Minority Shareholder Watchdog Group

Introduction There are two types of shareholders, namely the majority shareholders and the minority shareholders. Minority shareholders refer to those who own less than 50% of the company’s shares and thus do not possess voting power in the company. Generally, those who have shares in a company must follow the majority rule.

However, the law has granted several rights to the minority shareholder to protect their interests. There are three basic rights of minority shareholders, namely, right to seek information, right to voice opinion and right to seek remedy. The minority shareholder will also have the right not to be compelled to take over more shares without his consent in writing. This is provided under section 33(3) of Companies Act 1965.[1] Besides, the minority shareholder will also have the right to make application of winding up the company. This can be found under section 218 of the Companies Act[2]. Next, the minority shareholder is also granted with the right to seek relief in cases of oppression or unfair discrimination.[3] Section 181 of Companies Act 1965 states that, “Any member of a company may apply to the Court for an order on the ground that the affairs of the company are being conducted in a manner oppressive to one or more of the members or that some act of the company has been done which unfairly discriminates against one or more of the members”.[4] Besides, the minority shareholder will also have the right to request to the Court to make an order to call an Annual General Meeting.

This is stipulated under section 143(4) of the Companies Act 1965[5]. On the other hand, section 148(1) of the Companies Act also clearly indicates that the minority shareholder will also have the right to attend any general meeting of the Company and to speak and vote on any resolution before the meeting.[6] Furthermore, section 149(1) of the Companies Act further states that the minority shareholder appoint another person or persons as his proxy to attend and vote instead of himself at a meeting of the Company.[7] On the other hand, the minority shareholders may also exert pressure on the company’s directors to be more accountable and transparent.[8] Generally, all shareholders, including minority shareholders should also have the right to seek remedy when their rights have been violated. In Malaysia, the Minority Shareholder Watchdog Group which was formed on 30th August 2000 provides protection to minority shareholders of public companies over their interests. What is Minority Shareholder Watchdog Group The Minority Shareholder Watchdog Group (MSWG) was established in Malaysia on 30th August 2000. It was formed to promote and protect the interests of minority shareholders in public company through shareholder activism. Through years, the Minority Shareholder Watchdog Group has now become an independent research organization on matters regarding corporate governance. It helps to enables minority shareholders of public companies to become aware of their basic rights as shareholders such as right to seek information, right to voice opinion and right to seek remedy.[9] The right to seek information refers to the right to know about the company’s price sensitive information, right to be sent the Notice of General Meetings, right to have a copy of annual report and audited accounts, right to inspect the Minutes of General Meetings and right to know what is happening in the company. On the other hand, the right to voice opinion refers to those rights such as right to attend general meetings, right to request the court to order the company to call a general meeting, right to be heard during shareholders’ meeting and right to vote and elect directors and auditors.

Next, the right of minority shareholders to seek remedy is provided under section 181 of the Companies Act 1965[10]. Besides, the MSWG also assists minority shareholders to raise issue of concerns to the company’s board of directors. Furthermore, the MSWG also organizes various educational programs for retail shareholders.[11] On the other hand, the objectives of the Minority Shareholder Watchdog Group are laid down in its Memorandum and Articles of Association. There are several objectives being laid down. Firstly, the MSWG was formed to act as the Forum for minority shareholders to share their experiences concerning Malaysian Code in issue such as Corporate Governance, the Securities Commission’s Disclosure-Based Regulations, and the Capital Markets Master plans.

Next, the second objective of MSWG is to develop and promote the corporate governance in educational aspects. Furthermore, it was also set up for the purpose of becoming the Think-Tank and Resource Centre in Malaysia which deals with the interest of minority and matters of corporate governance. Besides, it provides platform for the management of public listed companies to carry out collective shareholder activism on questionable practices. Next, another objective of MSWG is to help in monitoring any breaches and non-compliance in practices of corporate governance by public listed companies. Besides, it was set up to initiate reports to regulatory authorities.[12] Next, there are four founding organizations of Minority Shareholder Watchdog Group.

