In the realm of corporate governance, conflict of interest can pose a significant threat to the integrity and transparency of listed companies. This article explores the various types of conflict of interest that can arise in listed companies and examines Malaysia’s regulatory framework designed to ensure fair and ethical practices. We also addresses the implications of Bursa’s latest regulations on listed companies which was last released on 26 May 2023.
Types and examples of conflict of interest
Conflict of interest within a public listed company occurs when an individual’s personal interests or relationships have the potential to compromise their impartiality, judgment, or decision-making in their role within the organisation. Below are several types of conflict of interest that can emerge in a listed company:
1. Financial conflict of interest
This occurs when an individual’s financial interests interfere with their professional responsibilities or decision-making. Examples include:
A director or senior management owning shares in a supplier company and uses their position to favour that supplier in procurement decisions.
A director or senior management receiving kickbacks or personal benefits from a supplier in exchange for awarding contracts to that supplier.
2. Employment conflict of interest
This arises when an individual’s outside employment or business activities conflict with their responsibilities within the listed company. Examples include:
An employee working for a competitor or a client of the company, which can compromise their loyalty, access to sensitive information, or decision-making.
A director serving on multiple boards within overlapping industries, may lead to divided loyalty and potential conflicts when the interests of the different companies intersect.
3. Personal conflict of interest
This refers to conflicts that arise due to personal relationships or affiliations that could impact an individual’s objectivity or decision-making. Examples include:
An executive awarding a contract or providing preferential treatment to a family member or close friend.
A director or senior management member participating in discussions or decisions that involve a family member’s employment or promotion within the company.
4. Intellectual property conflict of interest
This occurs when an individual’s involvement with intellectual property, such as patents or copyrights, conflicts with their duties within the listed company. Examples include:
An employee using company resources or confidential information to develop a product or technology that competes with the company’s offerings.
A director favouring licensing agreements or partnerships that primarily benefit their own intellectual property portfolio, rather than ensuring the best outcome for the company.
5. Insider Trading
This refers to the illegal or unethical practice of trading securities based on non-public information. Examples include:
An executive or employee using undisclosed knowledge of upcoming positive or negative events to buy or sell company stock for personal gain.
A director or senior management leaking confidential information about the company to external parties who can trade on that information.
Addressing conflict of interest
Malaysia places significant emphasis on the importance of robust corporate governance and has implemented regulations specifically designed to address conflict of interest within listed companies.
1. Bursa Malaysia
Bursa Malaysia enforces stringent listing requirements to ensure compliance with corporate governance standards. These requirements include regular reporting and disclosure obligations that enhance transparency and accountability.
The MCCG provides principles and best practices that encourage transparency, accountability, and ethical behaviour. It recommends the need for directors to establish and implement policies and procedures, which include managing conflicts of interest.
3. Companies Act 2016
Under the Companies Act 2016, director must avoid having any conflict of interest in making decisions for the Company. The director has a duty to avoid a situation whereby there is a possibility of conflict between the interests of the Company, whether direct or indirect interests of the Director or between the Director’s duties to the Company and those to another person.
Fostering an environment of trust and ethical decision-making
Cultivating an environment of trust and ethical decision-making is paramount for the growth and sustainability of listed companies. It is crucial for directors and senior management to take proactive measures in disclosing and effectively addressing any potential conflict of interest, thereby upholding fairness and integrity in decision-making processes. By prioritising transparency, accountability, and integrity, organisations can forge robust relationships with stakeholders and foster a culture of responsible governance.
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