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  Governance Statement
Digital annual report 2016
Corporate Governance Report
Corporate governance approximately refers to the mechanisms, processes and relations by which the group are organised and directed. Good corporate governance practices should encompass beyond mere compliance and should attain the highest standards of business ethics, accountability, integrity and professionalism across all the group’s activities and conducts. In addition, the board considers strong governance as one of the key strategic determinants in building a competitive organisation, achieving its set of corporate and business objectives and ultimately in realising shareholders’ confidence and value, whilst taking into account the interests of other stakeholders.
The Group is fully committed to fair corporate governance by being transparent throughout the organisation and continuously strengthen the foundations of governance that has been established and uphold the highest standards of ethics, transparency and good governance.

The Board of Directors plays a key role in the governance process through its review and approval of the Group’s direction and strategy, its monitoring of professional standards and business performance, its review of the adequacy and integrity of the Group’s internal control systems, including the identification of principal risks and ensuring the implementation of appropriate systems to manage those risks and the acceptance of its underlying duty to ensure that the Company and the Group meet its responsibilities to its shareholders.

The Board of Directors of Kulim (Malaysia) Berhad continuously subscribes to and supports The Malaysian Code on Corporate Governance 2012 (“MCCG 2012”) as the basis for the practices and enhancement of corporate governance.

The Board is pleased to report that it had continued to practice good corporate governance throughout the Group in strengthening Board’s structure and composition, recognising the role of Directors as active and responsible fiduciaries. The Board believes that the Group has provided a narrative statement on corporate governance practices for shareholders benefit which conveyed the key elements and the state of the Group’s Corporate Governance. The Board, to the best of its knowledge, confirms that the Group has applied the Principles set out in the MCCG 2012 together with the Recommendations stated under each Principle.

Kulim’s effort towards strong governance and the continual enhancement of shareholders’ value is substantiated by the following recognition and accreditations conferred on the Group in 2016 and up to the reporting date in 2017:

Being amongst the earliest plantation companies in the world to be certified as a sustainable palm oil producer under RSPO serve as a testament to the Group’s commitment towards enhancing its governance standards. The Group took its sustainable commitment to the next level when it became the first within the plantation industry to publish sustainability report. This report emphasized the Group’s commitment towards subscribing to the RSPO Principle and Criteria. The Group produced its inaugural Sustainability Report 2007/2008 in October 2008, published separately for both its Plantation operations in Malaysia and Papua New Guinea. The Group continuously produced the biennial Sustainability Report as an effort in fulfilling its responsibilities towards promoting sustainable palm oil practices. The publication year of the reports was listed as follows:


The reports which are benchmarked against the international Global Reporting Index (“GRI”) guidelines seek to present transparent overview, performance evaluation and the Group’s target towards Sustainable Palm Oil (“SPO”) practices. It also forms the basis of additional communications and engagement with Kulim’s broader stakeholder groups. The Report is available upon request and also can be downloaded from the Company’s website.
clear roles and responsibility


BOARD OF DIRECTORS
SIZE AND COMPOSITION OF BOARD
Kulim (Malaysia) Berhad is led by an effective Board of Directors. The Board, as at the date of this Statement, consists of:


PRINCIPAL DUTIES AND RESPONSIBILITIES
Kulim recognised the value of good governance and that is the reason why the Company is committed to promoting and sustaining a strong culture of corporate governance. Kulim has embarked on a journey to continuously improve its corporate governance framework by gradually adopting the recommendations in the MCCG 2012.

The Board, representing the shareholders, is entrusted with the power and authority to make decisions in running the company to ensure proper management of the entity, including optimising long-term financial returns. The Board is responsible for ensuring that the Group is managed to achieve this result

In addition to fulfilling its obligations for increased shareholders’ value, the Board has responsibility to the Group’s customers, employees and suppliers, and to the communities where it operates, all of whom are fundamental to a successful business. All of these responsibilities are founded upon the successful continuation of the business. The Board assumes the following responsibilities:

1. Reviewing and adopting a strategic plan for the Company
The Board will review and approve the annual budget and strategic plan for the Group.

