset Malaysia),
Malaysian Takaful Association (Persatuan Takaful Malaysia) and Private
Pension Administrator (Pentadbir Pencen Swasta).

1

Malaysian Code for Institutional Investors

4.

The Code is intended to give institutional investors guidance on effective
exercise of stewardship responsibilities to ensure delivery of sustainablelong-term value to their ultimate beneficiaries or clients.

5.

The terms used in the Code are explained in the Definitions section below.

Definitions
Agents in the investment chain are those involved in the investment process
and include the following:•

Asset owners are collective investment vehicles which collect funds onbehalf of their beneficiaries or clients and manage them internally or
externally such as pension funds, private retirement scheme providers,insurance companies, takaful operators and investment trusts.

•

Asset managers are agents that are responsible to manage the funds onbehalf of the asset owners through an investment mandate.

•Service providers, such as–(i)		
custodians are agents responsible for the maintenance andsafekeeping of the records both in electronic or paper form of theasset owners’ and asset managers’ assets, including sub-custodians;
and
(ii)

proxy advisers, investment consultants and trustees are agents that
undertake functions mandated by asset owners and asset managers
to support their activities.

Institutional investors are asset owners and asset managers with equity
holdings in corporations listed on Bursa Malaysia.
Investee companies are corporations listed on Bursa Malaysia.
Stewardship is investor stewardship from the perspective of a long-term
institutional investor in particular asset owners such as pension funds.

2

Introduction

It includes the responsible management and oversight of assets for the benefitof the institutional investors’ ultimate beneficiaries or clients. The dischargeof effective stewardship responsibilities would include development of a setof principles/policies, application of the principles/policies, oversight of agents,
communications of expectations and reporting to their clients or beneficiaries.
These activities also include monitoring and engagement with the investee
companies on matters relating to strategy, performance, risk management,
voting, corporate governance or sustainability issues.

Role of Institutional Investors
1.

Institutional investors are major players in the global economy who canexert significant influence over their investee companies due to thesubstantial stake they hold. This clout provides them with an opportunity
and ability to encourage good governance and appropriate behaviour by
their investee companies to ensure delivery of sustainable long-term value
for their beneficiaries or clients.

2.

The activities of institutional investors include managing and allocating
funds, designing investment policies and strategies, awarding investment
mandates and monitoring investment activities.

3.

Institutional investors should be committed to effective corporate
governance in running their own businesses and put in place policies
and practices which embody good corporate governance principles andbest practices as part of discharging their duties and responsibilities toadvance the interest of their beneficiaries or clients.

4.

Institutional investors should be led by capable board and managementwith the appropriate capacity and experience to effectively discharge theirstewardship duties.

5.

Institutional investors should consider acting collectively with otherinvestors where appropriate in areas aimed at promoting good corporate
governance. When working with other parties, institutional investors
should be cognisant of market regulations, in particular, rules relating toacting in concert and market manipulation.

3

Malaysian Code for Institutional Investors

6.

Institutional investors are also encouraged to engage in the developmentof relevant policies and best practices. This engagement facilitates theinclusion of institutional investors as an important stakeholder groupin the design of policies, and may be an efficient and effective way to
influence or raise awareness on issues affecting beneficiary or clientinterest such as matters relating to investee companies or the investment
chain.

The Malaysian Code for Institutional Investors
1.

The Code is a voluntary code which sets out the broad principles ofeffective stewardship by institutional investors, followed by guidance tohelp institutional investors understand and implement the principles.

2.

The asset owners’ commitment to the Code may be directly applied totheir investee companies or indirectly through the mandates given to asset
managers. In such instances the asset owners should clearly communicate
their stewardship policies to their asset managers. In addition, these
institutional investors may also choose to outsource to external service
providers some of their stewardship activities. However, they cannot
delegate their stewardship responsibility, hence, should ensure that those
activities are carried out in a manner consistent with their own approachto stewardship.

3.

