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Corporate Governance Report

Introduction

In recognising the importance of good governance as a fundamental part of discharging their responsibilities, the Board of Directors (“Board”) of Malaysia Steel Works (KL) Bhd (“Masteel” or “Company”) has taken steps to evaluate and implement the Group’s corporate governance policies and procedures. The Board is committed to ensure that good corporate governance is practiced and complied with throughout the Group within the framework as expounded by the Malaysian Code on Corporate Governance (“MCCG”) to enhance the shareholders’ value.

This Corporate Governance Overview Statement is supported with a report (“Corporate Governance Report”), based on a prescribed format as outlined in paragraph 15.25(2) of the Main Market Listing Requirements (“MMLR”) of Bursa Malaysia Securities Berhad (“Bursa Securities”) so as to map the application of Masteel’s corporate governance practices against the MCCG. The Corporate Governance Report is available on the Company’s website, www.masteel.com.my as well as via an announcement on the website of Bursa Securities.

This Statement should also be read in conjunction with the other statements in this Annual Report, namely the Audit Committee Report, Statement on Risk Management and Internal Control and Sustainability Report, for a more holistic and granular understanding of the Group’s corporate governance framework and practices.

Summary of Corporate Governance Practices

Masteel has benchmarked its practices against the relevant promulgations and higher order practices, across the three (3) principles of the MCCG, namely:

• Principle A: Board Leadership and Effectiveness;
• Principle B: Effective Audit and Risk Management; and
• Principle C: Integrity in Corporate Reporting and Meaningful Relationship with Stakeholders.

Masteel has consistently applied all the practices espoused by the MCCG (“Practices”), except for the following:

• Practice 4.2 (Tenure of independent directors);
• Practice 7.2 (Disclosure on a named basis the Company’s top five (5) senior management’s remuneration in bands of RM50,000); and
• Practice 11.2 (Adoption of integrated reporting based on a globally recognised framework).

Amongst the four (4) Step Ups advocated by the MCCG, the Board has adopted Step Up 8.4 which calls for the Audit Committee to comprise solely Independent Directors and Step Up 9.3 which calls for Risk Management Committee (“RMC”) to comprise of majority Independent Directors. Step Ups are aspirational practices to facilitate companies in achieving greater excellence in corporate governance. Accordingly, the adoption of Step Ups is voluntary and in the heightened self-interest of Masteel.

In line with the requirements of the MCCG, the Group has provided clear and forthcoming explanations for departures from the Practices in the Corporate Governance Report. With regards to departure in Practices, the Board has provided disclosures on the alternative measures in place which will achieve similar outcomes of those Intended Outcomes of the MCCG. The explanations on the departures, supplemented with disclosure on the alternative practices are contained in the Corporate Governance Report.

PRINCIPLE A : BOARD LEADERSHIP AND EFFECTIVENESS

I     Board Responsibilities

The Group acknowledges the pivotal role played by the Board in the stewardship of its directions and operations, and ultimately the enhancement of long-term shareholders’ value. To fulfill this role, the Board is responsible for the overall corporate governance of the Group by setting the appropriate tone at the top, including planning its strategic direction, establishing goals for management and monitoring the achievement of these goals.

The Board is guided by a Board Charter which sets out the duties and responsibilities of the Board. The Board Charter sets out the matters reserved for Board’s collective decision in to ensure clear division of responsibilities. The Limits of Authority further detailed the authorisation of expenditures within the Group.

Subsequent to the introduction of the Malaysian Anti-Corruption Commission (Amendment) Act 2018, the Group had on 29 May 2020 adopted the Anti-Bribery and Anti-Corruption Policy (“ABAC Policy”) and taken proactive actions to strengthen the Group’s internal processes and practices during the financial year to ensure that it has adequate procedures in place to prevent persons associated with the Group from undertaking corrupt conduct. The Board will conduct review of the ABAC policy at appropriate intervals or at least once every three (3) years to consider is suitability, adequacy and effectiveness. In addition, the Code of Conduct, Code of Ethics and Whistleblowing Policy were revised concurrently so as to align with the ABAC Policy. The policies are available on the Company’s corporate website. The Company had subsequently established an Integrity Committee so that to assist RMC in establishing an oversight body to undertake primarily anti-bribery and anti-corruption measures and responses.

The Managing Director/Chief Executive Officer (“MD/CEO”) together with the Executive Directors, supported by the Management staff, are closely involved in the Company’s day-to-day operations and ensure that shareholders’ long-term interests are served. Through oversight, review and counsel, the Board establishes and promotes the Group’s business and organizational objectives, provides leadership to the Group, oversees business affairs and integrity, and works with the Management to determine the Group’s mission and long-term strategy.

