September 2011 - MINDA Malaysian Directors Academy ...

CONTENTSEDITORIAL TEAMMALAYSIAN DIRECTORS ACADEMY 2FOREWORD ..................................................................... 3From The CEO’s DeskFEATURED ARTICLESARTICLE ONE ................................................................... 4The GLC Open Dayby Putrajaya Committee on GLC High PerformanceARTICLE TWO .................................................................. 6Abstract of Case Study“Axiata: A Passion for Performance and People”ARTICLE THREE ............................................................... 7Is Board of Directors Relevant?by Datuk Dr Syed Muhamad Syed Abdul KadirARTICLE FOUR ............................................................... 11Innovation, Change and Governanceby John ZinkinARTICLE FIVE ............................................................... 18Making Boards Betterby Karen KaneBOOK REVIEW ............................................................... 22Great Companies Deserve Great Boardsby Beverly BehanEditor In ChiefDato’ Abdul Aziz Abu BakarContributorsThe Putrajaya Committee on GLC HighPerformance (PCG) TransformationManagement Office (TMO)Datuk Dr Syed Muhamad Syed Abdul KadirChairmanCIMB Islamic BerhadJohn ZinkinManaging Director Corporate GovernanceICLIFBeverly BehanFounder, Board AdvisorKaren KaneKORN/ Ferry InternationalCommunications and MarketingMazni Ahmad NorilahPhotographerMuhammad Hafiz MahmoodPROGRAMME HIGHLIGHTS ............................................ 23UPCOMING EVENT ......................................................... 27Director’s Forum 2011“Innovation & People: Making It Happen”Creative Designer & PrinterA & S Cetak Sdn. Bhd.(KKDN: PQ1780/3869)Publisher & DistributorMalaysian Directors Academy

FOREWORD3From TheCEO’s Desk“Dato’ Abdul Aziz Abu BakarInnovation & People :Making It Happen“BOARD VIEW_SEPTEMBER 2011Innovation and People are the two main themes runningthrough MINDA’s BoardView issue 6. For many successfulorganisations, innovation is embedded in their cultureand mindset; and it can only happen when organisationssuccessfully harness the creative and talented people theyhave. An article in The Economist (Frymire, 2006) argues that“the biggest challenge today is not finding or hiring cheapworkers, but rather hiring individuals with the brainpower(both natural and trained) and especially the ability to thinkcreatively”.MINDA welcomes the Prime Minister Dato’ Seri NajibTun Razak’s recent Cabinet decision to ensure that thecorporate sector is able to achieve the 30% target ofwomen’s participation at the decision making level by 2016.Although the percentages of women joining the work forceare increasing, the percentages of those who are holdingthe lead positions are still low. It is equally clear that womenmay eventually contribute towards driving the industry butit is also the mentality of “think leader, think male” is still astumbling block for women to climb the career ladder. The‘glass ceiling’; a metaphor to describe the invisibility of femaleprogress barrier in an organisation still exist in Malaysiancompanies. The policy will certainly help improve the overallgender equality and promote diversity in the corporate world.MINDA and the Ministry of Women, Family and CommunityDevelopment will help to identify and train those with thepotential to be appointed to boards of companies.In this issue of BoardView, we take a look at the successof GLC Open Day held recently. Organised by the PutrajayaCommittee on GLC High Performance (PCG), the eventshowcased 5 Government Linked Investment Companies(GLICs) together with 18 of their listed investee GovernmentLinked Companies (GLCs).MINDA collaborated with Axiata Group Berhad to featurea case study on Talent Management and Development forMINDA’s Board programme in order to assist directors inbuilding knowledge on how to groom future leaders. Read allabout it in our section under the Case Study Abstract.In “Is Board of Directors Relevant?”, Datuk Dr SyedMuhamad Syed Abdul Kadir, Chairman of CIMB Islamic anda MINDA alumni, attempts to show that the actions takenby the regulators to ensure directors of companies are ableto perform their roles and responsibilities are acceptablestrategies. While indicating and focusing on “what must bedone” by directors is necessary, he argues that focusing onthe “how” will make directors “relevant” to the companies.Other articles in this issue include “Making Boards Better”by Karen Kane of Korn/Ferry International and “Innovation,Change and Governance” by John Zinkin of ICLIF.Our 2011 Director’s Forum (DF) is scheduled from 2 to 4October 2011 in Bandung, Indonesia; focusing on two ofthe many factors that contribute towards organisationalcompetitiveness and excellence - Innovation and People;and how Boards can drive both the Innovation and Peopleagenda throughout the whole organisation.MINDA is also pleased to announce the appointment of DatukDr. Rahamat Bivi Binti Yusoff as its new Board Member on 16May 2011; replacing Dato’ Puteh Rukiah bt Abd Majid. DatukDr. Rahamat Bivi is currently the Deputy Secretary General(Systems & Controls) of Ministry of Finance Malaysia.Finally, on behalf of the Board Members and the Managementof MINDA, we wish all our readers a joyous Eid Mubarak.Happy reading!

FEATURED ARTICLES _ARTICLE ONEMALAYSIAN DIRECTORS ACADEMY 4The GLC Open Day was recently held from Friday 24th toSunday 26th June 2011 at the Kuala Lumpur ConventionCentre, with the theme “Nation-Building, Touching Lives”.The event was organised by the Putrajaya Committee on GLCHigh Performance (PCG) and was a showcase of 5 GovernmentLinked Investment Companies (GLICs)¹ together with 18 oftheir listed investee Government Linked Companies (GLCs)².The rationale of holding the Open Day was to reach outto all Malaysians in showcasing how the GLICs and GLCshave contributed towards the development of the nation’seconomy and in so doing, touched the lives of every Malaysian.The objective was to communicate and impart to the publicat large the great strides and progress that GLICs and listedGLCs have made and their continuous efforts towards valuecreation and delivering benefits to the Rakyat.The Open Day featured public forums, chaired by GLC CEOs,to discuss various current issues with participation fromprominent personalities, NGOs, entrepreneurs and socialactivists, on wide-ranging issues from the new corporate DNAfor GLCs to the social media phenomenon and the limit ofsocial entrepreneurship. Visitors also had the chance to listento the CEOs at the “Spot Light Corner”. A myriad of excitingactivities for the family were offered including treasure hunt,children’s colouring competition and e-Peraduan for all ageswith attractive prizes on offer. Among the top prizes were aFord Fiesta and Proton Saga 1.6 FL.The Open Day was organised along the lines of 5 “clusters”which depicted the primary touch points that the GLICs andGLCs had with the public. These clusters were:1. Driving National Economic Transformation2. Achieving Customer Excellence Through ContinuousProduct & Service Innovation3. Creating Business Opportunities Through SmartPartnerships4. People, Planet and Profits – Delivering Benefits for aSustainable Nation5. Building Knowledge and Human Capital Development1 st Cluster: Driving National Economic TransformationThis cluster tells the story of the GLC TransformationProgramme (GLCT) and the relationship between the generalpublic, the GLICs, and their investee GLCs.The GLC Open DayPutrajaya Committee on GLC High Performancedividends to the public, year-after-year. At the same time,dividends and taxes paid by GLICs and GLCs to the Governmentcontribute towards nation-building and the provision ofservices to the public.2 nd Cluster: Achieving Customer Excellence ThroughContinuous Product & Service InnovationVia ‘A Day In The Life’ visual storyline, this cluster attempts tohighlight to the public that GLCs are present throughout theirdaily lives with numerous touchpoints, from the time theywake up, to the point that they travel to work, throughout therest of the day till they retire at night.Many GLCs are providers of mission critical and essentialservices ranging from electricity generation and distribution,telecommunications, automotive, aviation, transportation,infrastructure, construction, property development, banking,investment trusts, healthcare, agriculture and plantations.Hence GLCs impact the public’s lives on a daily basis throughtheir products and services which is further enhanced via theirinnovation towards customer excellence.3 rd Cluster: Creating Business Opportunities ThroughSmart PartnershipsGLCs form an important part of the economy. They offer manyopportunities for aspiring entrepreneurs to become suppliersor business partners. This cluster showcases the manyopportunities that small and medium scale entrepreneurshave in doing business with GLCs - as a supplier, via businesscollaboration or joint venture opportunities. Success stories,procurement insights and vendor development programmesare also highlighted.The cluster is divided into 6 areas:• Business Opportunities - information on availableopportunities as suppliers, business partners• Collaboration & Co-Investments - showcase of GLICs’ andGLCs’ collaboration and co-investments with the privatesector• Vendor Development Programmes (VDP) and SuccessStories - how does VDP work; how can suppliers gain fromVDP; success stories of vendors who have ‘graduated’• Special Focus Area on specific stakeholder groups – SMEs,1-Innocert companies, Green Lane Policy, Bumiputeravendors• Issues & Challenges - faced by GLICs/GLCs and the businesscommunity in venturing into business and partnerships• Vendors’ Corner – showcase of products and services fromsuccessful GLC vendorsThis cluster imparts to the public about the responsibility ofthese GLICs (notably the 4 trust funds), such that they mustinvest in reliable, high-performing companies in order togenerate returns that enable the payment of acceptable4 th Cluster: People, Planet and Profits – Delivering Benefitsfor a Sustainable NationThis cluster highlights the GLICs’ and GLCs’ mandate insupport of the New Economic Model (NEM), which is to

article oneachieve progressive transformation towards excellence thatis inclusive and socially responsible whilst balancing therequirement to protect the natural environment. In short, abalance of “Profits, People and Planet”.These programmes collectively have resulted in significantimprovements to communities, the environment and businesssustainability as follows:People (Community)GLCs support the development of social capital for vulnerablegroups in many ways. As a national initiative, GLCs havecome together with other private sector players, to supportintervention programmes centered around equitable accessto education for all and in alleviating hardcore poverty throughsustainable livelihood, capacity and skills building initiatives.All these programmes cater to short term and long term needsof these communities.Planet (Environment)Responsible businesses recognise that in order to ensure asustainable future for the next generation, companies needto invest in responsible environmental practices - today. Thismeans that GLCs today focus on investing in programmeswhich include Green Projects, Proper Waste ManagementSystems and Energy Efficiency as well as Carbon Offset andCarbon Management Programmes.Profits (Business Sustainability)Business Sustainability covers the two areas of Workplaceand Marketplace. GLCs must be responsible in the waythey conduct their businesses and thus, GLCs place greatimportance on their relationships with their employees,customers, suppliers, government agencies, and communitiesin which they operate.5 th Cluster: Building Knowledge and Human CapitalDevelopmentThis cluster showcases GLCs’ touch points with peoplefrom all age groups, namely school-going children, youngadults entering further education, young adults entering theworkforce and the workforce itself and highlights the variousopportunities in terms of employment and education via GLCs.We believe development starts at a young age and with thisin mind, GLICs and GLCs support a line-up of programmesthat cater across a wide range of age groups, from primaryeducation like the Trust Schools project to universitygraduates entering the workforce through the GraduateEmployability Management Scheme (GEMS) and a host ofother employment programmes across different industries.To date GLICs and GLCs have offered numerous scholarshipprogrammes on various fields for young adults entering higherlearning education.GLCs as a network also have formal leadership developmentprogrammes to further develop human capital and the futureleaders of Malaysia. These include the Cross AssignmentProgramme (talent exchange between GLCs), CrossFertilisation Programme (talent exchange between GLCsand the Government) and the Accelerated DevelopmentProgramme for C-Suite high potentials.Among the activities this cluster featured at the Open Daywere “kopi-tiam” sessions with prominent young personalitiesgiving motivational career talks, which were well attended.GLC Open Day OutcomesThe GLC Open Day over the 3 days ended well and wasconsidered quite a success given the crowd turnout. Thenumber of visitors (as measured by stickers on visitors) wasaround 30,000.The various activities from the launch event, the contests, thespotlight corners, the booths, the CEO appearances were allvery well received by the public. The Forums in particular wasworth highlighting where the audience was focused and thecontent quality high all round. The Forum Perdana in particularwas high-energy, high-quality and much wisdom and usefulideas came out of it, as did the others too. The MalaysiansUnite for Road Safety (MUFORS) pledge wall received some3,000 road safety pledges and these include personal pledgesfrom famous personalities.Feedback form from the general public (with close to 3000respondents) indicated the following results on a scale of 1(lowest rating) to 10 (highest rating):• Quality and clarity of the exhibition: 75% rated 8-10• Helpfulness and attentiveness of the representatives: 75%were satisfied and rated 8-10• Quality of the spotlight sessions and forums: 73% rated8-10• GLC Open Day rating: 80% rated 8-10• Understanding of GLICs and GLCs: 76% said ‘yes’, 23%stated ‘somewhat’PCG wishes to record its utmost gratitude to everyone fromits constituent GLICs and GLCs and external parties whoparticipated in the event in making it the resounding successit was. The GLC Open Day was not envisioned to be an annualaffair but there is a possibility that another Open Day will beheld upon the programme reaching its next major milestoneat the end of the programme in 2015.5BOARD VIEW_SEPTEMBER 2011¹ Participating GLICs: Kumpulan Wang Simpanan Pekerja (KWSP), Permodalan Nasional Berhad (PNB), Lembaga Tabung Angkatan Tentera(LTAT), Lembaga Tabung Haji (LTH) and Khazanah Nasional Berhad.² Participating GLCs: Affin Holdings Berhad, Axiata Group Berhad, BIMB Holdings Berhad, Boustead Holdings Berhad, CIMB Group HoldingsBerhad, Chemical Company of Malaysia Berhad, Malayan Banking Berhad, Malaysia Airports Holdings Berhad, Malaysia Building SocietyBerhad, Malaysian Airline System Berhad, Malaysian Resources Corporation Berhad, Proton Holdings Berhad, Sime Darby Berhad,Telekom Malaysia Berhad, Tenaga Nasional Berhad, TH Plantations Berhad, UEM Group Berhad and UMW Holdings Berhad.