While corporate governance matters should be the issue of main
consideration in the investment decision-making process, the issueof sustainability must equally be considered. In addition to economic
considerations, the Code advocates institutional investors to ensurethat they invest in a responsible manner by having regard to corporate
governance and sustainability of the company. Such an approachis expected to be in the interest of the ultimate beneficiaries in thelonger term as part of the delivery of enhanced risk-adjusted returns on
investment.

4.

Compliance to the Code does not constitute an invitation to manage theaffairs of a company or preclude a decision to sell a holding, where this isconsidered in the best interest of beneficiaries or clients.

4

Introduction

Application and Reporting
1.

The Code advocates the adoption of standards that go beyond theminimum prescribed by regulations.

2.

Institutional investors are encouraged to be signatories of the Code andshould explain how they have applied the principles in this Code, taking
into account guidance provided under each principle. The guidance is set
out in the form of best practice recommendations. Institutional investors
are allowed to determine the best approach to adopting the principles, as
there is no ‘one-size-fits-all’ approach to stewardship.

3.

Institutional investors are expected to encourage their service providers
to apply the principles of the Code where relevant and to conduct theirinvestment activities in line with the institutional investors’ own approachto stewardship. Accordingly, service providers are also encouraged to besignatories of the Code.

4.

Signatories of the Code are expected to report annually on theirapplication of the principles of the Code in their website, annual reportor in other accessible forms. Signatories are encouraged to review theirpolicy statements annually, and update them where necessary to reflectchanges in actual practice. It should include contact details of an individual
who can be contacted for further information.

5.

It is also recognised that not all parts of the Code are relevant to all
signatories. For example, smaller institutions may judge that some ofthe principles and guidance are disproportionate in their case. In thesecircumstances, the signatory can explain why their business model
precludes adherence to certain principles of the Code.

6.

Institutional investors with several types of funds or products need to makeonly one statement, but are encouraged to explain which of their funds
and products are covered by the approach described in their statement.

7.

Institutional investors are encouraged to be early adopters of the principles
and guidance set out in the Code. Signatories should report their extent
of observance to the Code starting from the year 2016.

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Malaysian Code for Institutional Investors

Monitoring and Review
1.

The boards of signatories will be responsible for their own organisations’monitoring on how they have applied the principles of the Code. In theinitial stages, MSWG will undertake the monitoring of the take-up andapplication of the Code.

2.

Subsequently, an umbrella body for institutional investors is envisaged
to be formed as a platform to discuss stewardship matters, including
undertaking the oversight role of monitoring the take-up and applicationof the Code. It is envisaged that the governing structure of the umbrella
body would comprise representatives from the institutional investors’
industry, professionals as well as other important stakeholders.

3.

The Code will be reviewed from time to time to assess its implementation
and reflect changes in the capital market and corporate governancelandscape.

6Principles of the Code

PRINCIPLES OF THE CODE
The Code provides guidance on effective exercise of stewardship responsibilities
towards the delivery of sustainable long-term value to the institutional investors’
ultimate beneficiaries or clients. There are six key principles:1.

Institutional investors should disclose the policies on their stewardship
responsibilities.

2.

Institutional investors should monitor their investee companies.

3.

Institutional investors should engage with investee companies asappropriate.

4.

Institutional investors should adopt a robust policy on managing conflictsof interest which should be publicly disclosed.

5.

Institutional investors should incorporate corporate governance andsustainability considerations into the investment decision-making process.

6.

Institutional investors should publish a voting policy.

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Malaysian Code for Institutional Investors

PRINCIPLE 1
Disclosing Policies on their Stewardship
Institutional investors should disclose the policies on
their stewardship reponsibilities.
Guidance
1.1

The stewardship policies should reflect the institutional investors’
stewardship activities along the investment chain, and how they willdischarge their responsibilities arising from those activities.

1.2

The policies should be accessible to investee companies, beneficiaries andclients in plain and understandable language.

