It could be said that the practice of some form of corporate governance has been in existence from the on-set of the industrial revolution when companies were established for the production of goods. This was the age of Adam Smith’s ‘Wealth of Nations’ which touched briefly on the social responsibility of the corporation in the eighteen century. However, it was only until the 1990’s that the issues of corporate governance gained greater awareness and importance. This was in reaction to the financial scandals and corporate failures following the effects of the economic crisis. The history of a formal code of corporate governance is traced back to 1991 in the UK when the Cadbury Committee was established with the objectives of raising the standards of corporate governance and the level of confidence in financial reporting and auditing. Hence, the Cadbury Code was formed, setting out clearly, the respective responsibilities of those involved and what is expected of them. Here, an emphasis on the role of the board of directors stands as the central

With this objective in mind, the Hampel recommendations seeks to address this issue by requiring companies to include in their annual reports, a narrative account of how they apply the broad principles set out in the code and a statement of compliance in respect of best practices. This in itself is a positive arrangement to ensure that companies pay heed to corporate governance practices. It is through this narrative in the annual reports (the statement of corporate governance) of two public listed corporations that we shall observe the effectiveness of the application of corporate governance arrangements in Malaysia.

In Malaysia the evolution of businesses many of which had origins of being family-owned into public listed corporations gave rise to the increasing importance of corporate governance. As the country gears itself to achieve a developed and industrialised nation status by year 2020 (Vision 2020), the corporate scene has changed dramatically with the Kuala Lumpur Stock Exchange growing to comprise of 630 public listed companies on its main board and 311 on its Second Board. This and the increasing global economic competition, have called for the necessary improvement of corporate governance structures in Malaysia. However, the first major move to improve the standard of corporate governance locally came about soon after the onslaught of the Asian Financial crisis in 1997 which claimed as victims many major corporations in the region including Malaysia. The reasons for these corporate tragedies have pointed out to the lack of proper corporate governance systems as a major cause (Kaur 2000). This provided the impetus to the setting up of a high level finance committee in March 1998, formed to recommend measures to enhance corporate governance. The result of this was a 275 page Malaysian Code on Corporate Governance report that contained 70 recommendations for companies to follow.

Based on the above two examples, it could be said that corporate governance arrangements in Malaysia have been effective to a certain extent and are bearing fruit with companies having more independent boards, transparent disclosures and accountability practices. Quoting from an article in the Far Eastern Economic Review, ‘In a remarkably short time, Malaysia has shrugged off its post-crisis image of a state managed economy with poor corporate governance. Foreign investors are flocking back’ (FEER 2002). However, as the Code is still in its infancy having been formed less than 4 years ago, there are varying rates of its adoption and compliance by different companies. There is much room for improvement with companies having to stay vigilant and progressive in the wake of growing economic competition and the greater emphasis that investors are placing on corporate governance standards. The recent fall of Enron and WorldCom, which has shocked the world, should serve as a lesson for all parties, the importance of the promotion and practice of good corporate governance. Compliance to codes and obedience to rules and regulations alone are insufficient for good corporate governance to flourish. To quote Dr. Madhev Mehra, Chairman of World Quality Council, ‘For corporate governance to succeed, we have to go through a profound metamorphosis from inside out…..to develop an inner value system which prides on ethics, morality, equity, legitimacy, transparency and most of all courage to

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