FEATURED ARTICLES _ARTICLE TWOMALAYSIAN DIRECTORS ACADEMY 6One of the most significant challenges facing all organisationsis what McKinsey terms “The War for Talent.” The late 20thcentury saw a dramatic shift from the industrial to theinformation age in the western economies — a shift thatis now rapidly occurring in Asia and the rest of the world.Changing social values and demographics, technology,economics, political and physical forces drive thesestrategic shifts in the global economy. These five factorsshape business planning and specifically how executivesand directors must think about their people and the criticalrole they play in the firm’s strategy and value creation. Thetraditional model of the employee completing assignedtasks is of little value in a dynamic world where humancreativity and initiative are the driving success factors.In the 21st century, where technology is changing at anunprecedented rate, the primary impetus for Axiata’sprogress is, in the words of Tan Sri Ghazzali S A Khalid,independent director of Axiata, “a function of the level ofintellectual development and the training of high qualitybrains” — the basic requirements necessary to drive thetechnology in the telecom sector.It begins with Axiata’s team at the top. The CEO, Chairand board, are examples of Axiata’s innovative approachto talent development. The recruitment of the board ofdirectors itself represented the first exercise in selectingand developing talent to support the new strategy.CEO Jamaludin’s belief that talent development is a goal,just like profits, was a new way of thinking about humanresources — one he sees as critical if Axiata is to becomewhat he calls a “holistic regional champion”. The new CEOalso recognised that his growth strategy required that Axiataattract talented young and mid-level executives based oninteresting work, opportunities for personal developmentand a chance to make a meaningful contribution.“The Axiata board is committed to talent development asa core value. Most boards espouse talent developmentbecause it is professional, but our board lives thatcommitment. During the 2009 economic crisis we reducedour revenue projections and cut expenses across the boardexcept for talent development. The board’s commitmentremained steady to becoming a leading company based onstrong human capital.” CEO Jamaludin states.One of Axiata’s new remits in human capital developmentwas to build a talent pool so that 80 percent of the executiveand middle management positions are filled from withinthe company, with the remaining 20 percent external hires.Abstract of Case Study“Axiata: A Passion for Performance and People”Within the pool of existing employees, as a rule of thumb,70 percent would be nationals of the respective countriesin which the subsidiaries operate, 20 percent from withinthe Group and 10 percent with foreigners from outside theGroup.This succession plan based on developing internal talentmeans that Axiata needs to become what Jamadulin calls,“A Talent Factory.”The Axiata Talent Council was another important step atthe operating level to align all the firm’s companies aroundleadership development activities such as identifying,developing and filling key positions, and remuneration.The Talent Council was created to support this goalby developing a new partnership between the humanresources department and senior executives running thecompanies.The Axiata board regularly discusses and appraises howeffectively the talent development efforts are identifyingpotential candidates within and outside the Axiata group.This is especially true in the appointment of CEOs and CFOsat the various operating units, which involves a rigorousprocess from selection to appointment. Yet, despite thecomprehensive talent development planning for succession,Axiata has not as yet addressed the succession plan for itscurrent CEO Jamaludin. His contract has been extended foranother three years with an option to extend for anothertwo years.There is also another important dimension to Axiata’stalent development focus that is reflected in the firm’scorporate social responsibility (CSR) initiatives for theexternal community. Khazanah, through its Silver Book onCSR, encourages its GLCs to give back to society in order toimprove the social and economic conditions of the countriesin which it operates beyond developing locally relevantproducts and services. The Silver Book strongly encouragesthat CSR should be more than just economic support andthat the GLC should strive to find ways to align its CSR withits core strategies and business activities.Extending its talent development as an education platform,Axiata has invested in a social development programmewith a slight twist, “Our passion is to help develop futuremanagers and engineers who have leadership skills, cancommunicate through writing, speaking and challengingothers, think critically and have a positive attitude aboutthemselves and the world,” states CEO Jamaludin.This case study was written by Professor Randel S. Carlockof INSEAD for MINDA. This case is not for publication andis based on personal interviews and various media reports.

FEATURED ARTICLES _ARTICLE THREEIs Board of Directors Relevant?by Datuk Dr Syed Muhamad Syed Abdul KadirPreambleThis article attempts to show that the actions taken bythe regulators to ensure directors of companies are ableto perform their roles and responsibilities are acceptablestrategies. But it is argued these actions show “what”the directors must do. While indicating or prescribing andfocusing on “what must be done” by directors is necessarybut not sufficient to create effective boards. It is imperativethat directors should not only know what are theirresponsibilities but must also garner their energies to focuson “how” to ensure effectiveness prevails in the companies.It is argued that focusing on the “how” will make directors“relevant” to the companies. This article attempts toprovide some insights on the issue.IntroductionThe articles of association of a company specify that thebusiness of the company has to be managed by a groupof persons called “directors”. This is provided in detail inArticle 73 of Table A of the Companies Act 1965. In addition,the Companies Act 1965 also defines the term “directors”,duties and liabilities of directors and also restrictions ondirectors in performing their duties. 1 The provisions inthe mentioned act and the articles of association of thecompany have the objectives to indicate what directorscan do and what they cannot do which imply to determinethe scope of responsibilities of directors. Companies whichare listed on Bursa, the directors are subject to CapitalMarket and Services Act, Bursa Listing Requirements andMalaysian Code on Corporate Governance. In the case ofcompanies that fall under the ambit of licensed financialinstitutions, the directors are also subject to the Bank andFinancial Institutions Act 1989 and Bank Negara guidelines.In summary, all the above provisions attempt to determinethe responsibilities of directors, what are expected out ofthem and also defined the liabilities of directors. Again,emphasis on the “what”, and less on the “how”.Besides the above regulatory requirements, MinorityShareholder Watchdog Group (MSWG) established on thegovernment initiative in 2000 also monitors the corporategovernance activities of the listed companies. Theprogrammes and activities undertaken by MSWG, directly orindirectly, touch on the responsibilities of directors of listedcompanies. In addition, there are many training institutionsand providers that conduct training to ensure directors areconversant with their roles and responsibilities. Some ofthe programmes are made mandatory and there are thosethat are treated as optional or voluntary. Examples of suchinstitutions are MINDA, FIDE and ICLIF. These actions can beconsidered as proactive initiatives so as to ensure directorsare able to perform their roles and responsibilities.Based on the above, it is seen clearly that the regulators areconcerned for directors to know their responsibilities andto operationalize their concerns is by establishing traininginstitutions and/or organising training programmes. Theseactions are certainly welcome by the shareholders.While the above actions are very logical steps to elevatethe capability of directors and also to enhance corporategovernance, it is equally importance to know and identifythe underpinnings of the roles and responsibilities of Boardof Directors.7BOARD VIEW_SEPTEMBER 20111Sections 131 and 132 of the Companies Act 1965 provide detailed provisions.

article threeMALAYSIAN DIRECTORS ACADEMY 8Underpinnings Roles and Responsibilities of Board of Directors.Most of the articles on boards of directors have been prescriptive in nature focusing on what are the duties of directorsshould be. There are extensive articles published that deal with the legal liabilities of directors. The main reason of thistrend in the literature is based on the assumption that the interest of the investors must be protected. This protectionis against the promoter who would knowingly sell stocks for more than it is worth; executives or directors who couldmisappropriate corporate assets; a harmful collusion between management and majority shareholders; and ‘insiders’whose privileged information could allow them to knowingly buy shares from investors for less than their worth. 2 The needto protect investors has grown because of the dwindling control of ownership as conceptualised by classic study by Berleand Means. According to Berle and Means:As the ownership of the corporate wealth has become more widely dispersed, ownership of that wealth and control over ithave come to lie less and less in the same hands. Under the corporate system, control over industrial wealth can be and isbeing exercised with a minimum of ownership interest. Conceivably it can be exercised without any such interest. Ownershipof wealth without appreciable control and control of wealth without appreciable ownership appear to be the logical outcomeof corporate development. 3Berle and Means contend that the enormous power held by those who manage the corporation must be regulated for theprotection of those whose investments are involved. Based on this concern by Berle and Means, Peter Drucker contendsthat “it is becoming increasingly clear that top management will not -- and in large corporation must not -- be permittedto operate without an effective board”. 4 The board of directors must consider the interests of the various stakeholders ofIs Board of Directors Relevant?the corporation. There are many researchers who have done work on the area and the table below shows the matrix ofcontributions by the various researchers.ByDatuk Dr Syed Muhamad Syed Abdul KadirMatrix Matrix of of Contributions by Researchers 5 5BOARD MANAGERIAL FUNCTIONSDecision AreasDetermination of objectivesApproval of major policiesApproval of company orgApproval of budgetsApproval of major programsSelection outsider auditorSelection of sales rep.Matters requiring share-holders' actionsAnalysisFuturity (Forecasting)ReviewingComparisonUse of committeeAvailability of informationPlanningControlBoard OperationVanceWommackTashakori & BoultonPriceMaceLynchLoundonLewisLaggesKoontzDruckerCopeland & TowlBakerBacon & BrownAndrewx x x x x x x x x x x x x x xx x x x x x x x x x x x x x xx x x x x x x x x x x x x xx x x x xx x x x x x x x x x x x x x xx xxx x x x x x x x xx x x x x x x x x x x x x x xx x x x x x x x x x x x x xx x x x x x x x x x x x x x xx x x x x x x x x x x x x x xx x x x x x xx x x x x x x x x2Lynch, J., Activating the Board of Directors – A Study of the process of increasing Board Effectiveness, Unpublished DBA dissertation,Harvard University,The1979.table above shows the findings of the researchers that the Board Managerial functions can be3Berle, A and Gardiner C. Means., The Modern Corporation and Private Property, New York: The Macmillan Company, 1968. (Revisedcategorized into four main areas namely the decision making, planning, control, and board operation. WithEdition)4the exception of few functions, the rest are (i.e. the functions) equally agreed upon by the researchers.Drucker, P., The Practice of Management, New York: Harper and Brothers Publisher, 1954.5Syed Muhamad Abdul Decision Kadir., making Board on of the Directors eight strategic and Organisational areas can be inferred Performance, as the choices Ph.D dissertation which are concerned published with by Garland the Publishing,Inc. New York & London., viable long 1991 term pg. health 45. of the organization. As the representatives of the owners/shareholders, board of5 Syed Muhamad Abdul Kadir., Board of Directors and Organizational Performance , Ph.D dissertation published byGarland Publishing, Inc. New York & London., 1991 pg. 45.

