Ethics Exam Revision

What is Stakeholder Theory?

The claim that corporations should act for the benefit of all who have a stake in the corporation

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Title I of Sarbanes-Oxley Act

Created the Public Company Accounting Oversight Board

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What can the Public Company Accounting Oversight Board do?

Review audits, set additional auditing standards & impose sanctions on firms for inadequate audits

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Title II of Sarbanes-Oxley Act

Auditor Independence

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What does Title II of SOX impose?

Prohibits provision of certain non-audit services to clients, requires that the lead audit partner's clients be rotated every 5 years & imposes a waiting period of 1 year before accepting employment with a new client

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Causes of the 1997 East Asian Financial Crisis

Failed corporate governance, inappropriate macroeconomic policy + mismanagement, pressure by International Monetary Fund on countries & the 'Pangloss equilibrium'

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What did the 'Pangloss equilibrium' cause?

A bubble in asset prices

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What did the International Monetary Fund want?

They put pressure on countries to increase interest rates & this led to the closure of banks

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What did the 1997 crisis expose?

Poor legal protection for minority shareholders, lack of transparency & financial disclosure & various levels of cronyism embedded in corporations

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What was wrong with the corporate governance framework?

Failed to minimise agency conflicts amongst managers & provide protection for minority shareholders from expropriation

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Phase 1 of Reforms

Created the Finance Committee on Corporate Governance

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The Finance Committee on Corporate Governance recommended...

Implementation of the MCCG & creation of the Minority Shareholders Watchdog Group

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The MCCG was created to

Identify a framework for best practices in corporate governance

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The Minority Shareholders Watchdog Group was created to

Monitor & combat abuses against minority shareholders by corporate insiders

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Problems with the original MCCG

Prescriptive approach, simply tick a box to show compliance without proving whether they actually applied the practice

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Other regulatory regimes supporting the MCCG

Capital Market Master Plan & Financial Sector Master Plan

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Capital Market Master Plan

Encourages mandatory disclosure of the state of compliance with the MCCG

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Financial Sector Master Plan

Promoted a dynamic, competitive, resilient financial system by encouraging shareholder activism, regulatory control & priority sector financing

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State & Private Businesses

Ownership of business equity by the State gives rise to a conflict of interest as the State is now operating in the dual role of shareholder & corporate governance regulator

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Lax Monitoring & Enforcement

Involvement of the State with companies involved in scandals gives rise to the question of where responsibility lies in terms of monitoring & regulating corporate abuse

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Phase 2 of Reforms

Mandatory reporting on compliance to MCCG allowed public to assess standards of corporate governance in companies

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MCCG 2007

Proposed a transparent procedure for appointment of directors

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Phase 3 of Reforms

MCCG 2012 required companies to report on state of compliance with MCCG in annual reports even though compliance is done on a voluntary basis

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In 2001, the MCCG...

Became an integral part of Bursa Malaysia Listing Rules which required all companies to disclose the extent of their compliance with the MCCG

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Stock Price after Integration into Bursa LR

Rose by 5% showing it was well-received

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Corporate Governance & Politicians

Strong evidence that political connections have a negative impact on corporate governance with politicians being a major barrier to corporate governance reforms

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Politically-connected firms are...

Found to have weaker corporate governance than politically independent firms

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3 Key Principles of Good Corporate Governance

Board leadership & effectiveness, effective audit & risk management and integrity in corporate reporting & meaningful relationship with stakeholders

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Intended Outcome

Informs companies on what they will achieve by applying the Practices

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Practices

Crafted after taking into consideration legal requirements, Bursa Malaysia Listing requirements, size & complexities of companies & global developments in governance best practices

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Step-Up Practices

Not mandatory but encourages companies to go a step further in strengthening their governance processes & procedures

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Guidance

Assists companies in applying Practices

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Who does the MCCG apply to?

Public Companies and some Practices only apply to Large Companies

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Large Companies

Those with over RM2billion market capitalisation or listed on FTSE Bursa Malaysia's Top 100 Index

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Non-listed entities

State-owned enterprises, license intermediaries & SMEs

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CARE

No longer enough to 'comply or complain' now it is 'apply or explain an alternative practice'

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When departing from a Practice, the company must...

