Corporate Governance

AmREIT recognises the importance of having strong and effective corporate governance culture to promote and safeguard the best interests of its Unitholders and other stakeholders, thereby enhancing the credibility and reputation of the Trust. The corporate governance adopted by the Manager provides a framework of control mechanisms to support the Trust in achieving its goals. This is also critical to the performance of the Manager and consequently, the success of the Trust. The Manager has adopted a good corporate governance framework that is designed to meet the best practice principles. In particular, the Board and the Management of the Manager have the obligation to act honestly, with due care and diligence, and in the best interests of its Unitholders and other stakeholders by emphasising on the transparency of decision making process, fairness and trustworthiness in managing the Trust. The Manager also recognises the need to adapt and improve the principles and practices to meet the ongoing changes and challenges in regulatory requirements, international developments and investor expectations.

The Trust is a real estate investment trust which was established under a Trust Deed with a mandatory requirement to appoint a trustee. Maybank Trustees Berhad was appointed as the Trustee for AmFIRST REIT and the appointment was approved by the SC as prescribed under sections 288(1)(a) and 289(1) of the Capital Markets and Services Act 2007 (“CMSA”). The Trustee is required to act honestly and discharge its roles and responsibilities in accordance with the Deed, SC’s REITs Guidelines, trust laws and securities laws. It has to exercise a degree of due care and diligence and has to act in the best interests of Unitholders. The primary roles and functions of the Trustee are outlined in the Deed.

The following sections describe the Manager’s main corporate governance practices and policies which are guided by measures recommended in SC’s REITs Guidlines, CMSA, The Malaysian Code on Corporate Governance 2017 (“MCCG 2017” or the “Code”) and the Main Market Listing Requirements of Bursa Securities (“MMLR”) as well as the Manager’s obligations as described in the Deed.

The revised MCCG 2017 published in April 2017 to promote greater internalization of corporate governance culture, is applicable to annual reports published from 2018 onward. The MMLR’s Chapter 15.25 (3) requires the Board to provide only an overview of the application of the Principles set out in MCCG 2017. However, the Manager has applied the practices under the Principles (wherever possible) during the financial year under review. With reference to the revised MCCG 2017, three (3) broad principles are as follows:

Principle A    Board Leadership and Effectiveness
Principle B    Effective Audit and Risk Management
Principle C    Integrity in Corporate Reporting and Meaningful Relationship with Stakeholders

The following sections illustrate the application of all three Principles with respective Intended Outcomes and its Practices:

PRINCIPLE A: BOARD LEADERSHIP AND EFFECTIVENESS

Practice 1.1

The Manager is managed by an experienced Board with a wide and varied range of expertise. The Board is responsible for the overall management and corporate governance of the Trust, including establishing goals for management, monitoring the achievement of these goals and review of management’s performance.

The Board has approved and sets the Manager’s Mission and Core Values as described on page 8. It outlines the necessary elements that the Board and Management should practice in discharging their obligations to Unitholders and other stakeholders.

Each Director has a duty to act honestly and in good faith, with due care and diligence, and in the best interests of the Unitholders. The Board ensures that proper and effective controls are in place to assess and manage business risk, and compliance with applicable laws, regulations, guidelines and policies.

The Board focuses mainly on strategy, financial performance and critical business issues, including:-

  • strategic business plans
  • key financial performance indicators
  • principal risks and their management
  • succession planning for Senior Management
  • investors and Unitholders relations programs
  • system of internal control
  • policies

The Board is adequately resourced and supported by an Audit Committee of Directors to look into, amongst others the risk management, internal control and financial management of the Trust, which in turn is supported by the Group Internal Audit, Group Compliance and Group Operational Risk Departments of the ultimate holding company of the Manager.

Practice 1.2

The Chairman of the Board, Mr. Soo Kim Wai, a Non-Independent Non-Executive Director, leads the Board objectively and ensures its effectiveness. Whether in the Board meetings or informal discussions with the Management team, the Chairman encourages active participation and all parties are free to express their opinions.

Practice 1.3

The roles and responsibilities of the Chairman and Executive Director / Chief Executive Officer are separated and the positions are held by two (2) different individuals. Mr Soo Kim Wai is a Non-Independent Non-Executive Director / Chairman while Mr Wong Khim Chon, the Executive Director (“ED”) also holds the position as the Chief Executive Officer (“CEO”). This is to ensure appropriate segregation of duties, authority and increased accountability.

The segregation ensures a clear distinction between the Chairman’s responsibilities to lead and manage the Board and the ED / CEO’s responsibilities to manage the Trust and the Manager.

Mr Soo Kim Wai, the Chairman, leads the Board and ensures that members of the Board work together with the Management in a constructive manner to address strategies, business operations, financial performance, risk management and internal control issues.

