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Malaysia surprises with ‘most improved’ governance score
Despite lurid 1MDB revelations, a recent survey indicates Malaysia’s corporate governance ranking improved the most, this along with other rankings prick one’s ears up
The Asset 10 Dec 2018

With the recent scandal around the now-familiar 1MDB story, Malaysia may be the last thing anyone will associate with ethics, transparency and good corporate governance.

But according to a recent survey by brokerage CLSA, the country was the "biggest mover in 2018" from a collective score of companies, climbing two spaces to 4th place in Asia's corporate governance market ranking.

Investigations into 1MDB gained momentum after former Prime Minister Najib Razak, who set up 1MDB in 2009, lost an election in May to his former mentor, Mahathir Mohamad. Less than two weeks later, Mahathir assembled a task force to investigate possible criminal conduct linked to the 1MDB scandal, and identify and seize any assets believed to have been purchased with stolen funds. US$4.5 billion is alleged to have gone missing from the fund.

The alleged misuse of the fund brought out tales of lavish spending - including one revolving around a US$27 million pin diamond allegedly purchased for Malaysian ex-prime minister Najib Razak's wife using money looted from the 1MDB fund - and these revelations sullied Malaysia's international reputation and credibility.

CLSA, in its bi-annual review covering Asia, believe as the jump in scores collected from companies' corporate governance performance reflect optimism over the recent leadership change as well as tangible improvements to enforcement and reporting.

Malaysia gets a new corporate governance code, and a new government that has started to tackle endemic corruption issues fostered by the previous Najib administration. CLSA also notes that Malaysia is showing stronger performance from financial regulators and institutional investors. It set up the Institutional Investor Committee that was formed with the Minority Shareholder Watchdog Group. The initiative is a first for Asia.

CLSA Corporate Governance Watch 2018

Source: CLSA 

Australia is currently Number 1 in the ranking. Given its inclusion in CLSA's scores in this review and also its strong performance this has pushed the rest of the markets down at least one place. Hong Kong beats Singapore to 2nd place only marginally.

According to CLSA, Hong Kong has lost moral leadership upon its introduction of dual-class shares (DCS) in its market. The city also suffers from the continued lack of any clear government strategy for corporate governance. But the territory still leads the region in enforcement and is doing a lot better than most on the supervision of auditors. Hong Kong plans to establish next year an audit regulator.

Singapore is third and suffered reputational damage due to its introduction of DCS and underperformed on enforcement despite the creation of a new regulatory entity under SGX. Taiwan is placed 5th and continues to make strides on enforcement.

Thailand and Japan both introduced revised corporate governance and stewardship codes, with Japan putting much emphasis on enhancing company-investor dialogue.

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