Collectively, the Board brings a balance of skills and experience appropriate to the business owing to their diverse background in business, accounting, finance, political and commercial field.

In order to assist in the discharge of its responsibilities, the Board has established the following committees (“Board Committee(s)”) to perform certain of its functions and to provide recommendations and advice:

• Audit Committee (“AC”);
• Remuneration Committee (“RC”);
• Nomination Committee (“NC”); and
• Risk Management Committee (“RMC”).

Each Board Committee operates its functions within their terms of reference which have been approved by the Board and are subject to periodically review. The Board appoints the Chairman and members of each Board Committee amongst themselves.

The Chairman of the respective Board Committees reports to the Board on key matters deliberated at the Board Committees’ meetings and makes necessary recommendations to the Board. The ultimate responsibility for decision making lies with the Board.

The Board Charter is reviewed periodically by the Board or revised as and when required to ensure it complies with legislations and best practices and remains relevant and effective in light of the Board’s objectives. A copy of the Board Charter is published on the Company’s website at www.masteel.com.my.

The Board is also mindful of the importance of devoting sufficient time and effort to carry out their responsibilities and enhance their professional skills. It is also the Board’s policy for Directors to notify the Chairman of the Board before accepting any new directorships notwithstanding that the MMLR allows a Director to sit on the board of up to five (5) listed issuers.

The Board met five (5) times during the financial year ended (“FYE”) 31 December 2020. The attendance of each Director at the Board meetings held during the FYE 31 December 2020 is as follows:-


The Board is satisfied with the level of time commitment given by the Directors towards fulfilling the roles and responsibilities which is evidenced by the satisfactory attendance record of the Directors at Board meetings.

There is a clear division of responsibilities between the Chairman and MD/CEO to ensure that there is a balance of power and authority, as set out in the Board Charter. The Independent Non-Executive Chairman, Dato’ Ikhwan Salim bin Dato’ Haji Sujak is responsible for instilling good corporate governance practices, leadership and effectiveness of the Board while the MD/CEO, Dato’ Sri Tai Hean Leng @ Tek Hean Leng is entrusted by the Board on the daily running of the business and implementation of the Board’s policies and decisions.

The Board has access to the advice and services of the Company Secretaries. Both Company Secretaries of the Company are qualified to act as Company Secretaries under the Companies Act 2016 (“CA 2016″) and are Fellow members of the Malaysian Institute of Chartered Secretaries and Administrators (“MAICSA”). The Company Secretaries provide support to the Board in fulfilling its fiduciary duties and leadership role in shaping the corporate governance of the Group.

Notices of meetings are circulated to Directors at least seven (7) days before the meetings. The Management provides the Board with detailed meetings materials at least five (5) business days in advance. Senior Management may be invited to join the meetings to brief the Board and the Board Committees on requisite information being discussed, where necessary.

II     Board Composition

The Board currently has eight (8) members, comprising four (4) Executive Directors and four (4) Independent Non-Executive Directors. The present Board composition complies with Paragraph 15.02 of the MMLR which requires at least two (2) directors or one-third (1/3) of the Board, whichever is higher, to be independent. The Chairman of the Board is an Independent Non-Executive Director who carries out a leadership role in the conduct of the Board and its relations with shareholders and stakeholders.

The current size and composition of the Board is adequate for facilitating effective and objective decision making given the scope and nature of the Group’s business and operations. The Independent Directors play a strong and vital role in entrenching good governance practices in the affairs of the Group through their participations in the respective Board Committees. The Independent Non-Executive Directors of the Company had devoted sufficient time and attention to the Group’s affairs. None of the Directors on the Board hold more than five (5) directorships in other listed issuers on Bursa Securities.

The Board acknowledges the requirement under Practice 4.5 of the MCCG on increasing women’s participation in the Board. Although the Company does not set any specific target for female Directors, the Board will actively work towards having more female directors on board.

According to the Company’s Board Diversity Policy, the Board recognised diversity as an important criteria in determining board composition and to ensure difference perspectives are considered for Board effectiveness and strength.

III     NC

The NC comprises exclusively of Independent Non-Executive Directors, as follows:

Name                                                                    Designation
Encik Muhammad Hanizam bin Hj. Borhan          Chairman
Mr Ng Wah Lok                                                     Member
Mr Roy Thean Chong Yew                                     Member

The Board has through the NC, conducted an annual assessment on the effectiveness of the Board as a whole and the contribution of each individual Director. The assessment was conducted in-house and facilitated by Boardroom Corporate Services Sdn Bhd, the external corporate secretarial services provider of the Company.