1.3

In the event where the stewardship activities are outsourced, institutional
investors should explain in the stewardship policies what steps have beentaken to ensure that the investment activities are carried out in line with
their own approach to stewardship.

1.4

Asset owners should disclose general guidelines on the selection of asset
managers and other service providers.

8Principles of the Code

PRINCIPLE 2
Monitoring Investee Companies
Institutional investors should monitor their investee
companies.
Guidance
2.1

Institutional investors should actively monitor their investee companies as
it is an essential part of their stewardship role.

2.2

The monitoring process should be conducted in an active manner which
include but not limited to monitoring the investee companies for thefollowing:•

Performance and its value drivers;•

Key risk areas;•

Leadership, including board and management;•

Adherence to the form and spirit of the Malaysian Code on
Corporate Governance 2012 (CG Code);•

Quality of company reporting and quality of management discussion
and analysis; and•Signs of problems at an early stage, which may result in a significant
loss in investment value.

2.3

The monitoring activities should also include attending general meetings
where practicable as well as exercising voting rights.

2.4

Institutional investors should carefully consider explanations given by
their investee companies, or lack thereof, for any departure from the
CG Code. The investee company’s board should be informed in writing
where appropriate, if the institutional investor does not agree with theinvestee company’s explanation or position taken on how the investee
company applies the CG Code together with its reasons.

9Malaysian Code for Institutional Investors

PRINCIPLE 3
Engaging Investee Companies
Institutional investors should engage with investee
companies as appropriate.
Engagement is purposeful dialogue with investee companies with the aim ofpreserving or enhancing value on behalf of beneficiaries or clients. It is typicallyan extension of monitoring activities and it arises when institutional investors
have a close and full understanding of the specific circumstances of the investee
company in matters of performance, governance or risk management.
It entails dialogue on matters such as strategy, long-term performance, risk,
capital structure, and corporate governance, including culture and remuneration
as well as on issues that are the immediate subject of votes at general meetings.
When engaging with investee companies, institutional investors must respectmarket-abuse rules and do not seek trading advantage through possession ofprice-sensitive information.

Guidance
3.1

Institutional investors should develop a clear engagement strategy andengagement process or practices to enable a more meaningful andeffective dialogue between investee companies and the institutional
investors.

3.2

Institutional investors should report a summary of their engagement
activities or engagement highlights at least on an annual basis in theannual report or company website. Records of engagement activities with
the investee companies should be kept in a proper manner.

3.3

Institutional investors should engage with the investee companies
when there are concerns on the financial and operational performance,
governance or risk management of their investee companies, with initial
discussions carried out on a confidential basis. Institutional investors
should have a clear approach for dealing with situations where the normal
avenues of dialogues and communications with boards and management
are failing and it becomes necessary to intervene to arrest issues at an
early stage.

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Principles of the Code

3.4

In engaging with the investee companies, institutional investors could
make their concerns known, for example, by:•expressing concerns in writing to the board of directors; or•meeting with the chairman or other board members, including
senior independent directors; or•engaging jointly with other institutions on particular issues; or•

submitting resolutions and expressing concerns at the general
meeting; or•

requisitioning a general meeting, which may seek to remove poorly
performing directors.

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Malaysian Code for Institutional Investors

PRINCIPLE 4
Managing Conflicts of Interest
Institutional investors should adopt a robust policy on
managing conflicts of interest which should be publicly
disclosed.
Institutional investors should seek to avoid conflict-of-interest situations.
Nevertheless, as conflicts of interest may inevitably arise from time to time,they need to understand, minimise and manage such conflicts in a transparent
manner.

Guidance
4.1

Institutional investors should put in place, maintain and publicly disclosea policy for identifying and managing conflicts of interest with the aim oftaking all reasonable steps to advance the interests of their beneficiaries
or clients.

4.2

Institutional investors should communicate to their service providers on
the need to disclose all known potential conflicts of interest and to explain
how they are managed.

