The Organization for Economic Co-operation and Development (OECD) was initiated to promote policies that will improve the economic and social wellbeing of people around the world.

OECD celebrated its 50^th anniversary in 2011, with a current membership of 34 countries worldwide.

One of the policies is the OECD Principles of Corporate Governance, which was published in 2004. The code outlines six major principles as shown in Figure 5:

                       

            3.3       Sarbanes-Oxley Act of 2002

The Sarbanes–Oxley Act of 2002 (enacted July 30, 2002), also known as the "Public Company Accounting Reform and Investor Protection Act" (in the Senate) and "Corporate and Auditing Accountability and Responsibility Act" (in the House) and more commonly called Sarbanes–Oxley, Sarbox or SOX, is a United States federal law that set new or expanded requirements for all U.S. public company boards, management and public accounting firms. There are also a number of provisions of the Act that also apply to privately held companies, for example the willful destruction of evidence to impede a Federal investigation.

The bill, which contains eleven sections, was enacted as a reaction to a number of major corporate and accounting scandals, including Enron and Worldcom. The sections of the bill cover responsibilities of a public corporation’s board of directors, adds criminal penalties for certain misconduct, and required the Securities and Exchange Commission to create regulations to define how public corporations are to comply with the law.

The eleven sections also known as the eleven Major Elements in the Sarbanes-Oxley Act of 2002. Figure 6 is showing the elements that was introduce in the act in 2002:

4.0       THE IMPORTANCE OF CORPORATE GOVERNANCE TO SIME DARBY

Sime Darby is a diversified Malaysian multinational involved in key growth sectors such as plantations, property, motors, industrial equipment, and energy and utilities. It operates in over 20 countries, employing more than 110,000 people, and has a large, diverse shareholder base.

Over its 100-year history, the Sime Darby Group has evolved, and not just as a thriving business concern. With the development of increasingly stringent governance and responsibility standards over the last few decades, Sime Darby has made the decision to entrench those values at its core.

This is a continuing effort and there is constant evaluation within the group of its operating, governance and ethical standards to ensure its commitment to corporate responsibility is met. The main challenge the group had to face when adopting more stringent governance standards, which included greater oversight and transparency, was ensuring the various businesses were still able to show sustainable growth and remain nimble.

Other than that, good corporate governance can improve Sime Darby in terms of:

            a)         Strength and flexibility

A strong governance framework is an essential part of Sime Darby’s strategy to maximize shareholders’ wealth. The size and diversity of the group’s operations require a dynamic self-governing model that balances the operating autonomy of the divisions with appropriate checks, balances and performance benchmarks. This does present certain challenges, given the group operates disparate businesses in regions as remote as Liberia, where it has a 220,000-hectare plantation concession, and the Pacific Islands, where it has Caterpillar dealerships.

The current model is sufficiently flexible for the divisions to be responsive to market dynamics at the local level, yet robust enough to ensure local practices are consistent with group policies on ethics and governance. The hallmark of Sime Darby’s governance framework is the two-tier board structure, headed by the Main Board and supported by Flagship Subsidiary Boards (FSBs). Each FSB is charged with operational oversight of its division but remains subject to the direction and counsel of the Main Board, particularly on matters of strategy and policy.

The structure is modular and FSBs can be added or removed as businesses are acquired or disposed of.  Clear terms of reference ensure the FSBs remain focused on all aspects of divisional operations. This allows the Main Board to take a broader perspective, looking at enterprise issues such as strategy, risk management and governance.

Each FSB is structured to ensure a balanced composition, with members drawn from the Main Board and senior management, as well as including independent industry experts. Sub-committees also support the Main Board. All nominations to the Main Board and FSBs are reviewed by the Nomination and Remuneration Committee (NRC), of which independent directors are a majority.

The roles of the Chairman, and the President and Group Chief Executive are distinct and separate. A dedicated Group Compliance Office (GCO) was established in February 2011 to assist with the implementation of a compliance management framework.

b)         Developing Standards

The management reporting system complements the two-tier board structure; each division has a management committee that is subordinate to the Group Management Committee. Reporting lines between the Group Head Office (GHO) functions and their divisional counterparts are clearly defined to ensure accountability and alignment of purpose. Finance and legal, in particular, are considered ‘gatekeeper’ functions that are capable of red-flagging potential issues and risks. Therefore, a direct reporting line has been created to the GHO.

In a similar vein, the audit and compliance functions report directly to the Governance and Audit Committee (GAC), while risk management reports directly to the Risk Management Committee. This ensures the independence of the audit and risk functions, which is crucial to the integrity of the governance framework. To further complement its self-governing framework, procurement and shared services are used as control tools, and centralized where possible to reduce the duplication of systems and increase effectiveness by reducing the risk of human error.

In 2007, the group adopted a new brand promise: “Developing Sustainable Futures”. With this move, the group announced its intention to seek a balance between financial growth, environmental stewardship and social sustainability across all its business activities. This commitment is constantly reviewed and assessed by various champions within the group, whether it is in governance and safety standards at one end of the responsibility spectrum or philanthropic assistance on the other.

For example, the group’s corporate responsibility programmes conducted through the plantation division focus on elevating socio-economic standards in various ways, including offering educational assistance, and improved public infrastructure and healthcare for the benefit of local communities.

As a signatory to the United Nations Global Compact (UNGC), the group strives to embed the 10 principles of the UNGC with respect to human rights, labor, environment and anti-corruption in its strategy, culture and day-to-day operations. The group shares this commitment to corporate responsibility with its employees and other stakeholders, including business partners.