article threeThe table above shows the findings of the researchers thatthe Board Managerial functions can be categorised into fourmain areas namely the decision making, planning, control,and board operation. With the exception of few functions,the rest are (i.e. the functions) equally agreed upon by theresearchers.Decision making on the eight strategic areas can be inferredas the choices which are concerned with the viable longterm health of the organisation. As the representativesof the owners/shareholders, board of directors have toanalyse and scrutinise the proposals submitted by theoperating management on the strategic areas in order toreach the decision best suited for the company.Planning can be considered a vital function of a companyboth as a method of adapting to market forces and as ameans of shaping the market and the total environment –the “what”. Boards of directors do not design or formulatethe planning system for the organisation, but by requiringthe operating management to submit or conduct long-termevaluation and forecasting of opportunities, boards areactually instituting planning requirements in the companies– the “how”. As more analysis is performed by boardsof directors on the activities of the company, there is agreater tendency to seek the best probable solution andan increased likelihood the company performance can beenhanced.The control function can encompass many different forms,including financial, human resources and administration.This function is meant to ensure that the company’sresources are utilised for tasks that are consistent withthe needs and goals of the company – the “what”. As suchboards of directors must be conversant with and fullyaware of what is going on in the company. By reviewingcurrent policies, programmes, and overall performance ofthe company, and by comparing the current results withthe budgeted and previous results, the “how”, boards ofdirectors can become conversant on the operation of thecompany.generalised that by performing these strategic functionseffectively, boards can ensure that the company is “doingthings right and doing the right thing”.The strategic management functions discussed abovewould contribute significantly to ensure that the companywould attain certain level of effectiveness. It is equallyimportant the boards of directors are conversant with theunderpinnings of company/organisational effectiveness.There is no one best criterion to assess company/organisational effectiveness, most researchers tend toagree the company/organisational effectiveness refersto the degree of long-term goal attainment. As such it isexpected that the boards of directors have to ensure thatthe companies always attain a high level of effectiveness.It is interesting to note that boards of directors can play aneffective role to ensure that the company is “doing thingsright and doing the right thing”. The above elaborationtends to answer the issue of “doing the right thing” whereboards of directors will perform the strategic managementfunctions which will lead for the company to have properstrategies, planning functions, control mechanisms andinformation flows. The strategic management functionsare well established discipline and the frameworks areeasily available. It is not surprised to notice most boards ofdirectors undertake the strategic management functionsbut the results tend to be diverse even in the same industryor sector. One of the main contributing reasons for this is“doing things right” is company specific unlike “doing theright thing”.It is argued that boards of directors that focus on “doingthe right thing” – the “what” satisfy their existence to be anecessary entity but not sufficient to justify their effectiveexistence. However, to make them relevant, boards ofdirectors have to focus on “doing things right” – the “how”besides “doing the right thing” – the “what”. “Doing thingsright” will differentiate between a dynamic and effectiveboards of directors and the ineffective boards of directors.9BOARD VIEW_SEPTEMBER 2011Board’s operation refers to the manner in which boardswould organise themselves to perform their strategicmanagement functions for the company, the “what’. Boardsorganise themselves to secure information through formalor informal meeting, creation of committees to undertakespecific duties, to engage consultant to perform specifictasks which are relevant to the company. These functions,identified by the various researchers, are considered asstrategic roles of the board as they are identified as activitiesthat will ensure the existence of effective boards. It can beHow to be RelevantThe process to ensure the existence of a relevant boardstarts at the point of selection. It is essential that theNomination Committee of the board assesses the potentialcandidate to be a member of the board of the company.Some of the areas that should be considered are in terms ofthe person’s caliber, credibility and possesses the necessaryskills and experience to bring an independent judgment onthe issues of strategies, performance and resources of the6Drucker, P. Management: Tasks, Responsibilities, Practices, New York: Harper and Row Publishers, 1974.7Price, J.L., “The study of Organisational Effectiveness”, The Sociological Quarterly, Vol. 13 No. 1, Winter 1972, pp3-15; Mohr, L.B.,“The concept of organisational goals”, The American Political Science Review, Vol. 68 No. 2 June 1973, pp470-471.

article threeMALAYSIAN DIRECTORS ACADEMY 10company in relation to the industry and/or sector. It is alsouseful to assess that the candidate possesses the interestto take care the interests of the stakeholders includingshareholders, employees, and customers. However, theassessment by the Nomination Committee has to be ona continuous basis whereby along the way, the director’scapacity and capability can be assessed, among others, interms of his commitment, effective participation in board’sdeliberation, positive values that the director is able toadd to the company, the right attitude, and the continuousattempt and interest to educate and train himself in theareas relevant to the company.The assessment will enable the company to identifydirectors who are committed to its mission; it also drawsdirectors who are relevant to the needs of the companyand also the otherwise. The relevant directors tend toaddress the changing external environment and evolvingstrategic priorities of the company and also seek tocontinuously improve the performance of the company andits interconnectedness with community and stakeholders itservices. In short it is imperative that directors must possessthe attitude to be proactive and continuously to search foravenues to enhance the effectiveness of the company.While the company can do its assessment of the directors inorder to have the right directors, it is equally acceptable thatthe directors must also assess themselves. It is acceptablethat the selection process to appoint directors will notalways result in the appointment of the right candidatesdue to a number of possible reasons. As such directorshave an important role to play to ensure the existence ofrelevant boards. Directors have to be objective in appraisingthemselves as individuals in order to facilitate the companyto have effective and relevant boards. Directors have toask themselves (no doubt it is difficult) as to whether theyhave the right capability and capacity to be the directorsi.e. can I make an impact to the company; or do I have theopportunity to make the difference to the company; or doI add value to the company; or what skills, contacts, andperspectives do I have that will be useful to the company. Itis not denied that these are difficult questions for directorsto objectively answer them, but if they can put the interestsof the company above their personal interests, it is perhapsactions that can facilitate the company to strive its journeyfor the benefits of the stakeholders. This proposition maysound to be ideal but sooner or later the reality will existbecause capability and capacity could be noticed easilyin the operations of the boards of directors. In the finalanalysis it is the directors that can ensure that the existenceof the board is relevant. It is safe to say that interventionswill always be prevalent if boards of directors are assessedto “not doing things right and not doing the right thing”.Interventions by the other parties to activate boards ofdirectors may be one of the ways but is it effective?ConclusionThe primary objective is to incite discussion on the rolesthat boards of directors and to suggest (perhaps notcomprehensive enough) ways how directors can facilitateto make boards of directors as a relevant entity. Views andconstructive comments on the article will certainly providea better and deeper understanding on the issue.Datuk Dr Syed Muhamad Syed Abdul KadirYBhg Datuk Dr Syed is the Chairman of CIMB IslamicInvestment House BSC (C), Bahrain and CIMB-PrincipalIslamic Asset Management Sdn Bhd. He is also a Director ofBumiputra-Commerce Holdings Berhad (BCHB), CIMB Groupand CIMB Bank, Euro Holdings Berhad, Solutions EngineeringHoldings Berhad and a number of private companies.Datuk Dr Syed graduated with a Bachelor of Arts (Hons)degree from the University of Malaya in 1971. He obtaineda Masters of Business Administration degree from theUniversity of Massachussets, United States of Americain 1977 and Ph.D (Business Management) from VirginiaPolytechnic Institute and State University, United Statesof America in 1986. In 2005, he obtained a Bachelor ofJurisprudence (Hons) degree from the University of Malayaand obtained a Certificate in Legal Practice in 2008.

FEATURED ARTICLES _ARTICLE FOURInnovation, Change and Governanceby John ZinkinBusinesses must innovate if they are to survive and prosper. Innovation is as natural as evolution, and for the same reasons.However, for innovation to flourish people and organisations must be willing to change and we all know how resistantwe are to change. We fear change because it is not always obvious that we will be better off as a result. This is wheregovernance has a role to play, for it is good governance that helps make the world a better place rather than a worse one.11BOARD VIEW_SEPTEMBER 2011Innovation Is As Natural As EvolutionBusinesses have customers, unlike governments whichhave subjects and citizens. The difference is fundamental.Customers have choices which they exercise every daywhen they make the decision to buy or go elsewhere.Citizens and subjects can only vote out governments everynow and again, but they can do little about choosing whichgovernment department to use unless they are willingto emigrate. We cannot decide to use another country’simmigration department or police because we aredissatisfied with the way they treat us. Yet as customers,with the exception of monopolies, we can exercise our rightto choose a better service or product as a matter of course.That is the foundation of competition.Businesses have to compete for customers and resources,just as all species on the planet have to compete to survive.Charles Darwin’s words about evolution apply equally tobusiness competition:“In the struggle for survival, the fittest win out at theexpense of their rivals because they succeed in adaptingthemselves best to their environment.”“It is not the strongest of the species that survives, northe most intelligent that survives. It is the one that isthe most adaptable to change.”It becomes even clearer that the struggle for businesssurvival is comparable if we add the word “innovative” to“adaptable”. One of the ‘Red Flags’ analysts look for whenfollowing stocks is a company’s track record in innovation,on the grounds that an ability to innovate helps guaranteefuture profitability, making the stock a good pick.It is perhaps worthwhile defining what is meant byinnovation and showing where Malaysia fits in the globalinnovation index. In business, innovation is defined asfollows:“The process by which an idea or invention is translatedinto a good or service for which people will pay, orsomething that results from this process.“To be called an innovation, an idea must be replicableat an economical cost and must satisfy a specificneed. Innovation involves deliberate application ofinformation, imagination, and initiative in derivinggreater or different value from resources, andencompasses all processes by which new ideas aregenerated and converted into useful products”http://www.businessdictionary.com/definition/innovation.htmlAn innovation therefore is something for which people areprepared to pay because it is relevant to them and it changestheir lives in ways they appreciate, whereas an inventionmay not be relevant and may not make a difference theyvalue. This is perhaps the reason why more than 90% ofinventions fail – they just do not connect with the changespeople are looking for and for which they are prepared topay.Not all innovations are the same. Even so they can usuallybe divided into two families: evolutionary and revolutionaryinnovation. Evolutionary innovation is represented by anumber of incremental improvements in technology orprocesses (best captured by the Japanese term ‘kaizen’which refers to continuous improvement) and can be

article fourMALAYSIAN DIRECTORS ACADEMY 12further subdivided into two groups: continuous anddynamic continuous innovation. Straightforward continuousinnovation is the result of a change in product characteristicsor performance which does not require the user to learnnew skills or a different routine to use the product orservice. Changing from desktop to laptop computer wouldbe a good example: the user does not have to learn newsoftware nor how to use the keyboard differently – the onlydifference is that the laptop provides mobility whereas thedesktop does not. On the other hand dynamic continuousinnovation does require some user learning, but withoutdisrupting the user routine. Examples of this are the faxmachine which is a modification of making a phone call – sothe routine is no different even though the application is.Discontinuous innovation, also called disruptive innovation,is revolutionary. Learning to use the telephone, personalcomputer, Walkman or Internet when they were firstintroduced, demanded a change of routine by the new userand took time and effort to master.The problem with making innovation succeed is thatit requires risk-taking and a change in behaviour.Evolutionary innovation is less risky than discontinuousinnovation because it does not require a dramatic changein the behaviour of prospective users of the new productor process – and dramatic changes may be sufficientlydisruptive to traditional patterns of behaviour so thatpeople are not willing to try the new product, even thoughit meets their latent needs. Being first mover in a marketis not always as advantageous as is implied by the phrase“first mover advantage”. It is true that if a company is ableto get a head start over its competitors, it may becomevery difficult for them to catch up; but it is also true thatfirst movers have to spend a great deal of money creatingawareness of their products, and they make may fatalmistakes from which they cannot recover. This is why itis often best to be second into a market, benefitting fromthe investments in demand creation of the first mover andlearning from their mistakes.There are therefore good rational grounds for being cautiousabout innovation as well as the more normal emotionalreasons for not welcoming it – the fear of change and theinertia most people have that prevents them from tryingout something new and unknown. However, if Malaysiais to break out of the middle income trap and achieve theambitious goals set in the New Economic Model, we mayhave to improve our rate of innovation, both in adoptingnew processes and ways of doing business and in developingnew products and services to offer the world. As Malaysia’sranking in the world innovation index below shows, we arenot doing badly in 22 nd place. Only Singapore, South Korea,Hong Kong, Japan, and China are ahead of us, with Indiaand Thailand trailing us among Asian countries receivinga positive overall score. Nevertheless we cannot afford tobe complacent, because we are still way behind Singapore,South Korea, Hong Kong and Japan – all countries, likeMalaysia, heavily dependent on exports for growth.The difference in their scores on innovation performanceis more worrying – the ability to apply ideas to developnew products and processes – shown in bold in the lastcolumn of Table 1. What is notable is the margin by whichall the countries mentioned above are able to outperformMalaysia – in particular China, suggesting that they arebetter able to change how they do things, which brings usto the importance of being able to manage and implementsuccessful change – Charles Darwin’s adaptability.