Mr Wong Khim Chon, the ED / CEO has full executive responsibilities in consultation with the Executive Committee over the business directions and operational decisions of the Trust. He leads the Management and provides direction on the day-today operations and works with the Board to determine the overall business, investment and operational strategies for the Trust and ensures that they are implemented as planned and in accordance with the Deed and the SC’s REITs Guidelines. In addition, he is also responsible for the overall planning for the future strategic development and growth of the Trust.

Practice 1.4

The Board is supported by qualified and competent licensed Company Secretaries namely, Ms. Chan Sau Leng and Ms. Ruzeti Emar Binti Mohd Rosli. They are the sources of guidance and advice to the Directors on areas of corporate governance, relevant legislations, regulations and policies besides ensuring compliance with the MMLR and other regulatory requirements.

The Company Secretaries attend the Board and the Board Committees’ meetings and are responsible for the accuracy and adequacy of records of the proceedings of the Board and the Board Committees’ meetings and resolutions.

Practice 1.5

The Company Secretaries work with the Chairman and Management to ensure that Board papers and agenda are provided to the Directors ahead of meetings of the Board and Board Committees so that they have time to review matters to be discussed prior to the meetings. The Board papers are circulated at least five business days in advance. Meetings are usually a half-aday event and include presentations by the Management, and when necessary, presentations by external consultants and experts on strategic issues relating to specific business areas.

The Board meetings are scheduled at least four (4) times per annum with the purpose, amongst others, to discuss and review the operations of the Trust and approve the release of the interim and the audited financial statements of the Trust. Additional meetings are held as and when necessary between the scheduled meetings.

During the FY2018, the Board met four (4) times. Total number of meetings attended by the Board members were as follows:

image2

Note: All attendances reflected were the number of meetings attended during the Directors’ tenure of service.

image

Practice 2.1

Currently, the Manager has an Audit Committee of Directors, established to provide assistance to, and to review and report to the Board in relation to fulfilling the statutory responsibilities of the Manager and monitoring of the accounting and financial reporting practices of the Manager, amongst other roles and primary responsibilities. The Audit Committee comprises three (3) members of the Board and the committee meets on a quarterly basis together with other key management staff.

In addition, the Board has established an Executive Committee (“EXCO”) which was formed to support the Board to assess, deliberate and approve operational decisions expeditiously. The EXCO minutes are tabled quarterly to the Board. The minutes comprise EXCO’s key deliberations and decisions made. The EXCO comprises three (3) members who are representatives of the Manager’s shareholders. The EXCO meeting is held on a monthly basis and attended by key management staff.

image

Practice 3.1

The Manager is subject to the Code of Ethics and Code of Conduct which was enforced by its AmBank Group (“Group”). The Codes provide the framework for the decision-making and guide business conduct. The Group’s Code of Ethics sets out six (6) key principles, which every director and employee must adhere to, namely:

  • Compliant - Comply with all relevant laws and regulations
  • Responsible - Manage conflict of interest with honesty and integrity
  • Ethical - Practice honesty and integrity in everything we do
  • Accurate - Ensure completeness and accuracy of financial records
  • Trustworthy - Protect the confidentiality and sensitivity of information
  • Equitable - Treat each other and our community with respect

The code includes reporting of unlawful or unethical behavior through established procedures including via whistleblowing policies that are in place. Every staff are reminded periodically of the six (6) key principles through electronic learning management system executed group-wide. In addition, the Manager’s staff are required to complete the refreshing course periodically and must complete the assessment after completing the Code of Ethics course. This is to ensure staff understands what is required of them and able to apply it when they are discharging their duties.

The Manager has adopted the No Gift Policy enforced by the Group. This is to ensure no conflict of interest arises or preference given to suppliers during transactions involving procurement process such as award of contracts or negotiations.

Practice 3.2

The whistleblowing policy and procedure was adopted by the Board and is currently in place. The purpose is to report the following, but not limited to:

  • dishonest, fraudulent, corruption, bribery or illegal practices;
  • manipulation of accounts;
  • unethical behaviour;
  • abuse of power;
  • violation of laws and constitution; or
  • conflict of interest.

The policy embeds the requirement for the protection of whistleblower which is fundamental for the entire process. Key principles include:

  • Whistleblower will be protected for reporting any actual or suspected improper conduct upon demonstrating sufficient basis for whistleblowing.
  • The confidential information relating to whistleblowing will also be safeguarded.
  • Whistleblower including his / her spouse and related persons who are employees of the Manager, will be protected from detrimental action.
  • It is imperative that whistleblower should provide sufficient and accurate information on best effort basis.

image

Practice 4.1

MCCG 2017 suggests that at least half (50%) of the Board comprises independent directors. Due to the nature of the REIT structure, the Board members are appointed to be members of AmREIT and not for a listed issuer, in this case referred to as the Trust. In this respect, the Board retains its current Board composition with one-third (1/3) of independent directors and of the view that the decisions that the Board makes are objective and will be in the best interest of all stakeholders.