2. Overseeing the conduct of the Company’s business to determine whether the business is being properly managed.
At Board meetings, all operational matters will be discussed and expert advice will be sought if necessary. The performances of the various companies and operating units within the Group represent the major element of Board’s agenda. Where and when available, data are compared against national trends and performance of similar companies.

3. Identifying principal risks and ensuring the implementation of appropriate internal control and mitigation measures
The Group has set up a Risk and Issues Management Committee (“RIMC”) in order to assist the Board in identifying, evaluating, reviewing and managing the principal risks.

4. Succession planning
The Board’s responsibility in this aspect is being closely supported by the Human Capital Management Department. More importantly, after several years of continuous effort in emphasising and communicating the importance of succession planning, the subject has now become an ongoing agenda being reviewed at various high-level management and operational meetings of the Group.

5. Overseeing the development and implementation of a shareholder communications policy for the Company
Various strategies and approaches are employed by the Group so as to ensure that shareholders are well informed about the Group’s affairs and developments.

6. Reviewing the adequacy and the integrity of the management information and internal control system of the Company
The Board’s function in fulfilling the above responsibility is supported and reinforced through the various Committees established at both the Board and the management’s level. Aided by an independent function of the Internal Audit Department, the active functioning of these Committees through their regular meetings and discussions would provide a strong check and balance and reasonable assurance on the adequacy of the Company’s internal controls. Details on the Internal Audit functions are further discussed in the Statement on Risk Management and Internal Control and Audit Committee Report in this Integrated Annual Report.

7. Schedule of Matters / Agenda Reserved for Collective Decision of the Board
The authorities of the Board are specified below. The authorities may be varied from time to time as determined unanimously by the Board.

i. Conduct of Board 
  • Appointment and resignation of Directors based on recommendations of the Board Nomination and Remuneration Committee; 
  • Appointment and resignation of Company Secretaries;
  • Appointment and resignation of Board Members in Board Committees are based on the recommendations of the Board Nomination and Remuneration Committee ;
  • Approval of terms of references of Board Committees and amendments to such items;
  • Appointment and resignation of Senior Executive positions, including the Executive Director, their duties and the continuation of their service; and
  • Disclosure of the corporate governance practices of the Company in the Integrated Annual Report
ii. Remuneration
  • Approval of the remuneration arrangements for Non-Executive Directors. The Non-Executive Directors whose remuneration is being deliberated by the Board should play no part in the deliberations; 
  • Approval of the remuneration structure and policy for Executive Directors and key executives based upon recommendations of the Board Nomination and Remuneration Committee;
  • Approval of remuneration packages for Executive Directors and Senior Executives;
  • Approval of any proposed new Employees’ Share Option Scheme (“ESOS”); and 
  • Approval of allocation and share grants in ESOS.
iii. Operational
  • Approval of business strategy and Group’s operational plans and budgets; 
  • Ongoing review of performance against business strategy and Group’s operational plans, including monitoring of marketing, key risks and risk management policies and actions;
  • Approval of capital expenditure;
  • Approval of asset write-off;
  • Approval of investment or divestment in a company/ business/property/undertaking;
  • Approval of investment or divestment of a capital project which represents a significant diversification from existing business activities;
  • Approval of changes in the major activities of the Company; and
  • Approval of treasury policies and Bank mandate.
iv. Financial
  • Approval of quarterly and annual financial statements based on recommendations of the Audit Committee;
  • Approval of the release of financial announcements;
  • Approval of the Integrated Annual Report and Statutory Financial Statements;
  • Approval of interim dividends, the recommendation of final dividends and the making of any other distribution;
  • Adoption of accounting policies;
  • Approval of corporate policies and procedures, including the Group’s system of internal control;
  • Review of the effectiveness of the Group’s system of internal control; and
  • Disclosure of the state of internal controls of the Group to be included in the Integrated Annual Report. 
v. Other matters to be considered including:
  • The granting of powers of attorney by the Company;
  • The entering into any indemnities or guarantees;
  • Recommendations for the alteration of the Memorandum and Articles of Association of the Company;
  • Alteration of the accounting reference date, registered office and name of the Company;
  • Purchase of own shares by the Company;
  • Issuance of any debt instruments;
  • Political or charitable contributions;
  • Scheme of reconstruction or restructuring;
  • Any other significant business decision; and
  • Any other matters requiring the convening of a general meeting of shareholders or any class of shareholders.
BOARD COMMITTEES
The Board Committees are essentially the cornerstone in governing the direction of the Group strategies and operations in line with the regulatory guidelines and requirements. The Board delegates its responsibility for specified matters to individual members or committees of the Board. The Board Committees were supported by several committees to facilitate the operations of the Group. Each committee has written terms of reference which state clearly the extent and limits of their responsibilities and authority and whether they act on behalf of the Board or report back to the Board. The committees are reviewed regularly and changes are approved by the Board. Apart from the Board Committees, there are internal or management committees established at Kulim Corporate Office level and within the Group’s significant or strategic subsidiaries which facilitate the functions of Board of Kulim as well as the respective companies. These internal or management committees and their primary functions are set out on pages 144 to 146 of this Integrated Annual Report.