article fourTable 1: Ranking in World Innovation IndexRank Countries achieving positive scores Overall Innovation Inputs Innovation Performance1 Singapore 2.45 2.89 2.012 Switzerland 2.16 1.52 2.753 South Korea 2.15 1.75 2.554 Iceland 2.11 2.21 2.015 Finland 2.02 2.01 2.026 Hong Kong 1.82 1.77 1.857 Ireland 1.81 1.78 1.848 Japan 1.80 1.28 2.259 United States 1.66 1.16 2.1610 Sweden 1.56 1.25 1.8811 Netherlands 1.54 1.40 1.5512 Denmark 1.52 1.55 1.4913 Luxembourg 1.52 1.02 2.0314 Israel 1.44 1.34 1.4315 Canada 1.36 1.39 1.3216 United Kingdom 1.35 1.33 1.3717 Austria 1.16 1.16 1.1218 Norway 1.15 1.16 1.1119 France 1.06 1.17 0.9620 Spain 1.03 1.02 1.0321 China 1.03 0.06 1.9622 Malaysia 0.96 0.89 1.0123 Australia 0.93 0.89 1.0524 Estonia 0.91 1.50 0.2525 Belgium 0.86 0.85 0.7926 Germany 0.81 0.79 0.8427 New Zealand 0.77 0.79 0.6928 Cyprus 0.63 0.64 0.5629 Portugal 0.60 0.92 0.2230 Qatar 0.52 1.02 0.0231 Hungary 0.51 0.80 0.1832 Malta 0.39 0.24 0.5433 Slovenia 0.37 0.47 0.2434 Czech Republic 0.34 0.88 -0.1035 South Africa 0.33 0.15 0.4736 Bahrain 0.27 0.78 -0.2637 Chile 0.24 0.36 0.0438 Italy 0.21 0.16 0.2439 Slovakia 0.19 0.72 -0.3140 Tunisia 0.16 0.64 -0.3241 Greece 0.12 0.02 0.2242 Latvia 0.11 0.36 -0.12-- Lithuania 0.11 0.64 -0.4044 India 0.09 0.12 0.04-- Thailand 0.09 -0.24 0.3646 Kuwait 0.08 0.64 -0.3647 Croatia 0.06 0.32 -0.2148 Trinidad and Tobago 0.05 -0.24 0.3649 Bulgaria 0.04 0.48 -0.36Source: ”The Innovation Imperative in Manufacturing: How the United States Can Restore Its Edge.” BostonConsulting Group, March 2009, pp25-613BOARD VIEW_SEPTEMBER 2011

article fourMALAYSIAN DIRECTORS ACADEMY 14Importance of not fearing changeIn 1996 Andy Groves of Intel famously wrote, “Only the paranoid survive” i , introducing his book with the following quotationfrom Joseph Schumpeter’s Capitalism, Socialism and Democracy written in 1942:“But in capitalist reality, as distinguished from its textbook picture, it is not (price) competition which counts but thecompetition from the new commodity, the new technology, the new source of supply, the new type of organisation…competition which… strikes not at the margins…of existing firms but at their foundations and their very lives.”If we accept that innovation and the associated change strike at the very heart of businesses’ ability to survive, we mustthen ask ourselves why the enemies of change are so powerful. Part of the reason is marketing myopia ii ; part of it is therational defence of vested interests within and outside the organisation because change creates losers as well as winners.Table 2 below lists quotes of people, who should have known better, suffering from marketing myopia:Table 2: Examples of Marketing Myopia“Everything that can be invented has been invented.” Charles H. Duell, Director of US Patent Office 1899“Sensible and responsible women do not want to vote.” President Grover Cleveland, 1905“There is no likelihood man can ever tap the power of the atom.” Robert Miliham, Nobel Prize in Physics, 1923“Heavier than air flying machines are impossible.” Lord Kelvin, President, Royal Society, 1895“The horse is here today, but the automobile is only a novelty - a fad.” President of Michigan Savings Bank advisingagainst investing in the Ford Motor Company“Video won’t be able to hold on to any market it captures after the first six months. People will soon get tired ofstaring at a plywood box every night.” Daryl F. Zanuck, 20th Century Fox, commenting on television in 1946“What use could the company make of an electric toy?” Western Union, turning down rights to the telephone in 1878Perhaps the more important reason for firms being unable to embrace innovation easily comes from failures of leadershipand the lack of ability to manage change proactively. Table 3 below shows what it takes to be able to be creative andembrace change and some of the powerful obstacles to being successful in that process:

article fourTable 3: What it takes to be creative and embrace changeIf the ability to be creative, to innovate and to change successfully depends so heavily on not being afraid to fail, on thewillingness to think differently, on committing to continuous improvement and on curiosity, how can organisations whichhave cultures of blame, shaming those who fail, are subject to groupthink and the pressure to conform and that have anexcessive focus on short-term results with an intolerance for disruptive experimentation be successful innovators?The surprising answer lies in their corporate governance.What it takes to be creative and embrace changePowerful obstaclesThe willingness to fail:Fear of failure and culture of shame“An inventor is simply a person who doesn’t take his education too seriously. You see,from the time a person is six years old until he graduates from college he has to takethree or four examinations a year. If he flunks once, he is out. But an inventor is almostalways failing. He tries and fails maybe a thousand times. It he succeeds once then he’sin. These two things are diametrically opposite. We often say that the biggest job wehave is to teach a newly hired employee how to fail intelligently. We have to train himto experiment over and over and to keep on trying and failing until he learns what willwork.” Charles Kettering15BOARD VIEW_SEPTEMBER 2011“Success is on the far side of failure” Thomas Watson Sr.“The essential part of creativity is not being afraid to fail” Edwin H. Land“If you’re not prepared to be wrong, you’ll never come up with anything original.” SirKen RobinsonThe willingness to think differently:“That so few now dare to be eccentric marks the chief danger of our time” JohnStuart MillGroupthink and the pressure to conform“The uncreative mind can spot wrong answers, but it takes a very creative mind tospot the wrong questions” Anthony Jay“Innovation - any new idea – by definition will not be accepted at first. It takesrepeated attempts, endless demonstrations, monotonous rehearsals before innovationcan be accepted and internalised by an organisation. This requires courageouspatience” Warren Bennis“Some men look at things the way they are and ask why? I dream of things that arenot and ask why not?” Robert Kennedy“In every work of genius, we recognise our once rejected thoughts” Ralph WaldoEmersonContinuous Improvement (Kaizen)“There’s a way to do it better – find it.” Thomas EdisonComplacency and Inertia (“If it ain’t broke,don’t fix it”)“The things we fear most in organisations – fluctuations, disturbances, imbalances –are the primary sources of creativity.” Margaret J. Wheatley“The achievement of excellence can only occur if the organisation promotes a cultureof creative dissatisfaction.” Lawrence Miller“Every act of creation is first of all an act of destruction” PicassoCuriosity and ability to “connect the dots”“The creative person wants to be a know-it-all. He wants to know about all kinds ofthings: ancient history, 19 th century mathematics, current manufacturing techniques,flower arranging, and hog futures. Because he never knows when these ideas mightcome together to form a new idea. It may happen six minutes later or six months, orsix years down the road. But he has faith that it will happen.” Carl AllyExcessive focus on short-term results

article fourMALAYSIAN DIRECTORS ACADEMY 16Good corporate governance promotes innovation and changeWhen most of us think about corporate governance, we tend to think about regulation: the rules surroundingWhen most of us think about corporate governance, we tend to think about rules surrounding business setbusiness set by the Securities Commission and Bursa Malaysia. These are viewed as restrictions on what weby the Securities Commission and Bursa Malaysia. These are viewed as restrictions on what we need to do to make moneyneed to do to make money successfully. This is to view corporate governance through the lens of compliancesuccessfully. This is to view corporate only. governance Even in this context, through there are two the reasons lens why of it is compliance not a fair view of what only. the regulators Even in are trying this to context, there are tworeasons why it is not a fair view of what achieve. the regulators are trying to achieve.The first reason is that this view misunderstands the underlying philosophy of the Securities CommissionThe first reason is that this view misunderstandsregulator, shown in Figurethe1underlyingbelow recently expressedphilosophyin their Corporateof theGovernanceSecuritiesBlueprint 2011:Commission regulator,shown in Figure 1 below recently expressed in their Corporate Governance Blueprint 2011:Figure Figure 1: Underlying 1: Underlying Philosophy PhilosophyThree PillarsThreeof DisciplinePillars of DisciplineSelfDisciplineActualConditionMarketDisciplineMoving from rules-based toprinciples-based regulationreflecting market maturityRegulatoryDisciplineRegulatoryDisciplineSelfDisciplineDesiredConditionMarketDisciplineFigure1 shows that the desired condition is less regulatory discipline and more self-discipline and marketdiscipline, but that this depends on the level of maturity of the market. Thus the aim of the regulator is toreduce the amount of rules as soon as the level of good governance, defined through the heightened practicesof self and market discipline, allows this to happen. In other words, the regulator understands the need toreduce the regulatory burden to allow business to get on with the difficult task of making money.Figure1 shows that the desired condition is less regulatory discipline and more self-discipline and market discipline, butthat this depends on the level of maturity of the market. Thus the aim of the regulator is to reduce the amount of rules assoon as the level of good governance, defined through the heightened practices of self and market discipline, allows this tohappen. In other words, the regulator understands the need to reduce the regulatory burden to allow business to get onwith the difficult task of making money.The second reason is that good corporate governance is not just about achieving compliance; much moreimportant, it is about delivering sustainable long-term value creation. This can only be achieved if the boardanswers the following four key questions shown in Figure 2 below:The second reason is that good corporate governance is not just about achieving compliance; much more important, it isabout delivering sustainable long-term value creation. This can only be achieved if the board answers the following fourkey questions shown in Figure 2 below: Figure 2: Creating a sustainablebusiness: Four questions to answerFigure 2: Creating a sustainable business:1)Four business: questions Four questions to answerto answer4)Does the companyhave necessary 4)competencies? Does the companyhave necessarycompetencies?management wantto do?1)What does topmanagement wantto do?Sustainable businesspurpose with long-term“License to Operate”2)What will societyallow the companyto do?2)What will societyallow the companyto do?3)Is the opportunityworthwhile? 3)Is the opportunityworthwhile?Ethical decisionsCommercial decisionsOnce the board has answers to these four key questions, it can then think about the most appropriateapproach to managing its risk and to how it will govern shown in Figure 3 below:Once the board has answers to these four key questions, it can then think about the most appropriateapproach to managing its risk and to how it will govern shown in Figure 3 below:Once the board has answers to these four key questions, it can then think about the most appropriate approach to managingits risk and to how it will govern shown in Figure 3 below:Figure 3: Creating a sustainablebusiness: Figure 3: Creating Risk Decision a sustainable frameworkbusiness:Figure Risk 3: Decision Creating frameworka sustainablebusiness: Risk Decision frameworkMoral Commercialfilter: filter:Ethical Risk-basedMoral strategy decisionsCommercialfilter:dilemmas reflectingfilter:faced by Risk appetiteEthical the firmRisk-based and chosenstrategy decisions treatment ofdilemmas reflecting Riskfaced by Risk appetitethe firm and chosentreatment ofRiskWhat does topSustainable businesspurpose with long-term“License to Operate”Sustainable businesspurpose with long-term“License to Operate”Sustainable businesspurpose with long-term“License to Operate”Ethical decisionsCommercial decisionsRandomGovernancePrincipledRandom GovernanceGovernanceRule basedPrincipled GovernanceGovernanceRule basedGovernanceRisk-basedGovernanceRisk-basedGovernance7Figure 3 shows those elements of governance that matter if long-term value is to be created. The companymust:Figure 3 shows 1. Look those at its elements business of purpose governance through that a moral matter filter if long-term to ensure value that it is to not be doing created. things The that company are wrong;