The Board has six (6) members comprising five (5) NonExecutive Directors and one (1) Executive Director, one (1) of whom is a female Director. Two (2) of the Board members are Independent Directors (1/3 of the Board) in compliance with the SC’s REITs Guidelines while the Chairman of the Board is a Non-Independent Non-Executive Director.

As at the date of this Report, none of the Directors held directorships in more than five (5) listed issuers.

The relationships among the Board members are disclosed on page 105 of this Annual Report. In addition to this, information on direct and indirect unitholdings related to the Manager and transactions with the companies related to the Manager are disclosed in Note 12 and Note 24 respectively, in the Notes to the Financial Statements.

The Board comprises business leaders and experienced professionals with backgrounds in fund management, property, banking, legal and finance. The profiles of the Directors are set out on pages 27 to 29 of this Annual Report. The Board is of the view that its current composition comprises individuals who, as a group, provide the necessary core competencies and that the current Board size is appropriate and effective, taking into consideration the nature and scope of AmFIRST REIT’s operations.

The Board diversity in terms of ethnicity, professional background and experience are as illustrated below:-

chart

Practice 4.2

The MCCG 2017 states that the tenure of an Independent Director should not exceed a cumulative term of nine (9) years. This is in line with the Group’s existing policy which states that an Independent Non-Executive Director shall serve up to a maximum of nine (9) years (the “9-Year Rule”).

The Independent Director may continue as a Non-Independent Director subsequently subject to the recommendation of the Group Nomination and Remuneration Committee (“GNRC”) of Directors and the approval of the Board.

Practice 4.3 [A Step Up]

The Manager has adopted the policy which limits the tenure of its independent directors to nine years. The policy has been complied diligently, and this was demonstrated in August 2016, where two independent directors had stepped down after nine (9) years of service.

Practice 4.4

It is imperative that the Board and Senior Management are appointed based on objective criteria, merit and taking into account diversity in skills, experience, age, cultural background and gender. The Manager adopts the Group’s appointment procedures for both directors and for its staff. The Manager utilizes the resources made available by Group Human Resources. The Board places significance on the merit as well as the role which objective criteria were derived.

Newly appointed Directors and Senior Management are given briefings by the Management on the business activities of the Trust, its strategic directions and policies and the regulatory environment in which the Trust operates. Directors are also informed of their statutory and other duties and responsibilities as well as policies and procedures relating to the corporate conduct and governance including the disclosure of interests, prohibitions on dealings in the Trust’s units and restrictions on the disclosure of price-sensitive information.

Subsequent to director’s appointments, the director will be required to complete the Capital Market Director Programme (“CMDP”) as required by SC within the timeline as stipulated in SC’s Licensing Handbook. CMDP is an exclusive platform for Directors of licensed intermediaries to be equipped with the relevant knowledge, skills and abilities to meet the expected competencies required of a board. It is also designed to allow Directors to explore and deliberate on pertinent issues affecting the industry from multi stakeholders perspectives.

Practice 4.5

As a REIT Manager, the Board takes cognizance of having more women directors on the Board. MMLR requirement is for the Board of large companies to comprise 30% of women directors. Although it is not a requirement for a REIT, the Board endeavors to achieve the target. As at the annual report date, the Manager’s Board has only one woman director or 17% of the Board composition. The Board is constantly looking out for the right candidates who are able to meet the role and based on merit. The Board’s diversity in terms of gender is as follows:

chart

Practice 4.6

The Manager’s Group has various approaches and sources to identify candidates for the appointment of directors. Apart from the common method of recommendation from Board members and major shareholders, the Group uses independent recruitment firms as well as direct approach of identifying individuals that have relevant experience and undertaken similar Board role, and well known in the market.

Practice 4.7

The Board performs the function that a Nominating Committee would otherwise perform, namely it administers nominations to the Board, reviews the structure, size and composition of the Board, and reviews the independence of Board members. The composition of the Board is reviewed to ensure an appropriate mix of expertise, independence, experience and knowledge in business, finance and management skills critical to Trust’s business.

chart

Practice 5.1

The Manager took note of practice 5.1 on the recommended practice to conduct a formal and objective annual evaluation to determine the effectiveness of the board, its committees and each individual director even though this practice note is not applicable to REIT companies. However, the Manager will look into a formal and objective board evaluation process, going forward.

chart

Practice 6.1

The Manager acknowledges the need to ensure a fair and equitable remuneration mechanism for the directors and senior management, which commensurates with the demands and performance of the Manager, and also the individual’s responsibilities.