Explain the reason for the departure & explain an alternative practice applied to help achieve the Intended Outcome & Large Companies must do both together with a timeframe

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Board of Directors

Majority must be independent directors and 30% must be women

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Tenure of Independent Directors

More than 9 with shareholder approval and requires two-tier voting process if more than 12 years

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More transparency

Individual director & top 5 senior management's remuneration must be disclosed

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Discrimination in Director Remuneration

Because most PLC's are state or family-owned leading to a tendency for bias (E.g. SAPURA ENERGY)

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Bold 3.0 Future-Fluent Board Leadership Study

8% of companies do not have an evaluation process & only 4% have an evaluation process by external consultants

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Transmile Group Bhd Case

RM530million accounting scandal that led to two former independent directors being fined RM300,000 and jailed for one-year for authorising the release of a misleading statement to Bursa Malaysia

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Sime Darby case

Tun Musa Hitam (former deputy PM) came under fire for failing to prevent losses of RM484million due to delays and cost overruns

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The Irony of Independent Directors

Elected by majority shareholders but could have vetting process by independent external party

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Evading Bursa's listing requirements

By creatively pricing transactions thus not needing to call an extraordinary general meeting

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Code unsuitable for Malaysia

Ignores unique capital market, regulations, environment & ownership structures

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Abdifatah said....

The code is inappropriate because it was initially adopted from a country with different ownership settings with vast disparities between ownership structures, cultural & political environments

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The key differences are...

In Western countries, governance is to mitigate conflicts between dispersed shareholders & powerful managers but in Malaysia, most firms are State-owned or family-controlled

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Family-Controlled Firms

Agency Type 2 Problem where the founding family pursues their own interests at the expense of minority shareholders when their interests do not align

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Standard & Poors Findings

Even after implementation of MCCG, Malaysia still falls short of global governance standards

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White Paper on Corporate Governance

Managing shareholder rights, equity in shareholder treatment, disclosure & transparency of performance, investment & risk, protection of shareholders & board structure

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Users feel that...

Companies only comply and report on mandatory requirements but need to improve on voluntary disclosure

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Missing aspects of the MCCG

Fails to address human values, human capital & human governance

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What is Discrimination?

Depriving a person of a benefit or opportunity because of their membership in a group

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What is Sex Discrimination?

Discriminating against a person on the basis of their sex & nothing else

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Utilitarianism & Discrimination

It creates an economically inefficient matching of people to jobs & negatively affects productivity

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Kantian & Discrimination

Everyone deserves to be treated as equals of others & with dignity and respect

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Justice & Discrimination

Unjust because those characteristics are irrelevant to performance of the job

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Affirmative Action

Advocates that victims of discrimination should be given an advantage

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Gender Dialogues in Malawi

To uncover the hidden biases & disparities between men & women's work and showed that gender bias can be changed in very traditional cultures

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Brene Brown says that the original definition of courage...

Is to let ourselves be seen & the best way to do that is to ask for what we want especially when noone wants us to have it

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Leyman Gbowee, Winner of Nobel Peace Prize 2011

"We women in these communities are the nurturers of society. And it was upon us to change it."

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Alice Walker

"The most common way people give up their power is by thinking they don't have any."

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s44A Employment Act 1955

Maternity protection applies to all women irrespective of their earnings

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s37(1)(A) Employment Act 1955

Every female employee is entitled to maternity leave & maternity allowance

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s37(1)(B) Employment Act 1955

Maternity leave shall not commence earlier than 30 days before confinement date unless medical practitioner certifies that due to her condition, she is unable to perform her duties satisfactorily

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s37(2)(A) Employment Act 1955

Entitled to maternity leave if working for 90 days in the 4 month period preceding confinement

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s37(2)(B) Employment Act 1955

Eligible to maternity allowance at ordinary rate of pay

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s37(4) Employment Act 1955

An offence to terminate the employment of a woman during the time she is entitled to maternity leave

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Aznalisa Yaacob v Malayan Banking Berhad

Claimant was 7 months pregnant & terminated. Employer claimed she performed poorly but Court found she was terminated on the basis of her pregnancy as no warnings or complaints were made against her before her dismissal

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JC & MC Sdn Bhd v Leong Yoot Lai

Claimant was due to go on maternity leave & was fired. Court found in her favour

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New M&M Products Sdn Bhd v Mazully Mahmood

Claimed termination due to poor performance but those complaints only arose after she informed the employer that she would be unable to work overtime due to her pregnancy. Court found in her favour

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Inconsistency in Approach

Karen Liew v LYL Capital Sdn Bhd: unsubstantiated claims, no medical report. Yamate (M) Sdn Bhd v Ng: responded disproportionately to termination, did not consider grounds for selecting her for dismissal

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s38 Employment Act 1955

Maternity allowance shall be paid out in manner as usual wages

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s40(2) Employment Act 1955

Must notify employer 60 days before intending to go on maternity leave or may have maternity allowance suspended

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Retrenchment

Last in, first out principle must have been used to select employees for dismissal

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s42(1) Employment Act 1955

Cannot terminate employee for absence from work due to complications arising from pregnancy unless absent for 90 days

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Krishnan v Aetins Sdn Bhd

Court found employer was unhappy with her absences from work due to complications with her pregnancy and had failed to accept her medical certificates while deducting her leave and salary. Court found in her favour