article fourFigure 3 shows those elements of governance that matter iflong-term value is to be created. The company must:1. Look at its business purpose through a moral filter toensure that it is not doing things that are wrong;2. Evaluate the risk-reward trade-off implied by its riskappetite and the expected rewards it will receive fordoing the business to ensure that it is worth takingthese risks;3. Decide the basis of governance it will adopt to ensurethat the “Tone at the Top” is correct and there areappropriate processes and procedures in place toensure the company adheres to its Mission, Vision andValues. Depending on its level of sophistication and thematurity of its people, the company can choose a rulesbasedor a principles-based approach to governance.The key to good governance is the need for balance betweenhaving processes and procedures which are essential,while allowing enough flexibility for experimentation andtolerance of error essential to innovation. If the companyfocuses totally on rigid procedures and disciplines, there canbe no tolerance of the error that is such an important partof the learning and experimentation that are the foundationof innovation and there can be no flexibility in approachingproblems in ways not set out in the rule book. Equally, ifthere are no processes and procedures and everything isdone ‘by the seat of the pants’, there will be failures ofgovernance leading to fraud and worse. A sensible, balancedapproach to corporate governance should make clear toall in the organisation what its Mission, Vision and Valuesare, emphasising the principles underlying the desiredand expected behaviours and making it quite clear whichbehaviours will be rewarded and which will be punished.The resulting code of conduct should be able to reconcilethe need to create conditions favourable to innovation withthe need for systems and due process.ConclusionCompanies that survive and prosper in the long run are ableto innovate because they recognise the conditions neededto embrace change.They build into their Vision and Valuesfour key ideas:1. It is OK to fail - provided people learn from theirmistakes and the mistakes do not destroy the company;2. They encourage diversity of thinking and unorthodoxapproaches;3. They look for continuous improvement in their productsand processes;4. They value curiosity and the ability to “connect thedots”.Last of all, they underpin these ideas with a sensiblecorporate governance framework that guides people,rewarding desired behaviours and punishing bad practices.JOHN ZINKINMANAGING DIRECTOR, CORPORATE GOVERNANACEICLIF LEADERSHIP CENTREBefore joining ICLIF, John was the CEO of the SecuritiesIndustry Development Corporation (SIDC). John was alsoChairman of the UMSC Audit Committee until the end of2009. Before joining SIDC John was Associate Professorof Marketing and Strategy at Nottingham UniversityBusiness School, Malaysia Campus and director of the MBAprogramme with responsibility for external affairs. One ofthe founders of the Institute of Corporate ResponsibilityMalaysia (ICRM), he is Deputy Chairman, and is nowan Exco member and the Vice President, Sustainabilityand Governance of the Business Council for SustainableDevelopment Malaysia (BCSDM).17BOARD VIEW_SEPTEMBER 2011iGroves, A, (1996), Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company, (Currency Doubleday, NewYork)iiLevitt, T.C. (1960), “Marketing Myopia”, Harvard Business Review, July-August 1960. Levitt defined Marketing Myopia as a short-sightedfocus on the company’s needs rather than understanding what its customers need and want. By omitting to ask the vital question “Whatbusiness are we really in?” companies fail to foresee and adjust to changes in their markets brought about by innovation. An example ofsuch short-sightedness would be of the transatlantic luxury liner companies competing with each on the time taken to go from Europeto the US without realising they were creating a market for the aeroplane by emphasising the importance of speed – something aircraftcould deliver much better than ships, putting them out of business once transatlantic flight became viable.

FEATURED ARTICLES _ARTICLE FIVEMALAYSIAN DIRECTORS ACADEMY 18While this situation creates opportunities for activistinvestors like Whitworth and others, it speaks to a lack ofcorporate accountability. While this situation Robert creates Pozen, opportunities chairman for emeritusactivist investorsInvestment like Whitworth Management and others, and it a speaks senior to a lecturer lack of corpo-atof MFSHarvard rate Business accountability. School, Robert says Pozen, the chairman structure emeritus and size of MFS ofcorporate Investment boards has Management kept them and from a senior being lecturer effective. at Harvard Whatsome refer Business to as School, the “collegiality says the structure of the and boardroom,” size of corporate Pozen boardscalls “social has kept loafing,” them from where being effective. procedure What and some large refer to group as thedynamics “collegiality take precedence.of the boardroom,” Pozen calls “social loafing,”Pension where funds, procedure insurance and large group companies dynamics and take investmentprecedence.management Pension firms funds, are major insurance market companies players and around investment theworld and management have taken firms a are largely major passive market players role in around corporate thegovernance. world and Asset have owners taken a and largely asset passive managers role in corporate could exert governance.influence Asset owners on companies. and asset managers Certainly, could they exert would con-considerablehave a differentsiderable influenceview ofonthecompanies.company’sCertainly,issuestheyif theywouldhadhaveaa different view of the company’s issues if they had a seat onseat on its board. A recent issue of the McKinsey Quarterlyits board. A recent issue of the McKinsey Quarterly urged institutionsto “step up as owners” to usher in a new ownershipurged institutions to “step up as owners” to usher in a newownership culture for the benefit of the economy and ofculture for the benefit of the economy and of their clients.their clients.Making Boards Betterby Karen Kaneshareholder activism of the past decade. “Unlike Sarbanes-Oxley, in which boards were seen as the solution to thefailures the past in decade. corporate “Unlike accountability, Sarbanes-Oxley, Dodd-Frank in which boards reflects theview were that seen shareholders as the solution must to the be failures empowered in corporate to accountability,Dodd-Frank Gregory reflects said. the view that shareholders musthold boardsaccountable,”be “Boards empowered require to hold boards a culture accountable,” change,” Gregory said said. Fred G.Steingraber, “Boards require former a culture chairman change,” and said CEO Fred of A.T. G. Steingraber, Kearney, themanagement former chairman consulting and CEO of firm, A.T. Kearney, and a veteran the management of 30 publicand consulting nonprofit firm, boards. and a veteran “Directors of 30 public need and to re-examine nonprofit andeven boards. revise “Directors board need committees to re-examine and and committee even revise board work andhow committees this contributes and committee to the work observance and how this contributes of their ‘duty to ofcare’ the observance responsibility. of their It ‘duty requires of care’ new responsibility. skills and It qualificationsrequiresas new well skills as and more qualifications time and as effort well as to more better time understand effort thecompanies to better understand they serve, the companies to provide they effective serve, to provide oversight inrepresenting effective oversight the interests representing of shareholders, the interests of and shareholders,and in holding management accountable.”in holdingmanagement accountable.”Given the headlines on board inaction and the amountGiven the headlines on board inaction and the amount ofof new regulation, boards appear to be largely insulated bothnew regulation, boards appear to be largely insulated bothfrom shareholders and perhaps even the CEO. Consider thatpozen Believes ThaT Boards would Be More effecTiveif They consisTed of “a sMall group of people wiThenough perTinenT experience and sufficienT TiMe Tohold ManageMenT accounTaBle.”Public battles Public battles for board for board seats seats by by activist activist investors such asas Carl Carl Icahn Icahn and and Bill Bill Ackman draw media media attention, attention, but their buttheir efforts are mostly short-term, short-term, focused focused on a single on issue a single for aissue for year a or year two. or There two. have There been few have long-term been few focused long-term efforts byfocused investors efforts by to improve investors specific to improve companies. specific Private companies.equity firmsPrivate working equity firms quietly working behind the quietly scene say behind they have the had scene more say impacthad as they more get impact board seats as they and help get board the companies seats and change helpthey havethe companies from within. change Whitworth from petitioned within. Whitworth the Securities petitionedand ExchangeCommission and Exchange for changes Commission in rule making for changes in 1990 that inthe Securitiesrule making included 1990 proxy that access. included Most of his proxy suggestions access. were Most adopted of hissuggestions in 1992, were including adopted the in short 1992, slate, including but proxy the access short was slate, not.but proxy accessDodd-Frank,was not.which was signed into law in July 2010, clarifiedthat the S.E.C. has authority to implement proxy access.Dodd-Frank, which was signed into law in July 2010,The next month, the S.E.C. adopted rules that allow some largeclarified that the S.E.C. has authority to implement proxyshareholders to nominate directors to a company’s board, butaccess. The next month, the S.E.C. adopted rules thatthe commission has postponed the effective date of the rulesallow some large shareholders to nominate directors to auntil the Washington, D.C., circuit court rules on a lawsuit bycompany’s board, but the commission has postponed thethe U.S. Chamber of Commerce and the Business Roundtable.effective date Many of the call proxy rules access until the the bell Washington, that has already D.C., been circuitcourt rules rung, on giving a lawsuit investors by a the potent U.S. tool. Chamber According of to Commercethe governanceBusiness expert Roundtable.Holly Gregory, the Dodd-Frank bill accelerates aand theMany change call already proxy set access in motion the by the bell shareholder that has activism already ofbeen rung, giving investors a potent tool. According tothe governance expert Holly Gregory, the Dodd-Frank24Qbill accelerates 3 . 2 0 1 1a change already set in motion by thefrom in a survey shareholders of 768 directors and perhaps at 660 of even the 2,000 the largest CEO. publiclyin traded a survey companies, of 76895 directors percent said at 660 they of were the doing 2,000 an largestConsiderthatpublicly effective traded job. In the companies, same survey, 95 the percent CEOs said that they only were one doingan director effective in five job. was In effective. the same survey, the CEOs said that onlyone director The disconnect in five may was be effective. that CEOs and board memberswant The different disconnect things. may By nature, be that CEOs are and ambitious board Type members Awant personalities. different CEOs things. understand By nature, that CEOs boards are ambitious necessary, but Type Apersonalities. few have the benefit CEOs of understand independent that directors boards who are serve necessary, asbut strategic few have sounding the boards, benefit helping of independent them to make better, directors faster whoserve and wiser as strategic decisions. sounding Such CEOs boards, eschew more helping involvement, them to makebetter, fearing that faster more and engagement wiser decisions. would encourage Such directors CEOs eschew tomore meddle involvement, day-to-day operations. fearing that At the more same engagement time, directors wouldrate themselves as effective at board committee work, overseeingcompliance with legal and regulatory oversight.encourage directors to meddle in day-to-day operations.At the same time, directors rate themselves as effective atOne signal about just how repugnant business leadersboard committee work, overseeing compliance with legalfind the idea that shareholders might nominate directors isand regulatory oversight.the fact the U.S. Chamber of Commerce made the defeat ofOne signal about just how repugnant business leadersproxy access its highest priority. The current legal challengefind can the be seen idea as that a last shareholders gasp effort to stop might it. nominate Whitworth directors sees isthe implementation fact the U.S. as Chamber inevitable, of but Commerce he believes made it will the be used defeat ofproxy sparingly, access given its highest the requirements. priority. “In The the current universe legal of shareholders,be seen there as are a last very gasp few, perhaps effort to 230 stop shareholders it. Whitworth of seeschallengecanimplementation as inevitable, but he believes it will beused sparingly, given the requirements. “In the universe ofshareholders, there are very few, T h e perhaps K o r n / f e230 r r y shareholdersi n s T i T u T e