The founding organizations are the organizations that provided the start-up fund to the Minority Shareholder Watchdog Group. The first founding organization is the Armed Forces Fund Board. It was established in August 1972 with the aims of giving retirement and other advantages to the Armed Forces members and to ensure that members of volunteer forces are entitled to take part in a savings scheme.[13] Secondly, another founding organization of MSWG is the National Equity Corporation which was incorporated on 17th March 1978. It was formed to act as an important tool of the Government’s New Economic Policy with the purpose of promoting Bumiputera’s share ownership in the corporate sector and developing chances for suitable Bumiputera professionals to involve in the wealth creation and management. Thirdly, the next founding organization is the Social Security Organization (SOCSO) which was formed in year 1971 under the Ministry of Human Resources. Its aims are to ensure and promote occupational health and safety.

Lastly, the fourth founding organization is the Pilgrimage Board. It was established in November 1962 with the purpose of enabling Muslims to save their money gradually. The savings can be used for expenditure during pilgrimage or other beneficial purposes. Besides, the Pilgrimage Board also encourages Muslims to participate actively in investment activities which are permissible in Islam through their savings and safeguards the welfare of Muslims during their pilgrimage through different types of facilities and services provided. Today, the Minority Shareholder Watchdog Group is basically funded by the Capital Market Development Fund and also from the sales of its own products and services. [14] Roles and Objectives of Minority Shareholder Watchdog Group The Minority Shareholder Watchdog Group (MSWG) was setup in August 2000[15] and it is not a profit based body. Its aim was to promote and encourage shareholder activism, especially among the least cared and minority shareholders. In Malaysia, MSWG generally works and services people with the objective of preserving shareholder rights, minimize risks to shareholders and eventually help to boost up the value of the capital market.

Recently, the MSWG had actively participate in all kind of activities in which issues relevant to minority shareholders and retail investors had been highlighted and given proper attentions. By doing this, their credibility had been built up. The MSWG has also play important role in leading initiative for the development and enlargement of important institution such as Best Practices for Institutional Shareholders. The MSWG had conducts annually surveys such as the Corporate Governance Survey, Directors’ Remuneration Survey and others. It is therefore able to render proxy services for the minority and retail investors.[16] The MSWG is moving towards becoming a totally independent and self-sustainable institution that stand strong the rights of minority shareholders.The obvious role of MSWG is to enhance Shareholder Activism and Protecting Minority Interest and at the same time develop and propagate the education perspective of corporate governance. It also acts as a platform to start up and discuss on unethical, immoral behaviors and questionable practices for the benefit of the shareholders as a whole. In addition, decision making process in public-listed companies also heavily influenced by the motive and direction of MSWG. MSWG hence works as a guidance to monitor the breaches of statutory duties and non-compliance in corporate governance practices. As mentioned above, it is the forum for minority shareholders to share their experiences in the context of the Malaysian Code on the Capital MarketsMaster plans and Corporate Governance.

Besides, MSWG works well as information gathering center for upholding minority interest and concerning the management of cooperative matters in Malaysia. In the meanwhile, MSWG acts as check and balance in the sense that to develop and spread the corporate governance’s educational aspect. It does not only works as spokesman for regulatory authorities but also acts as an effective deterrent to abusive forces and at same time prohibits activities that could have exploit the interest of the minority shareholders. Lastly, The MSWG provides service at minimum fee which enables investors’ proxy advisory and also proxy voting services.[17] In short, MSWG normally act to protect the interest of minority shareholder and even provides them remedy if they face any defect or disadvantages in the share transactions in Malaysia. Corporate Governance of MSWG The Minority Shareholder Watchdog Group (MSWG) was established to guard the interests of minority investors through shareholder policy. It’s one avenue of market discipline to encourage sensible governance amongst public listed corporations with the target of raising investor price over time. MSWG’s objectives are started in an exceedingly Charter beneath its memo and Articles of Association. The first one is to become the Forum on minority shareholders’ experiences within the context of the Malaysian Code on company Governance, the Securities Commission’s Disclosure-Based regulations, and also the Capital Markets Masterplans. Besides that, to become the Think-Tank and Resource Centre for minority interest and company governance matters in Malaysia. On top of that MSWG aiming to develop and circulate the educational aspects of company governance as well as in becoming the platform to initiate collective investor policy on questionable practices by management of public listed corporations. In order to achieve the objectives MSWG also need to influence the choice creating method publicly listed corporations because the leader for minority shareholders’ legitimate rights and interests.

