The appointment process of independent directors in Malaysian listed companies
This study examines the appointment process for independent directors in public listed companies (PLCs) in Malaysia. To this end, open-ended interviews were conducted with chairmen of nomination committees of PLCs in Malaysia in order to understand the appointment process. The results revealed th...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Virtus Interpress
2016
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/61510/ http://irep.iium.edu.my/61510/ http://irep.iium.edu.my/61510/ http://irep.iium.edu.my/61510/7/61510_the%20appointment%20process%20of%20independent_article.pdf |
| Summary: | This study examines the appointment process for independent directors in public listed
companies (PLCs) in Malaysia. To this end, open-ended interviews were conducted with chairmen
of nomination committees of PLCs in Malaysia in order to understand the appointment process.
The results revealed that nominations may come from various sources, including from the firm’s
board members, CEO or owners. It was also found that the nominees are those within the
personal network of the board members, CEO or owners. The main reason given was to shorten
the appointment process and also because they knew the candidates personally. In terms of the
selection criteria, the personal qualities of a candidate were found to be very important. In
particular, the board puts emphasis on experience, expertise, professional qualifications, and
reputation to identify a candidate who can commit to their tasks. However, the board does not
consider race, religion, and gender as important selection criteria. Our findings reveal that it is
the board that makes the final decision on the appointment or reappointment of independent
directors. Based on our findings, we conclude that nominations for independent directorships
mainly come from inside the firms and those nominated are within their networks. In other
words, the independent directors are known or connected either to the board members, CEO or
major shareholders. Hence, it would be very difficult for independent directors to perform a
monitoring role as prescribed in agency theory. Rather, the independent directors are appointed
to the board primarily to play a service role, consistent with resource dependency theory. The
fact that firms prefer professionals with experience indicates that candidates for independent
directorships are appointed because of their expertise and their service role. |
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