Sime Darby was the first government-linked company to sign the Corporate Integrity Pledge introduced by the Malaysian Anti-Corruption Commission (MACC). This Pledge is in accordance with the second initiative of the Government Transformation Programme to fight corruption in Malaysia.

c)         Lowering Risk

Another important aspect of corporate governance to Sime Darby is mitigating or reducing the amount of risk that is involved. Through corporate governance, scandals, fraud, and criminal liability of the company can be prevented or avoided altogether.

Since the people involved in the organization know what they are accountable for, the actions of one person doesn’t mean the downfall of the entire corporation. Properly identifying what the roles in the corporation are allows decisions to be made that won’t have a negative effect on the overall corporation, and it means that the offender can be much more quickly identified and punished instead.

Corporate governance is also great because it is a form of self-policing. Before outside forces are able to do anything to a corporation, it’s possible for the corporation to handle matters itself. With corporate governance, everyone is held to a specific standard and communication is made easier due to their being an established hierarchy and role that everyone involved in the corporation plays. This level of handling business on its own instead of being forced into making decisions outside of the company helps keep the corporation sustaining itself.

c)         Governance and Transparency

As part of its on-going efforts to strengthen its self-governing structure, Sime Darby has launched several initiatives to inculcate a strong culture of ethics. The group rolled out the Code of Business Conduct (COBC) in nine different languages (and Braille) to directors and employees across its divisions and territories.

The COBC emphasises a zero-tolerance policy on corruption and is reinforced through various channels, including e-learning, classroom training, the intranet and the group’s website. Approved vendors are also required to sign a ‘Vendor Letter of Declaration’ to ensure adherence to the COBC. Appropriate channels for whistleblowing are available for complaints to be escalated to management. The Senior Independent Director (SID) directly oversees the whistleblowing function and ensures all reported violations are properly investigated.

Sime Darby also issued a Directors’ Manual and Directors’ Handbook, which provides a reference point for directors, while the Group Policies and Authorities (GPA) articulates its governance framework and limits of authority to all its employees. The GPA is available to all employees via the portal.

All corporate disclosures are made in a timely and accurate manner to the stock exchange. Corporate and business information is disseminated to all stakeholders in a uniform, fair and timely manner. Messaging is developed and coordinated centrally at Head Office, and departments engaged with different stakeholders are entrusted to communicate effectively and meaningfully.

The group maintains an investor-friendly website with up-to-date information, data, announcements and downloadable presentation materials. Sime Darby also maintains active dialogues with key governance stakeholders such as the MACC, Malaysian Anti-Corruption Academy and Transparency International-Malaysia, which are centred on the group’s anti-corruption initiatives. The GCO submitted its second report on the group’s anti–corruption activities to the MACC in July 2013.

Sime Darby is majority owned by a Malaysian government investment fund, but believes in upholding the rights of all its shareholders. The group has put in place the following shareholder protection mechanisms:

·         Independent directors form a majority on the GAC and the NRC;

·         Appointing a SID to whom shareholders and other stakeholders may raise their concerns;

·         Whistleblowing policy that provides employees, shareholders and other stakeholders with an avenue to report, in good faith, any suspected wrongdoing;

·         Disclosure of related party transactions involving directors, major shareholders and persons connected to them; and

·         Open letter responses to queries raised by a Malaysian organization representing minority shareholders, which are openly shared at annual general meetings.

5.0       CONCLUSIONS

Corporate governance is an aspect of business that’s become incredibly important in recent years, but it isn’t the only part of business a person has to understand.

Markets work best when information is available to all. Companies like Sime Darby have a responsibility in this area, but other intermediaries, such as brokers, analysts and rating agencies, also play an important role. Here, too, the revised OECD Principles call for measures to ensure independence and transparency and to counter possible conflicts of interest.

The revised Principles emphasize the need for effective regulatory systems that ensure that the potential for damaging conflicts of interest remains limited and that there is a level playing field among the major participants in corporate governance, for example, through protection of minority shareholders. Effective implementation and enforcement require that laws and regulations are designed in a way that makes them possible to implement and enforce in an efficient and credible fashion. Supervisory, regulatory and enforcement authorities should have the power, integrity and resources to act professionally and objectively.  The division of authority between agencies and supervisory bodies should be well defined and they should pursue their function in an unbiased and even-handed manner without serious conflicts of interest.

By agreeing on these Principles, OECD governments have set the broad foundations for high standards of corporate governance. The legislation needed to enforce these standards is the responsibility of individual governments, and in enacting it, governments and policy makers need to find a balance between rules and regulations on one hand and flexibility on the other. Looking ahead, the governments of OECD countries are committed to maintaining an open dialogue with all the parties involved so that everyone can learn and benefit from the shared experiences of putting these Principles of Corporate Governance into practice.  This is vital to ensuring that the Principles remain relevant and effective, evolving as new issues arise.

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REFERENCES

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Gunasekaran.P. (2011). Breaking up Sime Darby. Retrieved October 27, 2015, from http://biz.thestar.com.my/

OECD. (1999). OECD Principles of Corporate Governance, Organization for Economic Co-operation and Development, Paris

Pass, C. (2004), Corporate Governance 4 (2): 52-63, Emerald Publishing Limited.

Sime Darby: Developing Sustainable Futures. (2014, December 5). Retrieved October 27, 2015, from http://www.simedarby.com/Corporate_Profiles.aspx

Stiles, P. and Taylor, B. (2001). Boards at Work: How Directors View Their Roles and Responsibilities. Oxford University Press, Oxford and New York, NY.