The list of Board Committees includes:
                             
                             
The NRC is accountable to the Board of the Company and not to the executive management. The primary functions of the NRC are to:



FORMALISED ETHICAL STANDARDS THROUGH CODE OF ETHICS
In general, the Code of Ethics defines the standards of conduct in assisting the employees to make the right decision at the highest standards of ethic, integrity and governance as per stated on pages 148.

The Group also upholds the principles of integrity, respect and accountability which includes the maintenance of a workplace that is free from fraud. This involves embedding fraud control into the organisation’s decision making culture and practices through the following policies and exercises:

                             
                             
BOARD MEETINGS AND SUPPLY OF INFORMATION
All Board meetings for the ensuing year are scheduled by December in the year before, so as to allow Directors to plan ahead. Board meetings are held at least four (4) times a year. Apart from the regular scheduled meetings, additional meetings are convened as and when necessary to deliberate and approve ad-hoc, urgent and important issues.

The Chairman, assisted by the Company Secretary takes responsibility in ensuring that the Directors receive all notices, agendas and minutes of the previous meetings and is supplied with pertinent information well in advance of each meeting.

The Directors, in the event that they have interest in proposals considered by the Board, will be required to make declaration to that effect. The interested Directors will there upon abstain from deliberations and decisions of the Board on the said proposals. The Board met five (5) times during the financial year 2016. The members of the Board of Directors and their attendances at Board meetings in 2016 are set out below:

Notes:-
  • Tan Sri Dato’ Seri Utama Arshad Ayub, Tan Sri Datin Paduka Siti Sa’diah Sh Bakir, Datuk Haron Siraj, Dr. Radzuan A. Rahman and Leung Kok Keong resigned from the Board as Independent Non-Executive Directors on 1.10.2016; 
  • Abdul Rahman Sulaiman resigned from the Board as Executive Director on 1.1.2017;
  • Rozaini Mohd Sani resigned from the board as Non-Independent Non-Executive Director on 1.3.2017;
  • Zulkifly Zakariah was appointed to the Board as Executive Director on 1.1.2017; 
  • Ahamad Mohamad and Jamaludin Md Ali were re-designated to Non-Independent Non-Executive Director on 1.1.2017; 
  • Dr. Radzuan A. Rahman was re-appointed to the Board as Independent Non-Executive Director on 16.1.2017.
  • Mohamad Salleh Mohamad Yusof and Wan Su Ali were appointed to the Board as Non-Independent Non-Executive Director on 1.3.2017.
Access to Independent Professional Advice
In discharging Directors’ duties, each member of the Board is entitled to obtain independent professional advice at the cost of the Company.

