FUNCTIONAL CONVERGENCE: A WAY FORWARD TO IMPROVE CORPORATE GOVERNANCE IN MALAYSIA
Abstract
Malaysia is generally characterized as having concentrated ownership structure in its corporate sector dominated by family-owned and state-owned companies. Although there seems to be a shift in ownership and control, there is nevertheless preservation of concentration of ownership and control. In contrast, the Anglo-American system has a dispersed ownership system which has the characteristics of an active share market and takeovers, high market transparency and rigorous disclosure standards. Despite the obvious differences, the concentrated ownership systems have been transplanting Anglo-American laws, regulations, codes and guidelines into the body of their corporate governance frameworks in the hope of precipitating corporate governance reform and strengthening financial and economic standards. Although the main objective of convergence of corporate governance is to improve a country’s governance standard, the widespread reforms by way of converging practices have the potential to isolate the domestic problems. In particular, the mismatch of legal rules and regulations between dispersed ownership systems and concentrated ownership systems. Thus, this paper will look at the popular concept of convergence of corporate governance as a method to ameliorate the differences between systems. This paper argues that functional convergence can create a corporate governance structure that is closer to home without resort to direct formal regulation that carries the risks of cosmetic changes to the system. Examples from the US and the UK will be of useful insights to provide a sound solution to improve corporate governance in Malaysia.
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