Governance, Risk Management, and Compliance (GRC) in Malaysia: Key Insights and Best Practices

GRC is crucial for business leaders in Malaysia, as implementing proper governance and risk management directly impacts your ability to attract investment, build stakeholder trust, and drive sustainable growth. Requirements under the Malaysian Code on Corporate Governance (MCCG) present obligations and opportunities for your organisation..

The MCCG affect how your board operates, oversees risk, and integrates sustainability into business strategy. For the nearly 1,000 listed companies in Malaysia, meeting these requirements has become essential for maintaining market confidence and competitive advantage.

Whether you are a listed company or an enterprise looking to go public in the future, this article provides you with practical insights on governance implementation, helping you turn regulatory requirements into business value. Drawing from the MCCG framework, we outline specific actions your organisation can take to strengthen board effectiveness, enhance risk management, and build stakeholder confidence in your governance practices.

Note: All information, facts, and statistics in this article are drawn directly from the latest official

Malaysian Code on Corporate Governance 2021. While this article is not exhaustive, we have endeavoured to cover the points most relevant to your needs.

Understanding Governance, Risk, and Compliance (GRC)

Corporate governance provides the foundation for effective business management and sustainable growth in Malaysia. As defined by the High-Level Finance Committee Report and reinforced by the MCCG, it encompasses “the process and structure used to direct and manage business affairs toward promoting business prosperity and corporate accountability with the ultimate objective of realising long-term shareholder value while taking into account the interest of other stakeholders.”

In essence, the integration of governance, risk management, and compliance creates a framework of control mechanisms that support companies in achieving their objectives while preventing unwanted conflicts. This structured approach rests on four key pillars:

• Ethical behaviour that builds trust
• Accountability in decision-making
• Transparency in operations and reporting
• Sustainability in business practices

The MCCG’s goal is that companies that effectively implement these principles are better positioned to create long-term value compared to those lacking in one or all aspects. The framework identifies clear distributions of rights and responsibilities among participants, establishing rules and procedures for decision-making, internal control, and risk management.

Importance of GRC in Malaysia

The significance of GRC in Malaysia goes beyond regulatory requirements to become a strategic business imperative. According to the MCCG, proper corporate governance identifies and balances the needs of multiple stakeholders – from employees and customers to suppliers and communities in which companies operate.

The business case for strong GRC practices in Malaysia is prudent yet compelling:

• Risk Reduction: Effective controls, grounded in ethical behaviour and transparency, reduce risks of corruption and mismanagement
• Strategic Decision-Making: GRC frameworks support informed choices about risk appetite and necessary controls to pursue business objectives
• Stakeholder Confidence: Companies with solid governance attract investor capital and maintain market confidence through accountability and transparent reporting
• ESG Integration: The 2021 MCCG update emphasises sustainability considerations in strategy and operations, reflecting growing stakeholder expectations

For Malaysian businesses, particularly listed entities, GRC practices are increasingly linked to market performance and stakeholder trust. The MCCG’s principles encourage companies to move beyond compliance to embrace governance as a driver of business excellence and sustainable growth. This approach helps organisations build resilience while maintaining focus on long-term value creation.

Role of Government Bodies and Regulatory Agencies

The Securities Commission Malaysia establishes corporate governance standards through the MCCG. The Code operates alongside statutory regulations while promoting market-based regulation approaches.

The MCCG framework:

• Sets principles above minimum statutory rules
• Promotes self-regulation where appropriate
• Supports market-regulated practices
• Allows flexible responses to governance needs

The Code applies different standards for:

• Listed companies
• Public companies
• State-owned enterprises
• Capital market firms

Key oversight areas include:

• Board composition standards
• Director independence rules
• Audit committee practices
• Sustainability reporting

Regulatory and Legal Framework

The MCCG, introduced in 2000, has evolved into a significant tool for corporate governance reform. The code reflects global principles while addressing the specific needs of the Malaysian market, providing a framework that extends beyond minimum statutory requirements.

The MCCG adopts a balanced approach to regulation:

• Statutory Regulation: Core governance requirements embedded in law
• Self-Regulation: Complemented by market-driven best practices
• Market Regulation: Enhanced by investor and stakeholder oversight

Key updates to the framework have occurred in 2007, 2012, 2017, and 2021, with each revision strengthening governance standards. The 2021 update introduced significant enhancements:

• Improved board policies and processes
• Strengthened board oversight mechanisms
• Enhanced integration of sustainability considerations
• Greater focus on stakeholder engagement

The MCCG, while primarily targeted at listed companies, encourages broader adoption of its principles. Non-listed entities, including:

• State-owned enterprises
• Public companies
• Small and medium enterprises
• Capital market intermediaries

Are encouraged to adopt these practices to enhance accountability and transparency.

This flexible approach allows companies to apply governance practices proportionally, considering their size, complexity, and operational context while maintaining high standards of corporate stewardship.

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Key Legislations and Standards

The MCCG establishes comprehensive standards across key governance areas. These requirements create a structured framework for organisations to build effective leadership and control mechanisms.