article fiveof Fortune 500 companies globally, that have the required an important element in keeping them invested. Mostholdingsof 3 percent and have held it over three years. Still, importantly, boards need to demonstrate leadership, whichit’s a very important shareholder tool, reminding boards has been lacking, with a transparent results-orientation inthat shareholders are the ultimate owners of the company.” the conduct of their work.” Compensation remains a hotBoards are likely to see proxy access as a signal for button for most shareholders, especially when the boardselfcorrection by removing the obvious vulnerabilities that chairman and CEO is the same person.might attract activist shareholders, according to Whitworth. “Give me the U.K. model of a separate chairmanBoards are likely to make changes on their own if they and CEO,” Ubben said. He acknowledges that the dualhave a member who has a conflict of interest with related responsibility for management and its oversight isparties, is overboarded, has a poor attendance record or embedded in the current system and may require legislationhas exceeded retirement guidelines.to change it. Currently, the S.E.C. requires a board toThe allegation that single-issue activists would be describe its structure, explaining why it adds value. “I wantdisruptive overlooks the fact that any board candidate has an independent chairman, a second line of defense for myto get majority support and, once elected, has a fiduciary rights as a shareholder,” Ubben said. “I want a chairmanresponsibility to all shareholders. “If I were to one-time try who can talk to shareholders, separate from the CEO.”to advantage my L.P.s [limited partners] at the expense ofFortune 500 companies globally, that have the required holdingsof 3 percent and have held it over three years. Still, it’s a functioning to the conflict. work groups “They whose don’t members see it. How trust could and challenge they? Whojob. Those “Boards who need currently to transform carry themselves both titles into are strong, naturally highly blindthe other shareholders, I would be immediately discreditedin the boardroom and by the mutual fund investors whovery important shareholder tool, reminding boards that shareholdersare the ultimate owners of the company.”role shareholders Whitworth puts play: They it more are the bluntly. owners “Who of the wouldn’t company want toone wouldn’t another,” want he said. to be “Directors his own also boss?” need to recognize thefollow me, and I would lose all good will,” said Jeff Ubben,CEO and founder of ValueAct Capital, a private equityBoards are likely to see proxy access as a signal for selfcorrectionby removing the obvious vulnerabilities that might in their keeping own them pay?” invested. Whitworth Most importantly, asked. boards need toand use board-shareholder other people’s money engagement and set is an their important own agenda element and setpartnership that has made investments in 60 companiesover the past 10 years and has taken board positions in 25attract activist shareholders, according to Whitworth. Boards demonstrate Chairmen leadership, play an which important has been governance lacking, with role transparentsaid results-orientation Piers Diacre, publisher in the conduct of IPE of Magazine, their work.” a Europeanin Britain,of those companies.are likely to make changes on their own if they have a memberwho has a conflict of interest with related parties, is over-“Board directors aren’t bad guys, but they have never publication Compensation for remains institutional a hot button investors, for most and shareholders,of especially corporate when governance the board chairman practices. and “Here, CEO is our the same chairmenan observerwritten a check to participate in the company, and so thereboarded, has a poor attendance record or has exceeded retirementguidelines.person. communicate directly with shareholders. Since the boardis little alignment with shareholders,” Ubben said. “Mostdirectors have stock by virtue of compensation for servingThe allegation that single-issue activistsis responsible for determining the nature and extent ofas directors. It is perhaps too much to expectwould be disruptive overlooks the fact that anythem to do their own digging, to learn about theboard candidate has to get majority support and,company and the industry independent of whatonce elected, has a fiduciary responsibility tothe CEO is telling them. And it is very unusualall shareholders. “If I were to one-time try tothat a director that has direct experience inadvantage my L.P.s [limited partners] at thethe industry will be sought out by the CEO forexpense of the other shareholders, I would beinvitation to the board.”immediately discredited in the boardroom andPozen has proposed a new board modelby the mutual fund investors who follow me,based on his concern that most directors don’tand I would lose all good will,” said Jeff Ubben,have enough relevant experience and don’tCEO and founder of ValueAct Capital, a privatespend enough time on the company’s work. Heequity partnership that has made investmentsbelieves that boards would be more effectivein 60 companies over the past 10 years and hasif they consisted of “a small group of peopletaken board positions in 25 of those companies.with enough pertinent experience and sufficient“Board directors aren’t bad guys, but theytime to hold management accountable.”have never written a check to participate in theTypically, boards meet five or six times a yearcompany, and so there is little alignment withfor a day each time, with conference calls inshareholders,” Ubben said. “Most directors havebetween, hardly enough time for directors tostock by virtue of compensation for serving askeep abreast of the global operations of a largedirectors. It is perhaps too much to expect themcompany. He advocates that this smaller groupto do their own digging, to learn about the companyand the industry independent of what theof directors spend at least two days a month oncompany business between board meetings.CEO is telling them. And it is very unusual that aIf directors are going to make such a time commitment,director that has direct experience in the industry will be the “Give significant me the U.K. risks model the company of a separate is willing chairman to and take, CEO,” it’s nottheir compensation should be doubled to about $450,000.sought out by the CEO for invitation to the board.”Ubben unusual said. for He the acknowledges chairman to that explain the dual the responsibility company’s business forDirectors should also be restricted to serving on just twoPozen has proposed a new board model based on his management model as well and as its the oversight formal is embedded performance in the evaluation current systemboard and may as a require whole.” legislation to change it. Currently, theof theboards.concern that most directors don’t have enough relevantSteingraber agrees that effective board work is a biggerexperience and don’t spend enough time on the company’s S.E.C. It requires might be a board well for to describe directors its to structure, consider explaining that governancejob. “Boards need to transform themselves into strong,work. He believes that boards would be more effective if they why concepts it adds value. originating “I want an outside independent the United chairman, States a second have ahighly functioning work groups whose members trust andconsisted of “a small group of people with enough pertinent line history of defense of moving for my rights into as the a shareholder,” American mainstream Ubben said. “I ratherchallenge one another,” he said. “Directors also need toexperience and sufficient time to hold management accountable.”Typically, boards meet five or six times a year for a day the out CEO.” of a Those 1999 who white currently paper carry by the both British titles are cabinet naturally ministerwant quickly. a chairman Consider who can “shareholder talk to shareholders, say on pay,” separate which from grewrecognize the role shareholders play: They are the ownersof the company and board-shareholder engagement iseach time, with conference calls in between, hardly enough blind Stephen to the conflict. Byers “They suggesting don’t see that it. How shareholders could they? Who have atime for directors to keep abreast of the global operations of a wouldn’t want to be his own boss?”large company. He advocates that this smaller group of directorsspend at least two days a month on company business use other people’s money and set their own agenda and setWhitworth puts it more bluntly. “Who wouldn’t want tobetween board meetings. If directors are going to make such their own pay?” Whitworth asked.19BOARD VIEW_SEPTEMBER 2011

article fiveMALAYSIAN DIRECTORS ACADEMY 2026Qmore active role in overseeing companies by requiring a“nonbinding shareholder advisory vote on remuneration.”In 2002, the British government adopted the Directors’Remuneration Report Regulations, which made annual payvotes mandatory. By 2004, say-on-pay spread to continentaldirectly with shareholders. Since the board is responsible forEurope as the Netherlands made it a requirement. It haddetermining the nature and extent of the significant risks themoved to Norway, Sweden, Spain, Portugal, Denmark,France,companyGermanyis willingandto take,Australiait’s notbyunusual2007, whenfor theinstitutionalchairmaninvestors explain in the the company’s United States business filed model shareholder as well as proposalsthe formal44 performance companies. evaluation In the of the financial board as overhaul, a whole.” Dodd-atFrank It might reconciled be well previous for directors proposals to consider by that RepresentativegovernanceBarney concepts Frank originating and outside Senator the Charles United States Schumer. have Recently,a historythe of moving S.E.C. into finalized the American the rules mainstream on say-on-pay rather quickly. and say-ongoldenparachutessider“shareholder say on pay,” which grew out of a 1999Con-white Even paper an offhand by the British comment cabinet can minister fuel regulatory Stephen Byers flames.When suggesting the Deutsche that shareholders Bank chief have executive, a more active Josef role Ackermann, in overseeinghe companies hoped that by “someday” requiring a his “nonbinding board would shareholder be “moresaidcolorful advisory vote and on prettier, remuneration.” too,” it In sparked 2002, the discussion British gov- aboutnew ernment restrictions adopted and the Directors’ even quotas. Remuneration Angela Merkel Report opposes Regulations,for which the made number annual of women pay votes on mandatory. boards, even By 2004, thoughquotasGermanysay-on-payhasspreadthe poorestto continentaltrack recordEuropeinasEuropethe Netherlandsfor femalerepresentation. France passed a law this year requiringmade it a requirement. It had moved to Norway, Sweden,companies with more than 500 employees and moreSpain, Portugal, Denmark, France, Germany and Australia bythan $68 million in sales to have women in 40 percent2007, when institutional investors in the United States filedof the supervisory board positions within six years. Spainshareholder proposals at 44 companies. In the financial overhaul,Dodd-Frankhas the same requirement. Women remain a minority inboardrooms in thereconciledUnited Statesprevious(15proposalspercent)byandRepresentativeBarney the percentage Frank and Senator has stagnated Charles Schumer. at 12.5 percent Recently, forBritain,wherethree the S.E.C. years finalized running. the Norway rules on is say-on-pay often cited and for say-on-goldenparachutes.that 40 percent of company directors beits mandatoryrequirementwomen. Even Yet an offhand it took comment 12 years can for fuel Norwegian regulatory companiesflames.to When meet the the Deutsche quota, Bank which chief got executive, its biggest Josef boost Ackermann, when aconservative said he hoped minister that “someday” of economics his board supported would be the “more quota colorfuland interest prettier, of good too,” it business. sparked discussion about new restric-inthetions Diversity and even is quotas. on the Angela minds Merkel of opposes American quotas directors, for theaccording number of to women the recent on boards, annual even corporate though Germany directors’ has survey theinteresting...BUZZWORDS READY FOR RETIREMENTA recent analysis of LinkedIn profiles has revealedthat the most clichéd and overused buzzwords usedby job-hunters are:“Extensive Experience” – U.S., Canada, Australia“Dynamic” – Brazil, India, Spain“Motivated” – U.K.“Innovative” – France, Germany, Italy, NetherlandsSource: LinkedIn3 . 2 0 1 1by PricewaterhouseCoopers, which found that 45 percentof them cited difficulty in finding qualified women andnonwhites with expertise in technology. A whopping 86percent of directors said they used their own networkof contacts to recruit new board members. Given thepoorest track record in Europe for female representation.possibility of quotas for women on United States companyFrance passed a law this year requiring companies with moreboards and the new rules for greater transparency indescribingthan 500 employeesthe competenciesand moreofthanboard$68members,million indirectorssales are have well women advised in 40 to percent look more of the broadly supervisory for board board candidates positionsor within else shareholders six years. Spain may has propose the same their requirement. own candidates Women inproxy remain access. a minority in boardrooms in the United States (15percent) Directors and are Britain, responsible where the for percentage culture has and stagnated compliance, atfor 12.5 “infusing percent for related three years values running. into their Norway decision-making,”often cited foraccording its mandatory a requirement recent Rand that report, 40 percent but they of are company “hampered directorsa lack be women. of training Yet it and took awareness.” 12 years for Further, Norwegian their companies ability tobyovercome to meet the this quota, means which “gathering got its biggest the information boost when they a conservativereally minister understand of economics their firms, supported as well the as quota related in the risks,needtostrategies interest of and good operational business. concerns.”Ubben Diversity complains is on the that minds professional American and directors, nonshareholder accordingto the recentdirectors have noannualsensecorporateof urgency.directors’Mostsurveyboards,by PricewaterhouseCoopers,which found that 45 percent of themhesays, make decisions based on emotion or on supportingthe status quo, rather than on fact-based information,cited difficulty in finding qualified women and nonwhitessince what most boards receive is dependent on the CEOwith expertise in technology. A whopping 86 percent of directorssaid they used their own network of contacts to recruitor management’s position. Ubben’s team turns a valueanalystfocus on the company, digging through filings to getinformationnew board members.on competitors,Given thedevelopingpossibilityaofmorequotaslegitimateforpicture women of on the United company’s States company current growth boards and and the its new prospects, ruleswhich for greater is often transparency quite different in describing from what the competencies management of hasbeen board presenting.members, directors are well advised to look morebroadly Similarly, for board Whitworth candidates said, or “If else I shareholders didn’t have may my staff, proposetheir feel own overwhelmed candidates in on proxy one of access. these boards.” WhenIwouldboard Directors members are like responsible Ubben or for Whitworth culture and have compliance, questions, forthey “infusing find the related answers, values even into their if it means decision-making,” hiring consultants accord-orusing to their a recent own Rand staff report, members’ but they time. are Professional “hampered by directors a lackare of training limited and by awareness.” the information Further, that their management ability to overcome givesthem. this means “We“gathering enough the information independent they need information to really understandtheir CEO, firms, and as well it’s not as related a bad thing,” risks, strategies Ubben said. andtochallengeoperational For all the concerns.” tinkering that the government has done totry toUbbenmakecomplainsboards morethataccountableprofessionalandandtransparent,nonshareholder“I’dtrade it all for more shareholder directors,” Whitworth said.directors have no sense of urgency. Most boards, he says, makeManagement and shareholders need not be adversarial.decisions based on emotion or on supporting the status quo,The key is to getting enough shareholder directors to breakrather than on fact-based information, since what most boardsthe logjam to enable other directors to see that shareholderreceive is dependent on the CEO or management’s position.directors can bring valuable insights to the board and tomanagement.Ubben’s team turns a value-analyst focus on the company,digging “By the through same filings token, to get there information are a number on competitors, of activistshareholders developing a more who legitimate have taken picture positions of the company’s on how currentgrowth should and its proceed prospects, on which some issue often based quite on different a sliverthecompanyof from information,” what management Ubben has said. been “They presenting. don’t know what theydon’t Similarly, know. The Whitworth activist shareholder said, “If I didn’t could have be my proposingstaff, Isomething would feel overwhelmed very complex on when one of these it is boards.” a series When of small, boardmundane members like adjustments Ubben or that Whitworth could really have questions, bring value they to find thecompany.” the answers, Still, even there if it means is much hiring that consultants activist shareholdersor using theircan own learn staff members’ from shareholder time. Professional directors directors like Whitworth are limited andUbben. by the information They will not that be management perfect and will gives make them. mistakes, “We gather butthey enough will independent help governance information become to more challenge responsive the CEO, to and theowners. it’s not a Proxy bad thing,” access Ubben is a governance said. tool that needs to beusedForresponsiblyall the tinkeringand effectively.that the governmentNominatinghasadonedirectorto tryisone thing, but getting a majority of the shareholders’ votes(continued on page 73)T h e K o r n / f e r r y i n s T i T u T eHal Mayforth