If a member considers such advice is necessary, the member shall first discuss it with the Chairman and, having done so, the member shall bring this matter up to the Board. The reason(s) for seeking independent professional advice and the proposed cost involved should be presented to the Board for approval. Once Board approval is obtained, the member is free to proceed.
                                                         
Access to the Management and Information
Board members must have complete unimpeded access to the Company’s Management. Board members must have unrestricted access to information pertaining to the Company including the Company’s auditors and consultants. In accessing its rights to information and the management, Board members must use judgement to ensure that such access is not distracting the operations of the Company and that such contact, be copied to the Executive Director and Chairman.

Furthermore, during deliberations, the Board should encourage the management when necessary, to bring managers into Board meetings who:
                             
Access to the Company Secretary
The appointment or resignation of Company Secretary or Secretaries of the Board shall be the prerogative of the Board as a whole.

The Secretary is responsible for ensuring that Board procedures are followed, that the application rules and regulations for the conduct of the affairs of the Board are complied with and for all matters associated with the maintenance of the Board or otherwise required for its efficient operation. The Secretary is also responsible for ensuring compliance by the Company with the relevant regulations affecting the Company, including but not limited to the Companies Act 2016.

      
STRENGTHEN COMPOSITION AND REINFORCE INDEPENDENCE


APPOINTMENT AND RE-ELECTION OF DIRECTORS
The number and composition of Board membership are reviewed on a regular basis appropriate to the prevailing size, nature and complexity of the Group’s business operations so as to ensure the relevance and effectiveness of the Board in accordance with Principle 2 of MCCG 2012 where the Board should have transparent policies and procedures that will assist in the selection of the Board members.

The composition of the Board will reflect the duties and responsibilities it has to discharge and perform as representative of the interests of the shareholders. The composition of the Board shall reflect as much as possible or practicable, proportional representation of investments in the Group. Directors are not required to hold any qualification share

A formal invitation to join the Group as a Board member would be extended by the Chairman after approval from the Board. The Chairman should ensure that all Board members, when taking up office, are fully briefed on the terms of their appointment, duties and responsibilities.

New members will also be briefed on the operations of the Group to increase their understanding of the business and the environment and markets in which the Group operates. The new members will be given a copy of the Board Policy Manual, which consists of the following information:-

1. Group Organisation;
2. Board Organisation;
3. Board Responsibilities;
4. Board Procedures;
5. Board’s and Director’s Evaluation; and
6. Additional information including the latest business plan and budget, the latest Integrated Annual Reports and accounts and minutes of past three (3) Board of Directors’ meetings and applicable Committee Meetings.


EFFECTIVENESS OF BOARD
The effectiveness of the Board is vital to the success of the Group that symbolises good governance. For that reason, a large portion of the Board Policy Manual is devoted to explaining and outlining the format and procedure for evaluating Board members’ performance. The availability of the structured format for Board members’ evaluation assists the members in discharging their duties effectively and efficiently.

The Group believes that the Board has carried out its duties and responsibilities in ensuring the Group is properly enhance shareholder‘s value, and to meet the Group’s obligations to all parties with which the Group interacts – its stakeholders.

The profiles of the Directors’ are set out in pages 58 to 62 of the Integrated Annual Report.

Recommendation 1.7 of the MCCG 2012 states that the Board should formalise, periodically review and make public its Board Charter. The Company has in place a Board Policy Manual or Board Charter to assist the Board in discharging its duties effectively. The revised Board Charter has been approved by the Board of Directors of Kulim (Malaysia) Berhad on 24 June 2014. The Board Charter will adopt any changes to the MCCG 2012, the Companies Act 2016 or any other relevant rules and regulations from time to time for best practices.

