- By Aung Naing Oo
in 2013 Organization of Economic Cooperation and Development (OECD) took more than a year to study Myanmar’s policies on investment. It included Corporate Governance in all the studies and reviews conducted in each sectors. Unfortunately it pointed out that Myanmar has almost no policy framework on Corporate Governance. OECD said the Companies Act of 1914 (The Burma Companies Act 1914), the Myanmar (Burma) Companies Rules 1940 and the Myanmar (Burma) Companies Regulations 1957 in effect at that time does not include internationally accepted and recognized basic principles on Corporate Governance. While the majority of the ASEAN countries were implementing Corporate Governance frameworks based on OECD’s basic principles, Myanmar has yet to do any of those.
Private businesses and companies almost disappear completely after Myanmar went through socialist economic system for more than 26 years. The country was no longer in touch with international practices and accepted norms in the private economic sector. After 1988, market economy was revived but citizens engaging in businesses were more occupied with survival and existence of the companies they formed rather than following international practices and norms. There was lack of knowledge in Corporate Governance in Myanmar.
Anyhow, at a time when Myanmar was trying to enter into international business community and when efforts were being made toward development of capital market now is the time when the government and private sector need to make a concerted effort toward establishing a good Corporate Governance.
What is required in Corporate Governance?
Of the basic principles of Corporate Governance the most important were the rights of the shareholders and equitable treatment of shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights. The basic rights of shareholders were systematic registration of shareholding, ability to buy, sold or transfer shares, obtaining regular information about the company, electing and removing board of director members and to participate in the profit of the company. Shareholders also have the right to know, approve and participate in matters like amending the company’s Memorandum and Article of Association, issuing of new shares and unusual transfer of shares.
Another important requirement in Corporate Governance is the role of the stakeholders. The rights of the stakeholders were established by law or through mutual agreements but there must be active co-operation between corporations and stakeholders in creating economic development, jobs, and the sustainability of financially sound enterprises. In some countries the rights of stakeholders were established by laws such as labour, commercial and environmental.
Disclosure and transparency is also another requirement in Corporate Governance. Timely and accurate disclosure must be made on all matters regarding the corporation including the financial situation, performance, ownership and governance of the company.
This is the sector where the majority of companies in Myanmar were weak and failing. Most of the companies kept news about their companies in the dark. They were very weak in transparency and openness. A good Corporate Governance is measured at the minimum by the timely disclosure of all material information. Material information is any information about a company or its products/services that is likely to change the perceived value of the company or its products/services when it is disclosed to the public. In other words, these are information that was vital for a shareholder or investor to decide on investing in the company or to vote at the general meeting and thus it must be disclosed in a timely manner.
The duties and responsibilities of the board of directors is part of Corporate Governance. The board is responsible for guiding corporate strategy, monitoring performance of the company personnel, achieving an adequate return for shareholders while preventing conflicts of interest and balancing competing demands. Another important board responsibility is to oversee the risk management system and systems designed to ensure that the corporation obeys applicable laws, including tax, competition, labour, environmental, equal opportunity, health and safety laws. In our country, we still lack boards of directors that had these fundamental capabilities.
What was done in Myanmar?
Efforts were made starting from 2013 to fill in the gap on Corporate Governance in Myanmar and to establish the necessary ground for it. In his trip to OECD in France during 2013 Directorate of Investment and Company Administration Director General had requested support for Corporate Governance matter in Myanmar.
In 2014 OECD drew up an OECD-Southeast Asia Corporate Governance Initiative program and Myanmar hosted the first OECD-Southeast Asia Corporate Governance meeting. Subsequent meetings were held in Viet Nam, Lao and Cambodia annually from 2015 to 2017. The fifth and final meeting was held in Yangon on March 2018.
In addition to these meetings Myanmar also participated in OECD Corporate Governance Round Tables and requested assistance toward establishing a firm Corporate Governance in Myanmar and consistently made preparations under the guidance and instruction of the government.
Myanmar Companies Law and Corporate Governance
Myanmar Companies Law was enacted on 6 December 2017 and came into effect starting from 1 August 2018. The weaknesses of Companies Act of 1914 were reviewed and starting from the drafting stage matters relating to Corporate Governance was included systematically in accordance to the time, international norms and practices.
