An investigation of the control role and effectiveness of independent non-executive directors in Malaysian public listed companies
Purpose – The purpose of this study is to ascertain the control role of independent non-executive directors (INEDs) in Malaysian public listed companies (PLCs), as prescribed in the Malaysian Code on Corporate Governance (MCCG).The MCCG (2000) requires substantive involvement of INEDs on the audi...
| Main Authors: | , |
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| Format: | Article |
| Language: | English English |
| Published: |
Emerald
2015
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/43919/ http://irep.iium.edu.my/43919/ http://irep.iium.edu.my/43919/1/MAJ-09-2013-0936_-_Managerial_Auditing_Journal.pdf http://irep.iium.edu.my/43919/4/43919_An%20investigation%20of%20the%20control%20role%20and%20effectiveness%20of%20independent%20non-executive%20_SCOPUS.pdf |
| Summary: | Purpose – The purpose of this study is to ascertain the control role of independent non-executive
directors (INEDs) in Malaysian public listed companies (PLCs), as prescribed in the Malaysian Code on
Corporate Governance (MCCG).The MCCG (2000) requires substantive involvement of INEDs on the
audit, nomination and remuneration board sub-committees. The study also examines the effectiveness
of INEDs in discharging their monitoring roles in these sub-committees.
Design/methodology/approach – A qualitative research design consisting of a series of interviews
with board members of Malaysian-owned PLCs on the board of Bursa Malaysia was used.
Findings – Interviews with 27 company directors reveal that, due to their independence, INEDs are
crucial in safeguarding the interests of smaller investors if situations arise in which shareholders’
interests may be threatened. The interviews also disclose that the audit committee possesses the most
authority among the sub-committees, as it derives its power not only from the Listing Requirements but
also from statute, as well as being involved in areas of the company not traditionally associated with the
committee. The study also reveals the differences in opinion between executive directors and INEDs
with regard to the extent of INEDs’ effectiveness.
Research limitations/implications – This research utilises interviews. Generalisation may be an
issue when interviews are used as the method of inquiry. In addition, the sample is not random, as access
to many directors is dependent on recommendations. In addition, the respondents have been
consciously selected to cover various board positions, including independent and non-independent
directors.
Practical implications – The findings from this research suggest that INEDs are able to discharge
their responsibilities in overseeing the conduct of executives and protecting the interests of investors. In
addition, the interviews disclose that the effectiveness of INEDs depends on how non-executive
directors view INEDs being on the board. Rather than focusing solely on their control role, INEDS are
expected to have a more proactive and progressive role in ensuring sustainable growth and the
expansion of the business entity.
Originality/value – There are limited studies using qualitative research design in investigating the
effectiveness of INEDs in the control role of the board in developing countries. Prior studies were
predominantly based upon the experience of Western economies. |
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