Moreover monitoring for breaches and non-compliance in company governance practices by public listed corporations is also one of the objectives. Lastly, it is to initiate wherever applicable, reports to restrictive authorities and reworking MSWG into a good deterrent of such events or activities that may be against the interest of the minority shareholders. The MSWG was discovered to make awareness among minority shareholders of their 3 basis rights to hunt data, voice opinion and obtain redress.[18] In recognition of its public mandate to spearhead investor policy that is one in all the key tenets of company governance the CMDF has been supporting the MSWG since 2005. To date, the MSWG has been productive in increase their quality by their active participation in AGMs and EGMs, wherever the MSWG highlight issues and problems relevant to retail and minority shareholders. The MSWG has conjointly led an industry initiative for the event of Best Practices for Institutional Shareholders. The MSWG conducts yearly surveys Malaysia public listed corporations, like the Directors’ Remuneration Survey, company Governance Survey and also the Dividend Survey, and is ready to supply proxy services for minority and retail investors.

The MSWG is functioning towards turning into a completely independent and self-sustainable organization representing the rights of minority shareholders.[19] With Malaysia’s push towards responsible investment, MSWG is presently spearheading the formulation and development of the Malaysian Code for Institutional Investors (Code) in line with one amongst the recommendations of the company Governance Blueprint 2011 (CG Blueprint), that made public strategic initiatives geared toward reinforcing self and market discipline. The Code is meant to administer institutional investor steerage on effective exercise of situation responsibilities to confirm delivery of property worth to their final beneficiaries or purchasers. Institutional investors are inspired to be the signatories of the Code that is expected to be launched by the second quarter of 2014. In yet one more development, MSWG has been appointed by the Securities Commission (SC) to be the domestic ranking body in Malaysia to assess Malaysian PLCs victimisation the ASEAN CG scorecard methodology wherever the highest fifty corporations would be mentioned within the ASEAN CG Country Report and hierarchical below the Malaysia-ASEAN CG Index 2013.[20] This appointment was in recognition of MSWG’s record in closing the assessment of CG practices among PLCs in Malaysia through the mcg Index since 2009. The findings of the Malaysia-ASEAN CG Index 2013 showed that the common base score for the highest one hundred corporations in Malaysia had raised to seventy five.77 points in 2013 from sixty eight.2 points within the previous year reflective an overall rising in CG awareness among the listed corporations. In line with the Government’s agenda of promoting corporations with good environment, Social and Governance (ESG), the card has enclosed parameters that measure such disclosures that I see as pertinent because it is accustomed gauge and verify the ESG levels and gaps which will be addressed. As for all, MSWG is also promoting the publication of AGM minutes to produce data on the Conduct of AGMs so the amount of transparency and answerability in corporations is stepped-up.[21] MARKET RESPONSE TO MSWG ACTIVISM The Minority Shareholder Watchdog Group policy is to induce the manner of the companies in conduct the power of ownership so that companies expand and apply successful strategies and high standards of governance, thereby maximizing returns for owners. (Hendrikse, 2004). The activism comes as shareholders that rewarded companies for asset growth, now are demanding earnings growth, better stock performance and richer dividends. Shareholder activism is a broad concept with many forms.

There are a wide variety of actions and behaviour that could justifiably fall within the ambit of shareholder activism. However, no matter which form is chosen the end-game is to effect change; whether in management, the capital and asset structure or strategic direction. The MSWG-targeted firms earn significantly higher positive returns as compared to non-targeted firms. Thus, the company will analyze the reactions of share prices. The analysis will begin from day-0 . Our event window begins on day –30 and ends on day +5 to determine the impact over a short event window, while this window is extended to day +30, +60 and 1 year to gauge impacts over a longer event window.

The company will compute raw buy –and-hold returns [22]as well as market-adjusted returns[23], the latter of which is the value-weighted KLCI Index[24] returns over the respective event windows. In the year 2013 was the second year MSWG corporate with the ASEAN Corporate Governance Scorecard[25] to acess 826 Malaysian public listed companies. Earlier on, MSWG had used Malaysian Corporate Governance (MCG) Index Scorecard in 2009 and 2011 but it was later alter to Asean countries agreed to use a standard methodology that could be applied across the whole region. In the nutshell, MSWG targets those firms with high return and high levels of institutional shareholdings. It is targeted firms with high levels of cash holdings and relatively lower amounts of debts on their balance sheets. In addition, with easy cash flow and agency cost theorie by applying equity returns data, in searching for companies [26]with good return and reliable to earn profit in short term and over the long run as compared to non-targeted firms.