The nature, rights and powers of shares were included in Section 60 and 61 of the Myanmar Companies Law. Section 83 to 88 contain enactment on transfer of share and Section 99, 157, 186, 188, 260 and 261 describe the rights of shareholders to view, inspect and acquire company’s information. Section 146, 148 and 150 to 154 prescribe the rights of shareholders to attend meetings. Section 17, 25 (d), 116, 121, 146, 151, 173 and 345 prescribe the rights of shareholders to vote on the decision made by the company. Through these, the rights of shareholders were fully protected.
Myanmar Companies Law Section 192, 193, 194, 196, 200, 201, 289 (f) and 302 protects the rights of shareholders and ensures equitable treatment of all shareholders, including minority shareholders.
As the old law didn’t fully describe the duties of the directors, this was included in the new law. The new law includes powers and duties of directors, restrictions on power of directors as well as taking legal actions for inappropriate actions of the director(s).
Section 90 to 95, 97, 99, 189 and 241 prescribe details about disclosing information about the company. In addition to supporting Myanmar’s standing in the World Bank’s annual Doing Business Report enacting the new law help ease local business persons to do businesses. More importantly it was an important foundation stone toward establishment of a good Corporate Governance in Myanmar.
Company directors’ guide
The role of company directors is very important whenever the word Corporate Governance is mentioned. The main weaknesses of the majority of companies in Myanmar were not fully understanding the Companies Law and directors’ ignorance or not fully understanding the dos and don’ts. As these may not be fully comprehensible by reading the law alone, DICA had posted a Company Directors Guide at its websites www.dica.gov.mm and www.myco.dica.gov.mm in both Myanmar and English.
Myanmar Institute of Directors
With the aims of establishing Corporate Governance and raising capacity of individual directors in Myanmar companies, Myanmar Institute of Directors was formed in March 2018 with the support of International Finance Corporation.
The Institute conducted workshops, courses and other programs to raise the capacity of the directors in Myanmar companies. Myanmar’s first licensed (certified) director course was jointly conducted with Singapore Management University from 1 to 3 April 2019 producing 36 licensed (certified) directors. As more programs will be conducted it will establish good foundation for Corporate Governance in Myanmar.
OECD Corporate Governance Frameworks in Myanmar: A Fact-Finding Survey
OECD sent an expert group to Myanmar to assess the actual situation of Corporate Governance in the country and a Fact-Finding Survey report was published in September 2010. The report said the main weaknesses of Myanmar companies were found to be shareholders not knowing their rights including the right to vote, ignorance and misunderstanding about the information published by the company, directors not knowing their duties and responsibilities and not giving access to company information.
Corporate Governance Code
OECD started a Corporate Governance Reform Project in January 2018 to support the development of Myanmar capital market. DICA, SECM (Securities and Exchange Commission of Myanmar) and OECD signed a Memorandum of Understanding (MOU) in Yangon for Cooperative Activities on 2018 November for the project. As per the MOU a Corporate Governance Reform Advisory Committee was formed with OECD experts, officials from DICA, SECM and Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI), local and foreign experts.
Corporate Governance Reform Advisory Committee coordinated on meeting programs, prepares discussion points for the committee meeting, provides meeting hall and required supports to hold committee meeting and distributed news and information to the public.
Work processes were started in February 2019 and by 2019 November OECD’s draft report on Myanmar Corporate Governance will be submitted to the Advisory Committee. DICA and SECM were jointly striving toward publishing a final report by end 2019 to draw up a Corporate Governance Code.
What is important?
For the establishment of an effective Corporate Governance, a strong law frame, procedure frame and organizational frame are required. Only when the economic sectors depend on those frames can there be benefit to the private sector. The government had been systematically conducting matters for widespread acceptance and practice of Corporate Governance in Myanmar. Before 2020 a Corporate Governance practice appropriate for Myanmar’s situation will be setup.
The most important will be the need for public companies that were not public listed companies and big companies in Myanmar to strengthen and put in place Corporate Governance. All need to note that companies that were weak in Corporate Governance will disappear in the future market.
—( Translated by Zaw Min)