The effectiveness of the Board Committees is assessed in terms of composition, required mix of skills, experience, structure and processes, accountabilities and responsibilities, as well as the effectiveness of the Chairmen of the respective Board Committees.

The Chairman of the NC, Encik Muhammad Hanizam bin Hj. Borhan is an Independent Non-Executive Director. During the FYE 31 December 2020, the NC held one (1) meeting and majority members registered full attendance. Below is a summary of the key activities undertaken by the NC in discharge of its duty for the FYE 31 December 2020.

  • Conducted an annual assessment on the effectiveness of the Board and Board Committees covering areas such as Board structure and operation, management relationship with the Board, the Board’s role and responsibilities, the required mix of skills and experience of the Directors, time commitments, skills, characters, experiences, integrity and competencies to effectively discharge the role as a Director and reported the findings in the Board meeting.
  • Reviewed and assessed the independence of the Independent Directors of the Company.
  • Reviewed the terms of office and performance of the AC and each of its members.
  • Reviewed, considered and recommended to the Board for approval, the re-election of Directors who retire by rotation pursuant to the Company’s Constitution.
  • Reviewed and assessed the independence of Mr Ng Wah Lok and Encik Muhammad Hanizam bin Hj. Borhan, both have served the Company as Independent Directors for a cumulative term of more than twelve (12) years to continue serving as Independent Directors and recommended to the Board for consideration.
  • Reviewed and discussed the succession planning of the Company.
  • Reviewed and discussed the suitable training programme for continuous development of Directors to strengthen their contributions to the Board.
  • Reviewed and recommended the composition of the Integrity Committee as well as proposed its terms of reference to the Board for approval.

The Directors have individually or collectively attended various training programmes during the FYE 31 December 2020, amongst others, the following:-

The Directors will continue to attend relevant training courses to further enhance their skills and knowledge to enable them to discharge their responsibilities more effectively.

The Company Secretaries facilitated the organisation of internal training programmes and keep the Directors informed of relevant external training programmes. The Company Secretaries also circulate the relevant guidelines on statutory and regulatory requirements from time to time for the Board’s reference and brief the Board quarterly on these updates at Board meetings.

The External Auditors also briefed the AC and the Board on changes to the Malaysian Financial Reporting Standards (“MFRS”) that affect the Group’s financial statements during the year, where applicable.

(i) Appointment to the Board and Re-election of Directors

The Company’s Constitution states that all Directors are subject to retirement by rotation and in ascertaining the number of directors to retire annually, at least one third of the Directors are required to retire and the Company shall ensure that all Directors shall stand for re-election at least once in every three (3) years.

(ii) Tenure of Independent Director

The Board Charter of the Company allows for an Independent Director who is serving exceeding a cumulative term of nine (9) years to be retained by obtaining the annual shareholders’ approval during the AGM of the Company.

The NC will evaluate the independence of the Independent Director prior to their recommendation to the Board on retaining the Independent Director with valid justifications.

The invaluable knowledge of the Independent Directors gained through the years, as well as their continued contribution will provide stability and benefits to the Board and the Group as a whole. The Board believes that the integrity of the Directors in discharging their responsibilities in the best interest of the Company, after having provided all the relevant confirmation on their independence, will be able to determine if they can continue to bring independence and objective judgement on Board deliberations and decision making.

During the year 2020, both Mr Ng Wah Lok and Encik Muhammad Hanizam bin Hj. Borhan have served the Company as Senior Independent Non-Executive Director and Independent Non-Executive Director of the Company respectively for a cumulative term of more than twelve (12) years. The Board has retained them as Independent Directors notwithstanding their service tenures by obtaining annual approval from shareholders during the previous AGM based on the following justifications:-

(a) They have fulfilled the criteria under the definition of Independent Director as stated in the MMLR, and therefore are able to bring independent and objective judgment to the Board.

(b) They have contributed sufficient time and effort in attending the Board Committee meetings and Board meetings.

(c) The length of their service on the Board does not in any way interfere with their exercise of independent judgement and ability to act in the best interests of the Company.

(d) As they have been with the Company for more than more than twelve (12) years they therefore understand the Company’s business operations which enable them to participate actively and contribute during deliberations or discussions at Board Committee meetings and Board meetings without compromising their independence and objective judgement.

