Article Search By : En. Mohd Nasarudin, Bahagian Audit Dalam

Source : https://www.bernama.com/bm/tintaminda/news.php?id=2473865

 

By 2026, a new edition of the Malaysian Code on Corporate Governance (MCCG) will be introduced. The code is expected to focus on two key areas: the quality of boards and their role in long-term value creation. With increasingly stringent standards, the question is — are boards in Malaysia truly ready to take it to the next level?

One of the most significant causes of corporate failure is board weakness. While board assessments are now increasingly common in Malaysia, they are still often seen as a formality — a mere “tick box” to meet governance requirements, but rarely leveraged as a strategic tool for improvement.

 

Five Board Red Flags

Here are some early signs that your board may not be functioning effectively:

1. Strategic decisions are made without in-depth risk analysis.
2. No serious monitoring of ESG, technology, or cyber aspects.
3. iii. Board assessments are a formality without independent input.
4. Lack of a culture of openness and integrity in discussions.
5. Assessment results are not translated into concrete action.

 

The Importance of Internal Audit

How does a company build an effective board of directors? One of them is related to the internal audit function.

As an assessor with the Institute of Corporate Governance Malaysia (ICDM), I often see boards of directors that are at the average level — between a score of 3.0 to 4.0. To rise to the level of excellence, the key is the willingness to discuss honestly and act on the findings.

The fact is, until now, internal auditors have been seen as nothing more than compliance inspectors. In reality, they are governance professionals who have a holistic view of the organization — from culture and integrity, to risk management and control effectiveness. This perspective is what boards need to assess their true effectiveness.

However, in most companies in Malaysia, internal audit is not included in board assessments. This is a major gap, as their work often intersects with key areas of board assessment such as tone at the top, risk appetite, and decision-making culture.

 

Lessons from Effective Boards

A strong board typically consists of three layers of assessment:

Board Effectiveness Assessment (BEE) – How well the board functions as a whole

Board Committee Assessment – ​​The performance of key committees such as Audit, Risk, and Nominating, especially the Chair

Individual Director Assessment (IDE) – The contributions and performance of each director, their skills, and engagement

Another critical aspect of board effectiveness is a deep understanding of the interactions between the board as an individual and the board’s collective risk profile to drive decisions.

Misaligned board orientations or easily overlooked risks can create blind spots, fuel conflict, or lead to herd thinking that can limit agility and innovation. These aspects of soft governance can be detected by internal audits, helping a board become more objective, and function holistically and effectively.

 

MCCG 2026: Time to Act Now

MCCG 2021 recommended that large companies conduct independent board assessments every three years. With the MCCG 2026 update, this standard is expected to be expanded with a greater emphasis on the board’s role in long-term value creation.

For boards that still view assessments as a formality, this should be a wake-up call. Capital markets, international investors, and regulators now demand proof of effectiveness — not just pretty documents.

 

Internal audit can be a differentiator:

Transforms perception assessments into evidence-based assessments

Links board decisions to actual risk strategies

Helps boards track follow-up on assessments, not just produce reports

 

Challenges and Conditions for Success

For internal audit to play a role in improving the quality of boards and their role in long-term value creation, three things are needed:

1. A clear mandate – internal audit must be empowered to assess governance, not just finances.
2. Soft skills – assessing board dynamics requires communication skills, trust, and the ability to interpret qualitative data.
3. iii. Access to information – internal auditors need to be given access to meeting materials, minutes, and other important information.

In companies with mature cultures, these conditions are already or can easily be met. But in small and medium-sized companies, the first step can be to give internal audit a seat at the table and encourage open dialogue.

Internal audit can be the catalyst that moves board assessments from simply “ticking the box” to an engine of continuous improvement. With MCCG 2026 in sight, the time to act is now to engage internal audit as a strategic partner to build trust, increase resilience, and create long-term value.

Date of Input: 30/12/2025 | Updated: 30/12/2025 | muhammad.isam