4.3

Institutional investors should have robust policies to deal with inside
information and to avoid market manipulation in their dealings. Broader
ethical considerations such as policies on prevention of corruption,
including anti-bribery and anti-money laundering and establishment of“Chinese wall” should also be incorporated.

4.4

In instances where an institutional investor becomes involved in theboard or management to support a process of longer term change in
the investee companies, it should indicate in its stewardship policies themechanism by which this could be done including managing any conflictof interest.

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Principles of the Code

PRINCIPLE 5
Incorporating Sustainability Considerations
Institutional investors should incorporate corporate
governance and sustainability considerations into theinvestment decision-making process.
Institutional investors are expected to deliver sustainable returns in thelong-term interest of their beneficiaries or clients.

Guidance
5.1

Institutional investors should incorporate corporate governance andsustainability considerations, including environmental, social andgovernance (ESG) factors in their investment decision-making process.

5.2

Institutional investors should assess the quality of disclosures made byinvestee companies on the application of the CG Code. This includes
disclosure of–

5.3•

Diversity targets and policies, including gender, age and ethnicity;•

Board remuneration and nomination policies and procedures;•

Board quality;•

Financial reporting;  and•Risk management and internal controls.

Institutional investors should develop a policy on how it incorporates
sustainability consideration, including ESG, into its investment analysis
and activities. The matters to be dealt with in the policy should include,
but not necessarily be limited to, an assessment of–•

the quality of the company’s sustainability report dealing with thecompany’s strategy and operations. If sustainability disclosure has
not been published, an enquiry could be made on the reasons for
this; and13

Malaysian Code for Institutional Investors

•
5.4

14

disclosure and adherence to responsible investment codes, if any.

Examples of ESG factors that the institutional investors evaluate may
include the following–•

Corporate governance and business ethics;•

Employee benefits and corporate culture;•

Products, customers and supply chain; and•Environmental and social impact.

Principles of the Code

PRINCIPLE 6
Publishing Voting Policy
Institutional investors should publish a voting policy.
Voting is an element of engagement and institutional investors are expected tomake use of their voting rights. The exercise of voting rights is a key indicatorthat an institutional investor effectively implements its engagement policy.

Guidance
6.1

Institutional investors should exercise their voting rights with due careand diligence.

6.2

Institutional investors should disclose their overall voting policy withrespect to their investments and the procedures that they have in place.

6.3

Institutional investors should seek to reach a clear decision either in favour
or against each resolution. The reasons for voting against or abstaining
in relation to any vote at a general meeting should be communicated tothe investee company, preferably in writing. Where the decision deviatesfrom the normal policy institutional investors should be prepared to givethe reasons to their beneficiaries or clients.

6.4

Institutional investors should seek to vote on shares held and may set a
policy on the threshold for active voting1. Where an institutional investor
chooses not to vote in specific circumstances, or in particular markets
or where holdings are below a certain threshold, this should be clearly
disclosed to beneficiaries or clients.

6.5

Institutional investors are encouraged to disclose a summary of theirvoting activities as it gives the beneficiaries greater clarity on how thevotes are cast. Disclosure of the institutional investors’ voting record isalso a way of demonstrating that conflicts of interest are being properly
managed.

1

Active voting means the exercise of active voting beyond a certain ownership threshold
which is determined by the institutional investor’s own internal policy guidelines.

15

Malaysian Code for Institutional Investors

6.6

Institutional investors are encouraged to disclose the use, if any, of proxyvoting or other voting advisory services. They should describe the scope ofsuch services, identify the providers and disclose the extent to which they
follow, rely upon or use recommendations made by such services.

6.7

Institutional investors should work with other relevant parties where
possible, to remove barriers to voting so long as it does not contravene
any applicable law or regulation in the relevant jurisdictions. Votes cast byintermediaries should be exercised only in accordance with the wishes ofthe beneficial owner or its authorised agent.

