Financial Communication Individual Assignment

Introduction: Genting Malaysia is involved in the hospitality and leisure business, including theme parks, gaming, hotels, seaside resorts and entertainment. The division, Resorts World Genting which consists of family leisure and entertainment resort was voted the Worlds Leading Casino Resort and Asias Leading Casino Resort from 2005 to 2010 by World Travel Awards, it has attracted 19.9 million visitors in year 2010. Genting Malaysia is listed as public listed company in Malaysia, its shares has been listed on the Main Board of Bursa Malaysia since 22 December 1989. Corporate Governance is a set of system that is being used to monitor, guide and control a companys business operation as well as any decision making. Genting Malaysia practices good Corporate Governance; the company was awarded in Asias Best Companies 2007-Malaysia No.6 in Best Corporate Governance and Corporate Governance Asia Recognition Awards 2008 as Asias Best Companies on Corporate Governance, in year 2008.

1. What is Corporate Governance (CG)?

Corporate Governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, as well as spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance. (OECD, 1999)

Corporate Governance helps in directing, administering or controlling a company. It also manages the relationships with the stakeholders involved;

external stakeholder groups including shareholders, customers, creditors and suppliers; internal stakeholders including Board of Directors and other employees. It helps to set the rules and procedures for decision making, company objectives and monitors the companys performance.

In order to have a good Corporate Governance, there are four parts to be taken care of, which are accountability, transparency, responsibility and fairness. a. Accountability: Have to confirm the governance roles and responsibilities, while supporting voluntary efforts to ensure the alignment of managerial and shareholder interests as well as the monitoring by the Board of Directors capable of objectivity and sound judgment. b. Transparency: There is a need to ensure timely and accurate disclosure for all material matters regarding the corporation, including financial aspects, performance, governance and ownership. c. Responsibility: Ensures that corporations follow with relevant laws and regulations that reflect the societys value. d. Fairness: All shareholders should be treated equally, including minority and foreign shareholders. Ensures the protection of shareholders rights and the enforceability of contracts with service/resource providers.

The following are some simple tips for developing good corporate governance:
y

Document governance principles. When documenting a set of corporate governance principles, the roles and functions of the Board and its committees should be established.

Document committee charters. All committee charters should outline a committees authority as to decision making and their roles and responsibilities. This creates accountability.

Within charters, a well-defined plan for dealing with governance issues and resolution of issues should be communicated.

An audit committee should monitor public accounting firm audit work, their independence, fees and level of services and scope of both audit and non audit services.

A compensation committee should address remuneration levels for executive officers, fringe benefit and incentive plans.

The corporate governance committee should make recommendations to the board for new members, and monitor the board performance.

The corporate governance committee should monitor committee and executive management performance.

Have independent members on the audit committee, including a financial expert.

Minutes should be taken at all meetings and committees should report formally to the board on a regular basis.

Employee code of conduct policy should be documented and provided to employees.

Board code of conduct policy for non-employee directors should be documented and provided to board members.

Formalize employee performance evaluations. Employee complaint procedures should be made available to all employees. Employees should be made aware of non-retaliation policy and that they can be anonymous. (Emily Holbrook, 2011)

2. Does your company practice CG?

Yes, Genting Malaysia practices Corporate Governance.

Our companys policy is to manage the Groups operations by practicing and maintaining the appropriate standards of good Corporate Governance. Our company has applied the principles and obeyed with the suggested practices as set out in the Malaysian Code on Corporate Governance.

(a) Board of Directors

The board of directors has eight members, including three executive directors and five independent non-executive directors. The directors are all holding senior positions in the public and private sectors; they are all experienced and have good abilities, as all directors are recruited after fulfilling the high requirements we have set. Under the Malaysian Code on Corporate Governance for companies listed on the Bursa Malaysia Securities Berhad, the Board of Directors responsibilities are being set under the Bursa Securities Listing Requirements to : (i) Identify potential or major risk and make sure the implementation of appropriate control measures to handle the risks. (ii) Review the suitability and integrity of the internal control system as well as the management information systems, systems that match with the applicable laws, regulations, rules, directives and guideline. Internal control system is designed to manage risks, not eliminate them, and provide only reasonable assurance against any loss. The Board confirms that there is an ongoing risk management process applied to identify, evaluate and handle the risks, in order to settle the risk that may affects the achievement of our Genting Malaysias business and corporate objectives. The Board has to ensure the proper management of risks to avoid any unwanted uncertainties. The Board holds the responsibilities to guide the Companys business. It meets on a quarterly basis and additionally as required. It has a formal schedule of matters regarding its decision, including strategic direction, capital

expenditure plan, acquisitions and disposals, annual operating plan, capital projects and monitors on the operation and financial performance of the Group. The Formal Board Committees of Genting Berhad is established by the Board in accordance with the Code, namely the Nomination Committee, Audit Committee and Remuneration Committee. They assist the Board in the division of its duties. The Nomination Committee is formed by the independent non-executive Directors, they are to identify and recommend, which candidates should be appointed to the Board and Board Committees. The selection of candidates is based on their ability, past performance, reputation and current position; should any candidates lack of the mentioned elements, their name will be terminated from the list. There are high restrictions set in order to recruit qualified members for the Board. The Articles of Association of the Company provides that at least one-third of the Directors have to retire at every Annual General Meeting and all Directors will have to retire once in every three years. Any retiring Director is eligible for re-election.