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[1] Companies Act 1965, s33(3)

[2] Companies Act 1965, s218

[3] Tommy Thomas, ‘Protection of Minority Shareholders’ [1984] 1 CLJ 10

10] Companies Act 1965, s181

[5] Companies Act 1965, s143(4)

[6] Companies Act 1965, s148(1)

[7] Companies Act 1965, s149(1)

11] Abdul Wahab Jaafar Sidek, ‘Protecting Minority Shareholders during Times of Financial Turmoil’ <https://www.asli.com.my/DOCUMENTS/capital market summit/Mr Abdul Wahab Jaafar Sidek.pdf> accessed 4th August 2014

[9] Abdul Wahab Jaafar Sidek, ‘Equitable Treatment of Minority Shareholders’ <https://www.oecd.org/daf/ca/corporategovernanceprinciples/41076424.pdf> accessed 4th August 2014 [10] Companies Act 1965, s181 [11] Abdul Wahab Jaafar Sidek, ‘Protecting Minority Shareholders during Times of Financial Turmoil’ <https://www.asli.com.my/DOCUMENTS/capital market summit/Mr Abdul Wahab Jaafar Sidek.pdf> accessed 4th August 2014 [12] Minority Shareholder Watchdog Group, ‘Objective, Vision and Mission’ <https://www.mswg.org.my/page.php?pid=85&menu=sub> accessed 10th August 2014 [13] Lembaga Tabung Angkatan Tentera, ‘Objektif’ < https://www.ltat.org.my/webltat/index.html> accessed 4th August 2014 [14] Minority Shareholder Watchdog Group, ‘Who Are We’ <https://www.mswg.org.my/page.php?pid=36&menu=sub> accessed 4th August 2014 [15] Minority Shareholder’s Watchdog Group, Dana Pembangunan Pasaran Modal, Capital Market Development Fund. To date, the MSWG has been successful in building up their credibility by their active participation in AGMs and EGMs, where the MSWG highlight concerns and issues relevant to retail and minority shareholders. [16] OECD Investment Policy Reviews OECD Investment Policy Reviews: Malaysia 2013, pg 173, Paragraph 5.3.The MSWG has been pivotal in providing a platform for providing a platform for collective shareholder activism on questionable practices by management of public. [17] The Impact of minority Shareholder watchdog group activism on the performance of targeted firms in Malaysia, Rashid Ameer and Rashidad Abdul Rahman, pg 76. These subscribers are given advice on how to ask questions and raise issues at AGMs or EGMs. The modus operandi of the MSWG is to write letters known as MSWG letters to corporate secretaries in targeted firms to highlight major issues for clarification or to solicit the details from the board in forthcoming AGMs or EGMs [18] Rashid Ameer and Rashidah Abdul Rahman, ‘THE IMPACT OF MINORITY SHAREHOLDER WATCHDOG GROUP ACTIVISM ON THE PERFORMANCE OF TARGETED FIRMS IN MALAYSIA’ (web.usm.my 2009) <https://web.usm.my/journal/aamjaf/Vol 5-1-2009/5-1-3.pdf> accessed 6 August 14 [19] ‘Minority Shareholder’s Watchdog Group’ (cmdf.org.my ) <https://www.cmdf.org.my/364_221_221/Web/WebPage/Minority-Shareholder-s-Watchdog-Group/Minority-Shareholder-s-Watchdog-Group.html> accessed e.g. 6 January 14 [20] ‘Code for institutional investors’ (cgmalaysia.blogspot.com 2014) <https://cgmalaysia.blogspot.com/2014/01/code-for-institutional-investors.html> accessed 6 August 14 [21] (mswg.org.my ) <https://www.mswg.org.my/page.php?pid=141&action=preview&menu=main> accessed 6 August 14 [22] is a passive investment technique in which shareholders continue to hold onto their stocks, regardless of market conditions. It’s an interesting approach, with some market theory to back it up. [23] A concept that refines an investment’s return by measuring how much risk is involved in producing that return, which is generally expressed as a number or rating. Risk-adjusted returns are applied to individual securities and investment funds and portfolios. [24] The FBMKLCIwill be part of the FTSE Bursa MalaysiaIndexSeries. It is calculated based on globally acceptedindexmethodology, which is transparent to inspire confidence. Theindexwill be computed based on free float adjusted market capitalization. [25] ACMF and the ASEAN Corporate Governance Scorecard [26] There are 35 firms in which the MSWG have tried to initiate board changes and 15 firms in which MSWG stopped merger and acquisition deals.

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