6.8

Institutional investors should disclose their approach to securities lending
and situations where they will recall lent securities so as to be able toexercise vote.

16

References

REFERENCES
Code for Responsible Investing in South Africa 2011
Corporate Governance Blueprint 2011
ICGN Statement of Principles for Institutional Investor Responsibilities 2013
Institute of Chartered Secretaries and Administrators, “Enhancing stewardshipdialogue”
Organisation for Economic Co-operation and Development (OECD), 2004,“Principles of Corporate Governance”
Malaysian Code on Corporate Governance 2012
The UK Stewardship Code 201217

Malaysian Code for Institutional Investors

ACKNOWLEDGEMENTThe Malaysian Code for Institutional Investors has been developed by theSteering Committee and the Working Group, with contributions from theexpert group and observers.

Steering Committee• Tan Sri Datuk Dr Sulaiman
Mahbob,Chairman, Minority Shareholder
Watchdog Group (Chairperson)• Tan Sri Dato’ Sri Hamad Kama Piah
Che Othman,
President & Group Chief Executive,
Permodalan Nasional Bhd• Tan Sri Dato’ Seri Lodin Wok
Kamaruddin,
Chief Executive, Lembaga Tabung
Angkatan Tentera• Dato’ Paduka Ismee Ismail,Group Managing Director and Chief
Executive Officer, Lembaga TabungHaji• Datuk K. Selvarajah,
Chief Executive, Social Security
Organisation• Mohamad Nasir Ab.Latif,
Deputy CEO (Investment), Employees
Provident Fund
• Wan Kamaruzaman Wan Ahmad,
Chief Executive Officer, Kumpulan
Wang Persaraan (Diperbadankan)• Dato’ Steve Ong,
Chief Executive Officer, Private
Pension Administrator

18• Gerald Ambrose,
Committee Member, Malaysian
Association of Asset Managers• Zainudin Ishak,
Chairman, Malaysian Takaful
Association• Rita Benoy Bushon,Chief Executive Officer, Minority
Shareholder Watchdog Group

Expert Group• Pricewaterhouse Coopers Malaysia(PwC)
Represented by Dato’ Mohammad
Faiz Azmi, Executive Chairman• Financial Reporting Council (FRC),
United Kingdom
Represented by Chris Hodge,
Executive Director, Strategy• International Corporate
Governance Network (ICGN),
United Kingdom
Represented by Kerrie Warring,
Managing Director• Global Fund Manager Governance for Owners,
United Kingdom Peter Butler,
Founding Partner

Acknowledgement

Working Group• Rita Benoy Bushon,Chief Executive Officer, Minority
Shareholder Watchdog Group(Chairperson)• Datin Paduka Kartini Haji Abdul
Manaf,
Chief Strategy Officer, Permodalan
Nasional Bhd• Datuk Zakaria Sharif,
Deputy Chief Executive, Lembaga
Tabung Angkatan Tentera• Ahmad Suhaimee Ismail,Head, Equity Portfolio Management,
Lembaga Tabung Haji
• Samihah Md Razi,
Deputy Chief Executive Officer(Corporate), Social Security
Organisation• Azhar Abdul Latif,
Manager, Equity Research
Department, Employees Provident
Fund• Chong Chee Fern,
General Manager, Corporate
Monitoring, MSWG
• Quah Ban Aik,
Head, Corporate Monitoring, MSWG
• Noraida Maria Mohd Hatta,
Associate, MSWG

Observers• Securities Commission Malaysia
Represented by Azryta Abdul Aziz,
Deputy General Manager, Markets& Products, Market Development
Division• Bursa Malaysia Bhd
Represented by Dr Elsa Satkunasingam,
Vice President, Corporate Governance• Organisation for Economic
Development and Co-operation(OECD)
Represented by Fianna Jurdant,
Senior Policy Analyst• Rizal Mohamed Ali,
Assistant Vice President, Corporate
Planning & Development, Kumpulan
Wang Persaraan (Diperbadankan)

19