(b) Internal Control Genting Malaysia has obeyed with the requirement set in part 1 of the Malaysian Code on Corporate Governance (MCCG), which states that the board of a company should maintain a sound system of internal control to safeguard shareholders investment and the companys assets. Genting Malaysia has set up an internal control system to identify and ensure the implementation of appropriate control measures to manage the principal risks identified. The Board is holding the role to manage the Groups system of internal control and risk management. As mentioned earlier, Directors are aware that the system of internal control is designed to manage rather than eliminate risks.

Therefore, cannot provide an absolute assurance against material misstatement or loss. There is an internal audit department with adequate resources, which is to assist the Board in maintaining the internal control system, for the purposes of safeguarding shareholders investment as well as Groups asset. The department is to report often to the Audit Committee, provides the Board with much of the assurance it requires regards to the adequacy and integrity of the system. Besides that, the Group is also put in place a risk management process to help the Board in identifying, evaluating and handling the risks.

(c) Remuneration

For the Remuneration Committee, it includes two independent non-executive Directors and one executive Director. It is responsible for making some recommendations to the Board on the remuneration packages of executive Directors and members of Board Committees. Information provided by the independent consultants and others appropriate survey data are taken into consideration.

The Board is to determine the level of fee of non-executive Directors as well as executive Directors. Directors fees are then approved at the Annual General Meeting by the shareholders. However, Directors should not participate in decisions making regards to their own remuneration packages. The Remuneration Committee met twice during the financial year. Besides that, any Director who wishes to seek independent professional advice regards to his duties may do so at the Groups expense.

(d) Shareholders

We acknowledge the importance of timely and equal transmission of information to the shareholders, investors and public, so that the stakeholders

would be able to analyze the companys performance. The Companys Annual General Meeting is being held in the form of dialogue with the shareholders. Shareholders are encouraged to participate and throw in their questions about the latest proposal and the operations of the Group.

The Group provides a corporate website www.genting.com which contains of annual report, press releases, quarterly results, announcements and investor presentations. Investor forum in local and abroad as well as briefings and meetings with analyst and fund managers are held to give shareholders and stakeholders a better understanding of the businesses of the Group. This shows the company is trying hard to maintain the transparency of financial and nonfinancial information to the shareholders.

(e) Accountability Financial Reporting The Board is to ensure that the quarterly reports, annual financial statements and the annual review of operations in the annual report are presented to provide a balanced and clear assessment of the Companys prospect as well as performance. The Directors are also required to prepare financial statement for each financial year according to the Malaysian Accounting Standards Board Approved Accounting Standards in Malaysia for Entities Other Than Private Entities, and which give an equal and true view of the state of affairs of the Group, as well as of the Company at the end of the financial year.

(f) Relationship with Auditors

The Company has an appropriate and transparent relationship with the external auditors through the Audit Committee. In the course of audit of the Groups financial statement, the external auditors have highlighted to the Board and the Audit Committee about the issues that require the Boards attention. This has ensured that the board is able to maintain its independency and is not involved in the audit process of the financial statement.

All Audit Committee meetings are attended by the external auditors for them to present their audit plan as well as report, their comments will be presented on the audited financial statement too.

3. Discuss the importance/benefit of CG to organization

Corporate Governance gives importance to shareholders welfare and also includes the relationships between the strategic goal of the company as well as its stakeholders.

Management Good corporate governance allows everyone to assess the company on how well it is being governed. The main point of corporate governance is the transparency and disclosure principles. One of the advantages of corporate governance is that the benefits are measurable; good corporate governance ensures higher market valuation. Corporate governance initiatives have to make sure that the Board and management take appropriate and timely steps that benefits the business of the company. In this part, our Genting Malaysias Board and management have high restriction in all the operation and decision made; besides that our companys operation is under high transparency.

