Director Tenure Limits in the Malaysian Code on Corporate Governance (MCCG) 2024

The 2024 update to the Malaysian Code on Corporate Governance (MCCG) introduces a recommendation to limit independent directors' tenure to nine years, with a formal policy to enforce this limit. This article delves into the rationale behind this update, supported by extensive research and practical implementation strategies.

Key Insights

• Maintaining Independence: Limiting the tenure of independent directors helps preserve their independence, preventing familiarity and complacency that can arise from long-term relationships with management.

• Board Refreshment: Regular board refreshment brings in new perspectives, skills, and expertise, contributing to more dynamic and effective governance.

Research Findings

• Global Trends: Research by the OECD shows that many countries are adopting tenure limits for independent directors as a best practice to enhance board effectiveness and independence.

• Impact on Performance: A study by McKinsey & Company reveals that boards with regular refreshment and tenure limits tend to perform better in terms of strategic oversight and risk management.

Implementation Strategies

• Policy Formulation: Develop a formal policy on director tenure limits, clearly stating the maximum tenure for independent directors.

• Succession Planning: Implement robust succession planning processes to identify and prepare potential candidates for board positions.

• Regular Evaluations: Conduct regular evaluations of director performance and independence to ensure continued effectiveness and compliance with tenure limits.

Conclusion Limiting the tenure of independent directors to nine years, as recommended in the MCCG 2024 update, is crucial for maintaining board independence and effectiveness. By adopting this practice, companies can enhance their governance framework, ensure regular board refreshment, and bring in new skills and perspectives.