(e) They have exercised their due care during their tenure as Independent Non-Executive Directors of the Company and carried out their professional duties in the interest of the Company and shareholders.

IV   Remuneration

The Board through RC has established a Directors’ Remuneration Policy to assist the Group in attracting, retaining and motivating its Directors in order to run the Group successfully.

The RC consists of the following members:

Name                                                               Designation
Dato’ Ikhwan Salim bin Dato’ Haji Sujak          Chairman
Mr Roy Thean Chong Yew                                Member
Mr Ng Wah Lok                                                Member

During the financial year 2020, the RC convened two (2) meetings which were attended by all the RC members. The RC had reviewed the remuneration for the Executive Directors, which reflects the level of risk and responsibility, the individual’s performance indicators (“KPI”) on the job, and the performance of the Company and considered their remuneration packages are well within the comparable companies in similar industry. The RC had also reviewed the fees for Non-Executive Directors, which reflects the experience and level of responsibilities undertaken by the individual Non-Executive Directors concerned.

The level and structure of the Group’s remuneration policy are aligned with the business strategy and long-term objectives of the Group, as are appropriate to attract, retain and motivate the Directors to provide good stewardship, as well as motivate key management personnel to successfully manage the Group. The Board is of the view that the current remuneration level suffices to attract, retain and motivate qualified Directors to serve on the Board.

The detailed remuneration of the Board is disclosed in the Corporate Governance Report of the Company and in Note 24 of the Notes to the financial statements of the Company FYE 31 December 2020.

PRINCIPLE B : EFFECTIVE AUDIT AND RISK MANAGEMENT

I      Audit Committee

The Board is assisted by the AC to oversee the Group’s financial reporting processes and the quality of its financial reporting and to ensure that the financial statements of the Group comply with applicable financial reporting standards in Malaysia.

The AC is chaired by an Independent Non-Executive Director who is distinct from the Chairman of the Board. All members of the AC are financially literate, with the Chairman and another member of the AC being members of the Malaysian Institute of Accountants.

The AC consists of the following members:

Name                                                                Designation
Mr Roy Thean Chong Yew                                  Chairman
Mr Ng Wah Lok                                                  Member
Encik Muhammad Hanizam bin Hj. Borhan        Member

The AC comprises solely of Independent Non-Executive Directors. The composition of the AC, including its roles and responsibilities, number of meetings and attendance of the AC, summary of the AC activities and Internal Auditors’ activities during the FYE 31 December 2020 are set out on pages 39 to 41 of the Audit Committee Report of this Annual Report.

The AC regularly reviews and scrutinises the audit report by the Internal Auditors and conducts an annual assessment on the adequacy of the department’s scope of work and resources. The AC has in its terms of reference requires that a former key audit partner observe a cooling-off period of at least two (2) years before being appointed as a member of the AC and to date, the Company has not appointed any former key audit partner as Director of the Company.

Alongside, the AC has the procedures to assess the suitability, objectivity and independence of the External Auditors annually which is contained in the External Auditors Assessment Policy. The AC had met with the External Auditors twice during FYE 31 December 2020 without the presence of the Management (i.e. 19 May 2020 and 20 November 2020 respectively) to discuss any key area or issues which require the attention of the AC and Board.

The AC discussed on a summary of internal audit’s findings together with the Management’s responses to ensure that the Management undertakes the agreed remedial actions as proposed by the Internal Auditors.

All members of the AC undertake continuous professional development to keep themselves abreast with the relevant developments in accounting and auditing standards, practices and rules.

II    Risk Management and Internal Control Framework

The RMC which comprises of a majority of Independent Non-Executive Directors, assists the Board in fulfilling its responsibilities in the risk governance and oversight functions via establishing a sound internal control framework to manage risks with the overall responsibility for overseeing the risk management activities of the Group and approving the appropriate risk management procedures and measurement methodologies across the Group. With the assistance of an external consultant, an Enterprise Risk Management (“ERM”) approach has been adopted to develop an effective and sound ERM.

The RMC consists of the following members:

Name                                                                 Designation
Mr Ng Wah Lok                                                  Chairman
Mr Ong Teng Chun                                             Member
Encik Muhammad Hanizam bin Hj. Borhan        Member

The Board has established an internal audit function within the Group known as Internal Audit Department (“IAD”), which is independent from the operations of the respective operating units. The principal role of the IAD is to undertake regular and systematic reviews of the system of internal control independently so as to provide a reasonable assurance that such system continues to operate satisfactorily and effectively. It is the responsibility of the IAD to provide the AC with independent and objective reports on the state of internal control of the various operating units within the Group and the extent of compliance of the units within the Group’s established policies and procedures as well as the relevant statutory requirements. The internal audit reports are presented together with the Management’s response and proposed action plans to the AC quarterly.