article fiveTravis Fostermaking boards better(continued from page 26)means to make appealing boards more to a accountable broad group and of investors who will beable transparent, to see the “I’d candidate’s trade it all for dedication more to good governance.shareholder While most directors,” directors Whitworth disparage said. the work of proxyadvisory Management services, and shareholders the response need from activist investorsand not even be adversarial. asset managers The key is is to more getting complimentary. CharlesMcQuaid, enough shareholder chief investment directors officer to break of Columbia Wanger AssetManagement, the logjam to enable told members other directors of the to National Association ofCorporate see that shareholder Directors directors (N.A.C.D) can that bring the compilation of databy valuable Institutional insights Shareholder to the board Services and to Inc. is impressive, eventhough management. he and his staff make their own decisions based onreading “By the same proxies token, of there every are company a numberof activist Some shareholders institutional who have investors outsource theirin which they makeinvestments.governance taken positions through on how I.S.S. the and company Glass Lewis, an independentgovernance should proceed analysis on some and issue proxy based voting firm. “It’s not ideal,but on the a sliver proxy of advisers’ information,” work Ubben is effective said. at creating the basisfor “They an informed don’t know decision,”Whitworth what they don’t know. said.The In activist the meantime, shareholder there could are be too proposingon something the sidelines. very They’ve complex been when burned by the financialmany investors who aresittingcrisis. it a They series wake of small, up to mundane see more adjustmentsis that a lack could of confidence really bring value in the to regulatory system, a lackaccounts of massive fraud.Thereof the confidence company.” in board governance to provide managementoversight. Still, It there is a long is much road that to activist restore and rebuild confidence.shareholders Baby boomers, can learn who from pulled shareholderare directors not likely Whitworth to return — and they are reluctant to putout of the market during thecrash,their Ubben. reduced They will portfolios not be perfect at risk. and Anyone will who invested from1982 make to mistakes, 2000 bought but they into will a help boom governancethe become benefit more of responsive long-term to stock the investing. As morein equities that attestedtoAmericans owners. Proxy jumped access into is a the governance stock market, they bid up theprice tool that of stocks. needs to Stock-price be used responsibly increases fueled expectationsof and further effectively. growth, Nominating with investors a director expecting to earn annualrates is one of thing, return but of getting 20 or 30 a majority percent. of Until 2008.the CEOs shareholders’ seldom votes participate means appealingto a In broad more group than of investors half the who cases, the CEO is also thein the national governancedebate.chairman. will be able CEOs to see say the that candidate’s they get dedicationboards. to good JetBlue’s governance. former CEO, David former Neeleman, CEO, David said Neeleman, boards said with he specialised intelligence strategic and communication collective experience counsel.“plenty of input” fromtheirWhile most directors disparage ignored his board at his own peril. on expanding his capabilities mightthe work of proxy advisory services, the Neeleman was the founder and knew actually make sense. He probably won’tresponse from activist investors and where he was taking the company. After make more money. He could makeeven asset managers is more complimentary.Charles McQuaid, chief in-the board forced him out, and he real-a poor reaction to the ice storm in 2007, history.vestment officer of Columbia Wanger ized how little he had cultivated hisKaren Kane, former board secretary for theAsset Management, told members of board because he was “too busy runningthe company.” Chastened, Neele-CEOs and corporate boards with specializedFederal Reserve Bank of Chicago, providesthe National Association of CorporateDirectors (N. A.C.D) that the compilamanlater said he should have worked strategic communication counsel.he ignored his board at his own peril. Neeleman was thefounder and knew where he was taking the company. Aftera poor reaction to the ice storm in 2007, the board forcedtion of data by Institutional him out, ShareholderServices Inc. is impressive, board because even he was It usually “too busy takes running a crisis for the boards company.”and he realized more closely how with little his he board. had cultivated histhough he and his staff make Chastened, their own Neeleman to act. later Directors said like he being should directors. have It workeddecisions based on reading more the closely prox- with his an board. elite club, the cap of a great professionala crisis career. for Even boards as they acknowledgeto act. Directorsies of every company in which It usually they takesmake investments. Some like institutional being directors. the It increased is an elite workloads, club, the most cap directors of a greatinvestors outsource their professional governance career. are Even looking as they for another acknowledge board seat. the Most increasedthrough I.S.S. and Glass workloads, Lewis, an independentgovernance analysis seat. and Most proxy universities well as and the N. business A.C.D. provide schools board as well train-as themost directors universities are and looking business for schools another as boardvoting firm. “It’s not ideal, N.A.C.D. but the provide proxy board ing and training a host of and individuals a host — of including individuals —advisers’ work is effective including at creating talented talented women women executives executives and capable and capable nonwhitethe basis for an informed professionals decision,” — nonwhite are attending professionals these — courses are attendingrecordWhitworth said. numbers to prepare these to courses become in board record directors.numbers to prepareto become that board boardrooms directors. are full ofIn the meantime, there Everyone are too acknowledgesmany investors who arebrightsittingpeople.on theThey want Everyone to do acknowledges a good job that in their boardroomsrole ofsidelines. They’ve been burnedoversight,by thebut they may notare fullhaveof brightthe rightpeople.incentiveTheyfor thefinancial crisis. They wakejob.upTheyto seedidn’t writewantatocheckdo a goodto participate.job in their role“Ifoftheyoversight,did, itmore accounts of massive fraud. Thereis not their primary asset,”butWhitworththey may notsaid.have the rightis a lack of confidence in the regulatoryThis is also not theincentiveprofileforofthesomeonejob. Theywhodidn’twillwritechallengeasystem, a lack of confidence in board check to participate. “If they did, it is notthe boss — the CEO-chairman. When a director asks agovernance to provide management their primary asset,” Whitworth said.question during a meeting, and other directors privatelyoversight. It is a long road to restoreThis is also not the profile of someonewho will challenge the boss — theconfide that he or she had the same question, it is clear thatand rebuild confidence.this is not an effective work group.Baby boomers, who pulled out of CEO-chairman. When a director asks aThe CEO-chairman could change all of this. He holds thethe market during the crash, are not question during a meeting, and otherlevers of power. He can give the board the budget and thelikely to return — they are reluctant to directors privately confide that he orindependence to create a small but powerful work group ofput their reduced portfolios at risk. she had the same question, it is cleardedicated advisers to help him to think through the manyAnyone who invested from 1982 to that this is not an effective work group.challenges of running a complex global business.2000 bought into a boom in equitiesThe CEO-chairman could changeOne day, a CEO will get it and spend the time to createthat attested to the benefit of long-term all of this. He holds the levers of power.a board worthy of his leadership. In the face of globalstock investing. As more Americans He can give the board the budget and thecompetition, complex issues and interdependencies, thejumped into the stock market, they bid independence to create a small but powerfulwork group of dedicated advisersidea of bringing together a group of leaders who can focusup the price of stocks. Stock-price increasesfueled expectations of further to help him to think through the manytheir intelligence and collective experience on expandinghis capabilities might actually make sense. He probablygrowth, with investors expecting to challenges of running a complex globalwon’t make more money. He could make history.earn annual rates of return of 20 or 30 business.percent. Until 2008.One day, a CEO will get it and spend..........................................................................................................CEOs seldom participate in the the time to create a board worthy of hisnational governance debate. Karen In Kane more leadership. In the face of global competition,complex issues and interdepen-than half the cases, the CEO is also thechairman. CEOs say that Karen they get Kane “plenty is the dencies, Former the board idea of secretary bringing for together the Federalof input” from their boards. Reserve JetBlue’s Bank of Chicago a group who of leaders provides who CEOs can focus and their corporate21BOARD VIEW_SEPTEMBER 2011B r I e F I n g s o n T a l e n T & l e a d e r s h I p Q 3 . 2 0 1 173