Transparency Corporate Governance encourages more transparency of the business and the company, in order to obtain the trust of the stakeholders. This transparency is enhanced by improving access to capital and financial markets. Raising capital will become an easier task as there are supports from its stakeholders. A company that follows good corporate governance also can achieve asset diversification through mergers and acquisitions in an easier way. Except that, Corporate Governance practices encourage a system of internal control, which will lead to better profit margins. Therefore, Corporate Governance initiatives increase the possibility to attract equity investors. Good Corporate Governance

practices will directly increase the corporate value of the company. If there are two companies with similar financial records, obviously the institutional investors will choose to invest in the one that has shown a proved record as a well-governed company. Our Genting Malaysia practices high transparency, as mentioned, we provide all the necessary material in our website, and everyone can access and get them.

Benefits to Shareholders The shareholders are very important to the company, good Corporate Governance can helps in reaching their satisfaction and expectation level. Good Corporate Governance initiatives assist the Board and the management to act on objectives that brings the best benefits of both the shareholders and the company. The shareholders will have greater security on their investments to the company because of the transparency and access to investment details. They are well-informed on all the important decisions of management, which make them have more confidence towards the company. We Genting Malaysia have appropriate relationship with our shareholders, as they are encouraged to participate and share their thoughts during our Annual General Meeting; except that, we have a fund manager dealing with our shareholders, to inform and enhance more understanding of our companys decision and operation to them.

Benefits to the National Economy There will be a good flow in capital, when a country has good reputation for its strong governance practices, as investors have greater confidence. The reporting and accounting standards applied by the country are also important to bring in investments to the country. Therefore, good corporate governance practices can even bring advantages to a countrys national economy. Genting Malaysia has attracted many investors to Malaysia, for example Singapore.

Macroeconomic Benefits A good system of corporate governance brings a sustainable economic development, by improving the performance of companies as well as increasing their access to outside capital. Good Corporate Governance can cause the stabilizing impact and growth impact on macro economy. Good Corporate Governance builds confidence in the financial system which leads to the increase of mobilization and investment. An increase in investments will lead to the increase of growth in the economy. Good governance ensures that resources are distributed to those that utilize it best, productivity would be enhanced and so growth is enhanced. Good Corporate Governance can lead to a stable macroeconomic situation as well, this require an all-embracing characteristic of good corporate governance. If the selection of both senior management and members of the Board of Directors is not based on qualification and competence, but rather political cronyism and some other unrevealed trade, then there is a high possibility for the emergence of poor corporate governance. If so, many problems will occur and greatly affected the company as well as the economy. In the other words, a poor corporate governance system will lead to an unstable macroeconomic system. Genting Malaysias Board members are appointed through some restrictive process; therefore our selection is based on qualification and competence; that is the reason why we have good corporate governance system.

On the corporates view, good Corporate Governance can help in increasing firm value, lowering the cost of capital, enhancing the capital efficiency and protect the shareholders right. For society part, it can form a more open and transparent society, prevent corruption, promote ethical wealth and fulfill rule of law: fair and orderly. When it reaches economy, it revitalizes market economy, sustainable economic growth, have positive development on capital market and more globally competitive, as well as increasing competitiveness.

Basically, there are 8 benefits for Corporate Governance:

a. Ensures corporate success and economic growth b. Maintains investors confidence, as a result, company can raise capital efficiently and effectively. c. Positive impact on the share price (increase) d. Provides satisfying return to the owners as well as managers to achieve objectives that are in interests of the shareholders as well as the organization. e. Minimizes wastages, corruption, risks and mismanagement. f. Helps in brand formation and development g. Lowers the capital cost h. Ensures organization is managed in a manner that meets the best interests of all.
http://www.managementstudyguide.com/corporate-governance.htm

4. Why CG is an important exercise in business operation. As mentioned earlier, Corporate Governance is beneficial to a company; it is indispensable in any business operation, therefore it is an important exercise in business operation. There are several reasons that make CG an important exercise in business operation: y Maintains investors confidence, as a result, company can raise capital efficiently and effectively. Corporate Governance can form a good reputation for companies, therefore managed to attract more investors and maintain the existing investors. In this situation, more capital is provided by the investors, the company can utilizes the capital to develop and get more profits.

Lowers the capital cost

Since investors have more trust and confidence on our company, they will remain their position; meanwhile more and more investors are attracted to join the company, in a result the capital cost can be lowered. y Positive impact on the share price

When the company has good reputations through its good Corporate Governance, all shareholders and stakeholders will be more confidence and trust on the company. More people are willing to invest in the companys share, that will bring up the share price and all people will be benefited. y Provides proper inducement to the owners as well as managers to achieve objectives that are in interests of the shareholders as well as the organization. Owners, managers, shareholders and stakeholders are all interrelated. In order to gain benefit for oneself, one will have to bring benefits to the others. So by reaching the satisfaction level of shareholders, owners and managers will get their own benefits as well. This is a win-win situation. y Minimizes wastages, corruption, risks and mismanagement.