The principles and guidelines promulgated by The Institute of Internal Auditors (“IIA”) in the International Professional Practices Framework (“IPPF”) for an internal audit function to be considered effective has been adopted.

The details of the Company’s risk management and internal control framework are set out on pages 42 to 44 of the Statement on Risk Management and Internal Control of this Annual Report.

PRINCIPLE C : INTEGRITY IN CORPORATE REPORTING AND MEANINGFUL RELATIONSHIP WITH
STAKEHOLDERS

I     Communication with Stakeholders

The Board recognises the importance of maintaining transparency and accountability to its shareholders as a key element of good corporate governance and thus, maintains a high level of disclosure and communication with its shareholders, stakeholders and the public in general through disclosures to Bursa Securities and to the press. The Group’s financial performance, major corporate developments and other relevant information are promptly disseminated to the investors via the announcements of its quarterly results, Annual Report, announcements to Bursa Securities and press releases.

The Board has put in place a Corporate Disclosure Policy and Procedures to ensure compliance with the disclosure requirements as stipulated in the MMLR and also to set out the persons authorised and responsible to approve and disclose material information to shareholders and stakeholders.

The Company has established a dedicated section for corporation information on the Company’s website, www.masteel.com.my, which is accessible by the public at large to obtain information on the Company’s Board Charter, Terms of Reference of each Board Committee, press releases, corporate information, operation activities, financial performance as well as the Company’s share price.

The Board will review and update the existing policies and procedures as and when necessary to ensure that they are updated in accordance with the prevailing legal and regulatory promulgations as well as best practices.

II    Conduct of General Meetings

The AGM is a principal forum for a two-way communication between the shareholders and the Management of the Group. Shareholders are provided with an opportunity to participate in the question and answer session in which they may raise questions pertaining to the Group’s businesses and affairs. The Chairman, and the other members of the Board together with the Management and the Company’s external auditors are available to respond to queries from shareholders at the AGM. At the previous AGM of the Company held on 16 July 2020, Masteel has conducted its first fully virtual AGM and all the Directors were present at the meeting. This is so provided by the Constitution of the Company which allows for General Meetings to be held using any technology or electronic means.

However, due to the restrictions imposed by the Malaysian Government, only essential individuals such as Chairman, MD/CEO, CFO, AC Chairman and Company Secretary were allowed to physically present at the broadcast venue while the rest of the Directors and meeting participants participated the meeting remotely.

During the AGM, shareholders took the opportunity to raise questions on the agenda items of the AGM as well as the financial performance of the Group, the Chairman and MD/CEO responded to all questions raised and provided clarification as required by shareholders.

Electronic poll voting was adopted at the 48th AGM and the Chairman had notified the shareholders on the demand for a poll on all resolutions as set forth in the Agenda of the AGM for the interest of all shareholders and chaired the meeting in an orderly manner. A scrutineer was appointed to validate the votes cast at the said AGM. Such scrutineer must be independent of the person undertaking the polling process.

Further, in line with the recommendation of MCCG, the notice of the previous AGM was issued with at least twenty-eight (28) days before the AGM date to enable the shareholders to go through the Annual Report and papers supporting the resolutions proposed. In addition to being dispatched individually to shareholders, the Notice of AGM was also circulated in a nationally circulated newspaper alongside an announcement on the website of Bursa Securities. This allows shareholders to have immediate access of the notice of AGM and make the necessary preparations for the AGM.

When there is special business or where special resolutions are proposed, the explanation of the effects of such special business or special resolutions are provided in the notice of the AGM under the explanatory notes.

The outcome of all resolutions proposed at the previous AGM was announced to Bursa Securities at the end of the meeting day while the key matters discussed at the previous AGM were published on the Company’s website as soon as practicable after the conclusion of the AGM.

FOCUS AREAS AND PRIORITIES ON CORPORATE GOVERNANCE

The Board, against a challenging business backdrop, focused its attention on the foundational aspects of its roles as they relate to the creation of long-term value for stakeholders. The Board will continue to enhance the corporate disclosure requirements in the best interest of the shareholders and stakeholders of the Company in the upcoming years. The areas to be prioritised by the Board will be those principles yet to be adopted by the Company as disclosed in the Corporate Governance Report 2020.

This Statement is made in accordance with a resolution of the Board dated 6 April 2021.

 

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