PETALING JAYA: The Institute of Corporate Directors Malaysia (ICDM) says the remunerations paid to independent directors by corporations in Malaysia have rooms to improve to attract quality candidates required in this dynamic time.
While disclosures of remunerations remain inconsistent, the ICDM said it was imperative for boards to evaluate their effectiveness, as well as shift their strategic priorities to address key challenges presented by the business environment.
“Since responsibility has risen, you need to remunerate them (independent directors) well so that you get the right people on the board who know what needs to be done,” said ICDM president and chief executive officer Michele Kythe Lim.
The ICDM’s general observations for the shortfall in remunerations may be attributed to a combination of having no proper benchmarking and affordability issues that differ according to the maturity of the company and sector.
Lim said the ICDM’s goal is to help professionalise board directorship and to encourage corporates to internalise the process and build up good candidates from within.
She added that a lot of potential board members and companies should not be looking at single skill sets as factors such as climate change, sustainability, geopolitics and technologies such as generative AI require diverse skill sets, which are also more likely with younger members of the working population.
Hence, corporate boards need to be far more responsive going forward.
Furthermore, previously, there was no regulation on independent board representations but large caps currently need to have half its board represented with independent directors.
Hence, to attract the right candidates, Lim said board remunerations may have to be raised for such talents and commensurate with the responsibilities helmed.
She said boards should discuss and facilitate hard hitting conversations and engagements on risks and challenges facing companies today and be good partners to senior management.
“Only when boards, directors and senior management are aligned with mutual trust can they proactively and successfully deal with challenges, perform better as a company, respond to greater regulation and scrutiny as well as cost and complexity in the coming years,” she said.
ICDMs’ evaluations found trust between the board and management and a good working relationship is required to perform well and aid a better functioning company.
Conflict can occur sometimes due to boards not understanding their roles enough and wanting to micro manage, instead of taking the adviser role which in turn leads to a breakdown in trust with management.
Since its inception in 2018, ICDM has seen more than 24,600 participants in over 400 programmes. Its Director’s Registry stands at a total of over 1,000 qualified board candidates across various industries.
Last year, it initiated the Asean Directors Registry to build a broader and international network with a more diverse pool of viable board talent and creating networks and opportunities for transnational director placement, extending their board registry number by more than 17,000 members and alumni from across nine other national institute of directors.
It is also collaborating with the Institute of Directors in the United Kingdom to drive proactive governance.
The ICDM has 109 corporate members and 1,236 individual members as at March 31, 2024.
Lim said the lack of corporate membership is due to companies not having a budget for corporate functions but a lot do subscribe to its services but do not become members.
Its voluntary membership also takes time to convert to be a corporate member, she said.
“As we raise the standards and the impact we make, our membership will grow. In terms of reach, we have it but many have not come on board yet,” she said.