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JRC (Malaysia) Sdn Bhd v Navamani

Claimant 38 days from maternity leave, absent from work for 4 days, only provided medical cert for 1 day. Court found employer was right in terminating her under s13(2) as she had willingly breached S15(2) of Employment Act

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s15(2) of Employment Act 1955

An employee is considered to have breached contract of service if continuously absent from work for two consecutive days and does not notify the employer, obtain permission or provide a reasonable excuse for doing so

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Article 1 of the Federal Constitution

Everyone shall be equal under the law & have equal protection of the law

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Article 2 of the Federal Constitution

There shall be no discrimination on the grounds of.....gender in the appointment under a public authority

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Noorfadilla v Chayed bin Basirun v Ors

Plaintiff had her offer letter from the Education Office revoked upon informing them she was pregnant. Found to be discriminatory & in contravention of Art 1 & 2 of Federal Constitution and Art 1 & 11 of CEDAW

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Constructive Dismissal

Act of employee in terminating employment due to breach of contract by employer

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Burden of Proof in Constructive Dismissal

Lies with the employee who must prove that the breach was so severe as to affect the very heart of the contract

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Severity of the Breach

Governed by the 'contract' test so the heart of the contract must have been affected; unreasonable conduct does not give rise to unjust dismissal claim

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Must resign from the Breach

When resigning, the exact reasons for the departure must coincide with the alleged breach

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Breach must be Important

Deliberate reduction of wages, failure to provide safe working environment, 'Forced resignation' & non bona-fide reduction of duties or job scope

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Najah binti Ahmad v Consist College

Returned from maternity leave for 1st child & got pregnant again, informed employer who then issued 11 warning letters & memos to her in 2 months, moved her office next to smoking area. She considered herself constructively dismissed

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Vasanthi Suvalingam v Price Solutions Sdn Bhd

Claimant moved to another department after returning from maternity leave. Had her salary decreased. Court found there were grounds for constructive dismissal

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No Delay in Resignation

Length of time is crucial (one month too long), must respond immediately by writing a complaint, protesting or resigning

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Part 1(2) Industrial Relations Act 1967

Protects anyone in employment irrespective of their earnings

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s20 Industrial Relations Act 1967

May lodge a complaint to Director General within 60 days from date of dismissal requesting reinstatement

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The Conciliation Process

A conciliation process but if cannot be settled, will be referred to Minister of Human Resources who can refer it to the Industrial Court under s26

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Remedies of IRA 1967

Reinstatement, compensation (1 month for every year of service) or backwages (from date of dismissal to date of award)

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Protecting Stewardesses

No. Even though s14(3) states that if terms of collective agreement contrast with Federal Constitution, the latter shall prevail

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Verbal Harassment

Sexually suggestive comments, jokes, sounds, questioning

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Is it verbal harassment?

Depends on workplace environment, relationship between parties, response of the victim, whether comment had sexual connotations or different meaning

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Aznan Harun v Maybank

Fair to terminate employee who made sexually suggestive and inappropriate comments

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Gestural Harassment

Gestures or facial expressions of sexual nature, ogling, staring in a sexually suggestive manner, whistling

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Berjaya Redang Beach Resort v Samikannoo

Unzipping one's trousers & sticking tongue out in lewd manner constitutes sexual harassment

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Psychological Harassment

Repeated unwanted social invitations, relentless proposals for dates or physical intimacy

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Fuchs Petrolube (Malaysia) Sdn Bhd v Chan

Persistent phone calls asking for lunch dates & sending a card with improper words is found to be harassment

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Go on Strike

Frauenstreik in 1991 to put pressure on the government to implement a constitutional amendment on gender equality and led to the passing of the Gender Equality Act

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#MeToo Egypt

Rania Fahmy set a precedent as first woman to win sexual harassment charges

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#BalanceTonPorc

Led to the passing of a new bill concerning sexual harassment in France

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#MeToo Spain

Legislation changed to make it easier to convict rapists

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#MeToo Japan

Online campaign prompted the Labor Policy Council to pass new legislation prohibiting workplace harassment

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#MeToo China

Proposed sexual harassment legislation as part of their wide-ranging civil code reforms

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#MeToo Morocco

Spurred on definitive action for a bill protecting women from domestic abuse & violence

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Women's Aid Organisation

Be part of their Invisible Women campaign & tell your story to highlight the importance of the Gender Equality Act being enacted

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Boycott

Companies often react when their reputation is in jeopardy (Eg. Qatar Airways)

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A collective voice...

Is better than a single one in terms of lobbying for rights and challenging the status quo. When women can demonstrate there are a number of them, they will be taken seriously

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Ethics Exam Revision

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