Corporate Governance can assist and monitor the operation as well as decision made by the Board and Management. It can helps in avoiding mismanagement, corruption and inappropriate decision. Therefore, it can minimize the wastages and lowers the possibility of risk occurrence. y Helps in brand formation and development

As mentioned, Corporate Governance can bring good reputation to the company, by that it can helps in brand formation. Besides that, when the company is well-recognized in a good way, more people join the investment. When there are more investor, capital will increase, and as a result, the company can develop further. y Ensures organization is managed in a manner that meets the best interests of all.

Corporate Governance can assist the Board and management on their decision and operation, so it can ensures organization to be managed in a manner that meets the best interests of all. y Ensures corporate success and economic growth.

When Corporate Governance helps in enhancing the companys development and forming its brand, it ensures corporate success and also economic growth.

When risks are minimized over long term, more institutional investors are attracted to invest in the company and more equity participation from Government agencies. It will attract more individual investors for long-term investments, after that there will be a higher sustainable market capitalization. As a result, more activities will appear in equity market. When the capital market reacts positively, it becomes more dynamic; and when there are more economic activities, everyone will be benefited. Therefore, Corporate Governance is an important exercise in business operation.

If a country does not have a reputation for strong corporate governance practices, capital will flow elsewhere. If investors are not confident with the level of disclosure, capital will flow elsewhere. If a country opts for lax accounting and reporting standards, capital will flow elsewhere. All enterprises in that country suffer the consequences. (Arthur Levitt, former chairman of the US Securities & Exchange Commission, 2011)

A misuse of incentive-based compensation and poor corporate governance in the financial sector are acknowledged as two of the main competing causes of the financial crisis.

Example:

There was a Danish banking sector where nearly twenty percentages of all listed banks have disappeared during the financial crisis some of the banks are considerably large. The results show that banks with incentive-based compensation to the CEO performed significantly worse than other banks. However, it is analysed that the crisis is not caused by the incentive-based compensation but is instead the fundamental corporate governance problems in a majority of the banks. The main problem is due to the lacking of shareholder monitoring and a weak disciplinary effect of the market for corporate control; this situation happens because of the unfocused ownership and restrictions on shareholder rights. Without shareholder monitoring, the CEO becomes very powerful a power that depending on the type of the CEO has been used in different ways. It turns out that the CEO has used this power to increase his own compensation, the incentive-based compensation then are more risky and performed significantly worse than other banks. Except that, the excessive risktaking was already exist before the introduction of incentive-based compensation. Therefore, politicians and other regulators should pay much more attention on the fundamental corporate governance problems rather than just regulating executive compensation.

(http://econ.au.dk/fileadmin/site_files/filer_oekonomi/seminarer/Management/BankPa per.12.12.09.pdf)

Regarding the example, Genting Malaysia has high restriction on the management as well as the Board of Director structure, the occurrence of the issue mentioned is impossible. The well-managed situation is due to the establishment of good Corporate Governance, Genting Malaysia take it as an important element to operate its business and company ; the company was awarded in Asias Best Companies 2007-Malaysia No.6 in Best Corporate Governance and Corporate Governance Asia Recognition Awards 2008 as Asias Best Companies on Corporate Governance, in year 2008.

After obtaining the honoured award, Genting Malaysia has even more investors and better development, it has been acknowledged as a wellmanaged company. Therefore, it is obvious that Corporate Governance is an important exercise in business operation.

Conclusion

In conclusion, it is proved that Corporate Governance is very important as it is beneficial to the company; in order to further develop the company, Corporate Governance practice is a must. Genting Malaysia has expanded its business this far, without Corporate Governance, the expansion will be limited and the companys development might even stuck in a worse situation. Therefore, it is obvious that all companies should practice Corporate Governance.

Reference

http://phx.corporate-ir.net. (n.d.). Retrieved July 17, 2011, from http://phx.corporate-ir.net/phoenix.zhtml?c=108535&p=irol-govmanage.

http://www.ehow.com. (n.d.). Retrieved July 17, 2011, from http://www.ehow.com/list_6058186_benefits-corporate-governance_.html.

http://www.managementstudyguide.com. (n.d.). Retrieved July 17, 2011, from http://www.managementstudyguide.com/corporate-governance.htm.

http://accounting.smartpros.com. (n.d.). Retrieved July 17, 2011, from http://accounting.smartpros.com/x55104.xml.

http://www.antiessays.com. (n.d.). Retrieved July 17, 2011, from http://www.antiessays.com/free-essays/99121.html.

http://www.referenceforbusiness.com. (n.d.). Retrieved from http://www.referenceforbusiness.com/encyclopedia/Con-Cos/CorporateGovernance.html.

L.Bechmann, K. (2009). Bad Corporate Governance and Powerful CEOs in Banks. BankPaper.12.12.09, 1-2.