Board Leadership Requirements:

• Collective responsibility for company success
• Clear separation between board and management roles
• Integration of sustainability considerations in strategic decisions
• Regular board effectiveness evaluations

Board Composition Standards:

• Minimum 30% women directors
• At least half of the independent directors for all companies
• Majority independent directors for Large Companies (defined as companies on the FTSE Bursa Malaysia Top 100 Index or companies with a market capitalisation of RM2 billion and above)
• Nine-year tenure limit for independent directors

Remuneration Framework:

• Transparent policies and procedures
• Link to company performance and complexity
• Different approaches for executive and non-executive roles
• Regular review and stakeholder disclosure

Audit Committee Structure:

• Independent chair separate from board chair
• Majority independent members
• Clear terms of reference
• Strong financial literacy requirements

Risk Management Standards:

• Board-established framework
• Regular effectiveness reviews
• Clear risk appetite statements
• Integration with internal controls

These standards aim to promote objective decision-making, effective oversight, and balanced stakeholder consideration. Companies must provide meaningful explanations when they depart from these practices, including specific alternative approaches and timelines for full adoption.

Sector-Specific GRC Considerations

The MCCG recognises that listed companies are not a homogeneous group and provides flexibility in the application of certain practices based on organisational characteristics.

Large Companies face additional governance expectations, including:

• Majority independent board composition
• Enhanced sustainability reporting requirements
• More detailed disclosure obligations
• Stricter compliance timelines

For state-owned enterprises, the MCCG specifically addresses board composition requirements. These organisations must ensure:

• Exercise of objective and independent judgment
• Board appointments based on qualifications
• Avoidance of active politicians in board positions
• Clear separation from executive powers

Once classified as a Large Company, an organisation maintains this status for the entire financial year, regardless of market capitalisation changes. This ensures consistency in governance practices and stakeholder expectations. Other listed companies may voluntarily (as is recommended) adopt Large Company practices to demonstrate governance leadership.

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Challenges in Implementing GRC in Malaysia

Our experience supporting businesses with Malaysian governance frameworks highlights several areas that require particular attention. As a trusted corporate services provider, we regularly assist organisations in addressing these key considerations.

Board Process Management:

• Creating efficient systems for timely board material distribution
• Developing standardised documentation processes
• Structuring separate board and committee meeting schedules
• Establishing clear reporting lines

Independence Requirements:

• Planning for director tenure transitions
• Structuring appropriate committee compositions
• Implementing checks and balances
• Setting up clear governance hierarchies

Professional Development Support:

• Coordinating director training programmes
• Facilitating board evaluation processes
• Supporting sustainability competency building
• Maintaining financial literacy standards

Given each organisation’s unique circumstances, working with an experienced corporate services partner helps ensure these requirements are met effectively and efficiently. InCorp’s specialists provide objective guidance tailored to your specific governance needs, helping you build a strong and compliant framework.

Emerging Trends and Developments

The MCCG signals significant shifts in business standards that companies must watch:

Current Shifts:

• Board sustainability oversight
• Digital governance adoption
• Stakeholder communication shifts
• Gender diversity standards

Business Impact:

• More board reporting duties
• Additional skill set needs
• Higher stakeholder expectations
• New risk considerations

Growth Opportunities:

Companies that adapt quickly gain advantages:

• Stronger market positions
• Higher investor confidence
• Better risk management
• More stakeholders trust

While the opportunities also present challenges, our specialists work alongside your teams to turn governance standards into strategic assets. We pinpoint market advantages in new regulations, build systems that lift your competitive position, and create practical solutions that put you ahead of regulatory shifts. This lets your board and management focus on business growth, backed by governance practices that set you apart in Malaysia’s increasingly competitive market.

Best Practices for Implementing GRC in Malaysia

The MCCG outlines specific steps for corporate success:

Board Excellence:

• Clear role separation at the leadership level
• Regular board skill assessments
• Strong committee structures
• Professional development plans

Risk Control Systems:

• Written control procedures
• Regular framework reviews
• Clear monitoring processes
• Board risk supervision

Stakeholder Rights:

• 28-day meeting notices
• Interactive general meetings
• Full director attendance
• Direct question responses

Implementation Steps:

• Start with board structure review
• Map current against needed skills
• Set control system baselines
• Create monitoring plans

InCorp guides companies through each step with methods that are proven to work in Malaysia’s business climate. We pride ourselves on creating practical solutions that match your business size and sector, and setting up governance systems that support your growth plans, all while protecting stakeholder interests.

Where to Next with InCorp

Your key takeaway should be no matter your business’s size or composition, strong governance creates business value in Malaysia’s competitive market. Top-performing companies turn governance excellence into capital access, market confidence, and operational strength. InCorp’s corporate governance teams help you do the same – building practical solutions that protect your interests and power your growth. Contact our specialists today to discuss how we can help you succeed in Malaysia’s increasingly demanding, but lucrative market.