BOOK REVIEWMALAYSIAN DIRECTORS ACADEMY 22Product DetailsGreat Companies Deserve Great Boardsby Beverly Behan• Hardcover: 192 pages• Publisher: Palgrave Macmillan (June 7, 2011)• Language: English• ISBN-10: 0230113656• ISBN-13: 978-0230113657• Product Dimensions: 9.4 x 6.1 x 0.9 inches• Shipping Weight: 1.2 poundsSynopsisDespite the many changes in governance regulation over the past decade, few boards function as a true corporate assetto the companies they oversee. In this book, Behan offers practical advice that a CEO, Chairman or board member canintroduce at the very next meeting. Boardrooms are filled with intelligent, accomplished people--yet seldom achievetheir full potential and add the kind of value for the CEO, executive team and company shareholders that many boards areactually capable of.Beverly Behan draws on her experience working with more than 100 boards over the past 14 years--from major Fortune500s to recent IPOs--offering no-nonsense insights that can take any board from mediocrity to the top of its game includingestablishing a constructive working relationship with your board; addressing some of the dysfunction that may lie withinthe board you’ve inherited, and making your board a significant asset to you, your company, and your executive team.Working with the Board of Directors is one of the most important components of any CEO’s job--and most will admit itis something they wish they knew more about. Nearly all CEOs want to change at least something about their board, yetmany are unsure how to go about this in the right way. This book not only alerts the reader to common pitfalls that CEO’scan make with their boards, it provides workable approaches to a tackle a variety of boardroom issues from getting newtalent into the boardroom to engaging effectively with the board on strategy and succession planning.About the AuthorBeverly Behan has worked with more than 100 Boards of Directors in the United States, Canada and internationallyfor over a decade—from Fortune 500s to recent IPOs. For the past three years she has been a regular columnist (“TheBoardroom”) for Bloomberg BusinessWeek.com. She has been quoted as an expert on board effectiveness by nearly everymajor business publication, including The Wall Street Journal, the Financial Times and Business 2.0 and has been namedto the Directorship 100, Directorship Magazine’s list of the 100 most influential people in governance and the boardroom.

PROGRAMME HIGHLIGHTS 2011BUILDING HIGH PERFORMANCE DIRECTORS 2011Type : Premier ProgrammeDate : 6 - 9 June 2011Venue : Park Hyatt Saigon, Ho Chi Minh City, Vietnam23BOARD VIEW_SEPTEMBER 2011BHPD 2011 was held in Ho Chi Minh City, Vietnam and 15 directors from various GLCs attended theprogramme. Among the topics covered during the four-day programme included setting the scene - GLCTUpdates and business sustainability, Board’s role: Adding Value to the organisation, Stimulating Creativityin organisation, Board Composition and Building a Team, Board Effectiveness: Chairman and the CEO,Strategy Development: Roles and Diversity, Good Governance and Good Profitability, Merging InnovationCultures: Merging Employee Creativity for Competitive Edge, Building Competitiveness through InnovativeHuman Capital Development and Managing Performance: Measuring and Monitoring Board Effectiveness.As our theme for this year is on Innovation and People, there was also a one-day session on Innovation andPeople focusing on Innovation and Sustainable Growth, Strategy for Technological Innovation in DevelopingCountries, Innovative People Strategies in Developing Innovative Human Capital and Board Leadership:Driving Innovation & People. Over the Fireplace Chat session, a briefing on the possible business venturesabroad was shared by the President of the Malaysian Business Council of Vietnam. BHPD 2011 programmealso included ‘a trip back into the past’ to Cu Chi tunnels, once a network of tunnels for Vietcong fightersand villagers. Here, the participants learn how innovation and creativity are important ingredients to winthe war; against high technology and modern equipment.

PROGRAMME HIGHLIGHTS 2011MALAYSIAN DIRECTORS ACADEMY 24MINDA / MOF INC CORPORATE DIRECTORS ONBOARDING PROGRAMME (CDOP)Type : Customised ProgrammeDates : 20 & 21 April 2011 and 13 & 14 July 2011Venues : The Royale Chulan Kuala Lumpur and Hotel Cyberview Lodge Resort & Spa, CyberjayaMINDA organised its third and the last CDOP sessions for the year. The sessions provided a platformfor MoF Inc directors to update their knowledge with the latest developments on their roles andresponsibilities as well as networking amongst fellow Directors. CDOP 2011 methodology involvedfacilitated learning through active interactions, dynamic discussions and the use of case studies.Among the topics covered during the two-day programme were Anatomy of Corporate Governance,Best Practices for Board Performance and Risk Management, The Roles and Responsibilities ofCompany Directors and Common Offences and Government-Linked Companies Transformation& Enhancing Board Effectiveness: Introducing the Green Book. Both sessions were attended bydirectors from various MoF Inc companies.

PROGRAMME HIGHLIGHTS 2011MINDA / NZTE BREAKFAST TALK WITH RUGBY LEGEND MRSEAN FITZPATRICK“Sporting Excellence to Invigorate Business Thinking”Type: Awareness & NetworkingDate: 12 April 2011Venue: Sheraton Imperial Kuala Lumpur HotelMINDA organised its second breakfast talk this year entitled “Sporting Excellence to invigorate business thinking - CreatingSustainable Business Excellence” with Sean Fitzpatrick, a rugby legend, as its invited speaker. Sean Fitzpatrick was aninspirational All Black captain, leading the team in a record 51 tests between 1986 and 1997. He is the 2011 Rugby WorldCup Ambassador for New Zealand which will be hosting the Rugby World Cup this year. During the talk, Sean shared hisexperiences of turning the New Zealand All Blacks rugby team from failure into success and made several analogies ofsports and excellence to the business and corporate world. The highlight of the talk was when Sean invited all the gueststo join him in doing the “hakka”, with some Corporate Leaders on stage. The session was attended by 35 prominent CEOs,Directors and representatives of various GLCs.25BOARD VIEW_SEPTEMBER 2011BREAKFAST FORUM CO-HOSTED BY MINDA, GE,TALENTCORP AND BCG“21 Century Corporation: Driving Sustainable Leadership &Innovation”Type : Awareness ProgrammeDate : 6 May 2011Venue : Le Meridien Kuala Lumpur HotelMINDA together with GE and TalentCorp jointly hosted a Breakfast Forum themed, ‘21st Century Corporation: DrivingSustainable Leadership & Innovation’. The panel of speakers at the session included John G. Rice, Vice Chairman of GE,President and CEO of GE Global Growth and Operations, Johan Mahmood Merican, Chief Executive Officer of TalentCorporation Malaysia Berhad and Vincent Chin, Partner and Managing Director of Boston Consulting Group in SouthEast Asia. Its primary objective was to promote a deeper appreciation of the global challenges in light of a fast-evolvingbusiness landscape following the downturn in the global economy. The forum was a platform for top leaders from variousindustries to engage in the exploration of new growth opportunities. At the centre of this discussion was the premise ofhow companies need to remain relevant and competitive in today’s global marketplace, by remodeling their businessstrategies to place a stronger emphasis on the platforms of sustainable leadership and innovation.The forum was moderated by Dato’ Abdul Aziz bin Abu Bakar, the CEO of MINDA, and was attended by movers and shakersfrom Corporate Malaysia. Among the more prominent business personalities present were Datuk Dr. Syed Muhamad binSyed Abdul Kadir, Chairman of CIMB Islamic Bank Berhad , Tan Sri Datuk Dr Hadenan A Jalil, director of Maybank, Tan SriGhazzali Sheikh Abdul Khalid director of Axiata Group Berhad and Azran Osman-Rami, Chief Executive Officer of AirAsia X.The forum was attended by more than 100 directors and HR practitioners from various GLCs and PLCs.

PROGRAMME HIGHLIGHTS 2011MALAYSIAN DIRECTORS ACADEMY 26MINDA-KHAZANAH LUNCHEON DIALOGUE WITH MR.AZIM PREMJI“The Rise of Asia”Type : Awareness ProgrammeDate : 20 June 2011Venue : Mandarin Oriental Kuala LumpurMINDA together with Khazanah Nasional jointly hosted a Luncheon Dialogue entitled, ‘The Rise of Asia’ with Mr AzimPremji as the distinguished guest. Mr Premji, an Indian business tycoon and philanthropist, is the Chairman of WiproLimited who has guided the company through four decades of diversification and growth to emerge as one of the leadersof the software industry. Mr Premji shared with the guests his beliefs on commitment to values and how ordinary peopleare capable of extraordinary things through the creation of highly charged teams. In Mr Premji’s view, the Wipro brandpromise of “Applying Thought” has been the driving force for delivering value for customers which is the heart of businesssuccess. Mr Premji is firmly committed to the belief that business organisations have deep social responsibility and that thisresponsibility must be discharged by conducting ethical and fair business, by active involvement with fundamental societalissues and by building an ecologically sustainable business.The Luncheon Dialogue was attended by 30 prominent business personalities including the Chairmen, CEOs and directorsfrom various GLCs and PLCs.MINDA-IPE MOU SIGNING CEREMONYType : Awareness ProgrammeDate : 6 July 2011Venue : Bombay Palace Restaurant, Kuala LumpurThe Malaysian Directors Academy (MINDA) officially collaborated with the Institute of Public Enterprise (IPE) HyderabadIndia to explore conducting Development Programmes for Board of Directors of Public Enterprises (India) in Malaysia, Indiaand third countries. MINDA and IPE would undertake case development and joint research through shared academic andresearch activities via literature and publications exchange. Both parties would also explore opportunities for exchange ofspecialists on a case to case basis separately. Signing on behalf of MINDA was the CEO, Dato’ Abdul Aziz Abu Bakar and onbehalf of IPE was the Director, Dr R K Mishra. This event was witnessed by Dato Ahmad Pardas and Mr Chatterjee.

About Director’s Forum 2011Innovation is not only the buzz word fly the past few years,but for many successful companies, it is their culture andmindset. Ideas and innovation are the most preciouscurrency in the new economy and increasingly in the oldeconomy as well. Without a constant flow of ideas, abusiness is condemned to obsolescence (Andrew Hargadonand Robert I. Sutton)Innovation can only happen when organisations successfullyharness the creative and talented people they have. Anarticle in The Economist (Frymire, 2006) argues that “thebiggest challenge today is not finding or hiring cheapworkers, but rather hiring individuals with the brainpower(both natural and trained) and especially the ability to thinkcreatively”.This year’s Directors Forum focuses on the two of themany factors that contribute towards organisationalcompetitiveness and excellence – Innovation and People,and how Boards can lead both the Innovation and Peopleagenda to the whole organisation.Programme FeesDirector’s Forum 2011“Innovation & People: Making It Happen”2 – 4 October 2011Bandung, IndonesiaFee: RM 11,000 per participantThe fee includes programme materials, accommodation(single occupancy room), airport transfers, food andbeverage. However, it excludes airfare which is to be borneby the participant.Target participantsDirectors of Boards (Main and Subsidiary)RegistrationFor Registration, please contact Pn. Mazni Ahmad Norilah/ En. Muhammad Hafiz Mahmood via phone at +603-27805031 or email at info@minda.com.my27BOARD VIEW_SEPTEMBER 2011Course OutlineCreating a constructive Board-Management Relationship.Managing the different expectations and roles of Boardand Management.The Evolving Role of the DirectorHow can boards harness the power of Innovation and thestrength of People in their organisation to make it happen.Transforming and Innovating the BoardThere is a need for Boards to change mindset and values tocreate value. How to optimise Boards to be a true asset.Innovation is not just TechnologyInnovation is about mindset and culture to make thingshappen, with or without technology.Creating an innovation culture in the boardroomThe impact of board composition and leadership in addingvalue for the organisation (Case Study).Human Talent - The Chief Executive OfficerWhat boards can do to plan and execute an emergencysuccession planning.Innovation StrategyHarnessing Board Talent in the Development and Reviewof Corporate Strategies for Innovation.Human Talent – The C-SuiteHow Board can ensure an effective talent pipeline andexecutive succession planning.

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