Among others, the Board Policy Manual covers the following important scopes:

                          
                        
DIRECTORS’ REMUNERATION
The Board believes that the levels of remuneration offered by the Group are sufficient to attract Directors of calibre and with sufficient experience and talents to contribute to the performance of the Group. Comparison with similar position within the industry and other major public listed companies is made in order to arrive at a fair rate of remuneration. The Board will determine the level of remuneration paid to members, taking into consideration the recommendations of the Board Nomination and Remuneration Committee.

Non-Executive members will be paid a basic fee as ordinary remuneration and will be paid a sum based on their responsibilities in Committees and the Board and/or special skills and expertise they bring to the Board. The fee shall be fixed in sum and not by a commission on or percentage of profits or turnover. Any fee paid to an alternate Director shall be agreed between himself and the Director nominating him and shall be paid out of the remuneration of the latter.
                            
UPHOLD INTEGRITY IN FINANCIAL REPORTING


FINANCIAL REPORTING
In presenting the annual financial statements and quarterly announcements to the shareholders, the Directors aim to present a balanced and candid assessment of the Group’s position and prospects. This is in accordance with Principle 5 of the MCCG 2012 and also applies to other price-sensitive public reports and reports to regulators. Timely release of announcements reflects the Board’s commitment to provide up-to-date and transparent information on the Group’s performance.

In the preparation of the financial statements, the Directors will consider compliance with all applicable Financial Reporting Standards, provisions of the Companies Act 2016 and relevant provision of laws and regulations in Malaysia and the respective countries in which the subsidiaries operate. The Board is assisted by the Audit Committee who reviews both annual financial statements and the quarterly announcements to ensure the reports reflect a true and fair view of the state of affairs of the Group and Company.

The Audit Committee Report for the financial year which sets out the composition and a summary of activities of the Audit Committee, is contained on pages 149 to 151 of this Integrated Annual Report.

                            
STATEMENT OF DIRECTORS’ RESPONSIBILITY IN PREPARING AUDITED FINANCIAL STATEMENTS
The Directors are required by Companies Act 2016 to prepare financial statements for each financial year which have been made out in accordance with the applicable approved accounting standards and give a true and fair view of the state of affairs of the Group and the Company at the end of the financial year and of the results and cash flows of the Group and Company for the financial year..

In preparing the financial statements, the Directors have:
  • adopted suitable accounting policies and applied them consistently;
  • made judgment and estimates that are reasonable and prudent;
  • ensured that all applicable Financial Reporting Standards in Malaysia have been followed; and
  • prepared the financial statements on the going concern basis as the Directors have a reasonable expectation, having made enquiries that the Group and Company have resources to continue in operational existence for the foreseeable future.


The Directors have responsibility for ensuring that the Group and the Company keeps accounting records which disclose with reasonable accuracy the financial position of the Group and the Company which enable them to ensure that the financial statements comply with the Companies Act 2016.

The Directors have overall responsibilities for taking such steps as are reasonably open to them to safeguard the assets of the Group to prevent and detect fraud and other irregularities.

RECOGNISE AND MANAGE RISKS

The Group recognised that it is obliged to systematically manage and regularly review its risk profile at a strategic, financial and operational level. The Group has done this by developing and adopting risk management framework that determines the process and identifies tools for realising its objectives. Not only does it minimise its risk but also maximises its opportunities. It enhances the Company’s capability to respond timely to the changing environment and its ability to make better decision. This is in accordance with Principle 6 of the MCCG 2012.

The Board has also established an internal audit function which is led by a Certified Internal Auditor (“CIA”) who reports directly to the Board of Audit Committee and is responsible for providing independent assurance to the Board on the adequacy and effectiveness of internal control.

The Group’s Statement on Risk Management and Internal Control are set out on pages 137 to 144.

RELATED PARTY TRANSACTIONS

All related party transactions entered into by the Group were made in the ordinary course of business and on the same terms as those prevailing at the time for comparable transactions with other persons or charged on the basis of equitable rates agreed between the parties. Details of the transactions entered into by the Group during the financial year ended 31 December 2016 are set out on pages 254 to 258 of this Integrated Annual Report. 
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