Introduction: Shareholder empowerment in Malaysia
Presently, Shareholders of public companies in Malaysia have limited power in making corporate decision. The precise scope of the powers of each organ is defined by the company’s articles of association, general principles of company law and the Companies Act 1965. Directors usually have the power to manage the business of the company, with the members being entitled to vote only on limited matters expressly reserved to them by the articles of association or the Companies Act 1965. Although they are granted the rights to make decision on the management board and the approval rights in passing directors’ proposals, some shareholders find it inadequate as the current approval rights is a fairly weak tool in controlling agency problem. With wide and in-depth coverage of ongoing corporate tussles, shareholder awareness has improved to the point that shareholders now want to hold management accountable to proper corporate governance. Hence, in this essay, the issue of whether Malaysia should encourage shareholder empowerment to improve corporate governance in companies and thereby attract more foreign direct investment is discussed. To support my arguments three main decision-making power; rules-of the-game, game-ending and scaling-down; as well as the approval rights and proposal rights are discussed.
Definition of Shareholder empowerment
Shareholder empowerment means the increasing rights given to shareholder to participate in corporate decisions. These rights include the proposal rights and approval rights, which could be classified under the rights to decide. Right to propose emphasize on shareholders right to initiate their proposals to control managerial agency problem whereas right to approve emphasize on the approval of managerial proposal. Similarly, according to Bratton and Wachter, shareholder empowerment is described as a strategy that looks to regulatory reform that enhances market control over the zone of discretion in which directors make business judgments.
Discussion: Advantages and Disadvantages of Shareholder empowerment Corporate governance is the framework of rules and practices by which a management of a company ensures accountability, fairness and transparency in a company’s relationship with its stakeholders. It is said that corporate governance and shareholder empowerment have a positive relationship. Hence, in order to conclude if Malaysia should encourage shareholder empowerment to improve corporate governance in companies and thereby attract more foreign direct investment, the advantages and disadvantages of shareholder empowerment are discussed latter.
Advantages of shareholder empowerment revolve around the three decision-making empowerments: rules-of-the-game decision, game-ending decision and scaling-down decision, and also the rights to purpose and rights to approve. ‘Rules-of-the-game’ decisions are decisions to alter the corporate charter or to reincorporate in another jurisdiction, ‘Game-ending’ decisions are decisions to merge, sell all assets, or dissolve and ‘Scaling-down’ decisions comprise decisions to contract the size of enterprise under the management’s control by ordering a cash or in-kind distribution.
Firstly, an increase in shareholder empowerment in the rules-of the game decision, is said to improve reincorporation decision. With limited intervention power given to shareholders, decision making is fully left to management that might be better informed but also has worse incentives. When shareholders are able to commence charter amendments, they are able to effect value-increasing changes that management does not favour for its private reasons, thus eliminating the underlying distortion in favour of management. Given a stronger shareholder power, management will most likely initiate value-increasing amendments itself. Also, if shareholders are given more power, it improves corporate law rules of...
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