When company directors are paid way too much…

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It is a grave injustice to various stakeholders when company directors receive excessive remuneration, Benedict Lopez writes.

Just as employees in any place of work are paid daily wages or monthly salaries, company directors receive remuneration.

Directors’ renumeration are payments made to board members of a firm for their services. These payments may vary from company to company.

Shareholders of listed firms often grumble when directors receive unreasonably high amounts for their services.

In their annual reports, companies highlight the remuneration of executive and non-executive directors separately. Occasionally, the reports provide an insight and take into account various factors when rationalising remuneration levels. These factors include the nature of duties and the justification for the payment, linking it with corporate performance.

But seldom are the views of other stakeholders – shareholders and employees – taken into account.  

As a minority shareholder of a listed company, I take a keen interest in the company’s annual performance and the contents of its annual reports.

I recently read the abridged version of the company’s 2019 annual report. Of interest to me was the page of the report listing out the directors’ remuneration. I had no qualms about the total remuneration paid to executive director, which was slightly less than RM8m for the year. In my letter to the board, I even commented that under his leadership, the company had increased its profits over the past few years. 

While I could understand the rationale for the executive director to be paid well, I did not agree with the excessive amounts paid to the part-time non-executive directors, ranging from RM0.3m to RM1.3m for the year. They do not merit such high payments. Some of them also hold directorships in other firms, and their annual income is therefore substantial.

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For the company’s annual general meeting, I submitted two questions.

My first question: Was it justified for the company’s non-executive directors to be so highly paid? And what was the onerous nature of the position of non-executive directors that warranted such high remuneration?

Malaysia, like the rest of the world, is now buffeted by the coronavirus pandemic. Thousands have lost their jobs, while others have taken substantial pay cuts. Directors of this company should therefore set an example to the rest of the company’s employees.

My second question: Would the company’s non-executive directors be prepared to take the moral high ground and accept a 50% cut in their pay? The money saved could be channelled in beneficial ways towards lower-rung staff, many of whom struggle to make ends meet.  

I informed the company that I looked forward to the outcome of my suggestion regarding this matter; I would like to have the answers provided to me at the annual general meeting, as well as a written reply. (The annual meeting this year would be conducted virtually due to the coronavirus pandemic.)

I know a director of a listed firm whose annual renumeration exceeds RM500,000. This director was a former civil servant who does not have any experience at all relating to the day-to-day activities of the company. I did not see the need for this person to be appointed to the board when there were so many other capable people with relevant experience who would have been better suited.  

Being a listed company, it was morally obliged to justify to its shareholders the appointment of this person as director. What special expertise and experience did he bring to the board? Was this not blatant injustice when there were so many qualified and experienced Malaysians who could have been appointed and who could have contributed so much more to the company?

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Some directors sit on the boards of a few companies, earning a seven-figure income yearly. It is a blatant injustice to deny the opportunity to many other Malaysians who are just as worthy to sit on the boards of these firms!

Not to be outdone by the private sector are the government-linked companies. Of late, a string of people have been appointed as chairpersons and CEOs of such companies, mainly due to political considerations instead of their business acumen and relevant experience. Malaysians deserve a sound and rational justification for these controversial appointments.

There are so many ordinary Malaysians who deserve to be appointed to public and private firms but they are simply disregarded because they are just ordinary talented people with no connections. It is time the public sector and the corporate world uphold the criteria of merit, due diligence and transparency. 

The Companies Act should be amended to allow only one qualified Malaysian to sit on the board of one company. There are many talented and qualified people who can be appointed to sit on the boards of the many listed and private companies. In this way, more Malaysians can be given the opportunity to sit on company boards.

Any prospective appointment as a board member should be considered solely based on the person’s credentials, experience and how he or she can further enhance the efficiency and profitability of the firm.

Companies should always have a moral obligation to all its stakeholders: employees, shareholders and – in the case of government-linked firms – taxpayers.

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Benedict Lopez was director of the Malaysian Investment Development Authority in Stockholm and economics counsellor at the Malaysian embassy there in 2010-2014. He covered all five Nordic countries in the course of his work. An eternal optimist and now an Aliran member, he believes Malaysia can provide its people with the same benefits and privileges found in the Nordic countries - not a far-fetched dream but one that he hopes will be realised in his lifetime
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Gursharan Singh
Gursharan Singh
16 Aug 2020 10.48am
Reply to  Benedict Lopez

Did anyone expect any response?

Lawrence
Lawrence
12 Aug 2020 2.27pm

In Malaysia it is not based on what or how much qualified you may be, but based on who you know and your connections. I agree with your article. Well written.

Gursharan Singh
Gursharan Singh
16 Aug 2020 10.48am
Reply to  Lawrence

Is this not an international culture?

songpeehoa
songpeehoa
11 Aug 2020 11.49pm

All these blame is and should be on the government n or enforcers of the compaies. Their rules and regulatios or policies are favouring them to have businesses without conscience and still posses that wicked smile of more to besliced. 😂
Thank you for lending a voice. Shareholders must speak up!

Gursharan Singh
Gursharan Singh
16 Aug 2020 10.55am
Reply to  songpeehoa

High remuneration packages of GLCs are determined by Government political leaders and the appointees are also nominees of Political leaders in power. In the case of non-GLCs directors the remuneration packages are dependent on the substantial equity shareholders. In all cases the voting of the attendee shareholders had little impact on the elections result. The E-poll system made the shareholder irrelvent and now on-line AGMs may have competed the process of making shareholders’ view irrelevant.
50+1 Equity owners control all.THIS IS CAPITALISM.

Gursharan Singh
Gursharan Singh
16 Aug 2020 5.03pm

#Competed should be COMPLETED
#50+1 should be 50%+1