Practice 6.2

The GNRC at Group level looks into the aspect on remuneration of the directors and Key Management Personnel (where applicable and if required).

chart

Practice 7.1

The Directors’ remuneration is paid by the Manager and not the Trust. For Non-Executive Directors, they receive Directors’ fees and meeting allowances for their attendance at meetings of the Board and any of the Board Committees.

The determination of the Non-Executive Directors’ remuneration is a matter for the Board as a whole and is subject to the shareholders’ approval of the Manager. The Directors are not involved in the approval of their own remuneration. The proposed Directors’ fees for the FY2018 and its comparative figures are as follow:-

chart

Practice 7.2

The Board opined that the top five senior management’s remuneration will not be disclosed due to sensitivity and competitive external human resource environment in the industry. This is necessary and in the best interest of the Manager as well as the Trust, in order to retain its experienced staff and ensure smooth continuity of the business operations.

Furthermore, the MCCG 2017 Guidance 7.2 suggests that the disclosure of how director’s remuneration is measured, allows stakeholders to understand the link between senior management remuneration and the company’s performance. On the contrary, due to the unique REIT structure whereby the Manager is separate from the Trust, there is no direct link between the remuneration of Management team and the Trust’s performance. The remunerations were disbursed from the management fees earned by the Manager, which were predetermined at the inception of the Trust via the Trust Deed.

PRINCIPLE B: EFFECTIVE AUDIT AND RISK MANAGEMENT

chart

Practice 8.1

The Chairman of the Audit Committee, Dato’ Wong Nam Loong is not the Chairman of the Board. Dato’ Wong Nam Loong was appointed on 15 August 2016 as an Independent Non-Executive Director and has led the Audit Committee since then. The Chairman of the Audit Committee ensures that the Committee’s primary roles and responsibilities are discharged in accordance with its Terms of Reference which is set out in the Audit Committees Report, pages 100 to 102 of this annual report.

Practice 8.2

The Board takes cognisance of matters pertaining to independence and conflict of interest. It is imperative that the functions of Board Committees are not impaired when they are discharging their duties. In this respect, the Board will require a former key audit partner to observe a cooling-off period of at least two years before being appointed as a member of the Audit Committee, if there is any. This will also apply to any other similar appointments if the Board deems there is a potential conflict or an issue on independence.

Practice 8.3

It is the Audit Committee’s responsibility to review the appointment of the external auditors and resignation of external auditors, negotiate and approve the annual audit fees. This is clearly outlined in the audit committee’s Terms of Reference. During the annual audit plan presentation by the external auditor, the Audit Committee will assess the suitability, objectivity and independence of the external auditor. The external auditor would also confirm their independence during the meeting with the Audit Committee at the initial stages prior to the commencement of their annual audit.

Practice 8.4 [Step Up]

While the requirement of MCCG 2017 states that the Audit committee should solely comprise of Independent Directors, the Board is of the view that the AC is able to discharge its duties effectively with its two-third (2/3) composition of Independent Directors. The inclusion of a Non-Independent Director who represents one-third (1/3) of the Committee is deemed necessary to facilitate and support the Independent Directors in areas of his expertise.

Practice 8.5

The Audit Committee possesses the necessary range of skills to effectively discharge its duties. All members have good understanding of the REIT operations and its financial reporting process. Mr. Soo Kim Wai, who is an Audit Committee member possesses extensive experience in accounting field and is a member of several professional accounting bodies namely Malaysian Institute of Accountants, Malaysian Institute of Certified Public Accountants and Association of Chartered Certified Accountants.

Apart from financial knowledge, the Board has ensured that the Independent Directors should also comprise of members who have experience in relevant property related industry. Collectively, the current Audit Committee have extensive experience and knowledge in accounting, finance, legal and real estate field.

During the financial year under review, the Directors, including the Audit Committee members had attended various conferences, seminars and workshops to enhance their knowledge and expertise and to keep abreast with the relevant changes in laws, regulations and the business environment. The training programs attended by the Directors during the FY2018 were, on areas relating to real estates, corporate leadership and governance, professional development, risk management, information technology, regulatory and compliance which are conducted by the Group Learning and Development Department of the ultimate holding company of the Manager and regulators as well as professional establishments.

chart

Practice 9.1

Since the inception of the Trust, the Board has established an effective risk management and internal control framework. It plays a vital function in the Manager’s management of its risks and transactions. The Board through its committee is responsible for the risk management of the Trust which include but is not limited to, identifying the principal risks associated with the business activities and ensuring appropriate measures, systems and internal controls are in place to mitigate the risk exposure.

Practice 9.2

The features of risk management and internal control framework are disclosed in detail in the Statement on Risk Management and Internal Control on pages 95 to 99 of this Annual Report.

The main feature of the risk management framework is that it comprises functional roles and responsibilities established for the management of risk i.e. the First Line of Defense (“FLOD”). The FLOD comprises coordinators for Business Operational Controls (“BOC”) at the Managers level and Operational Controls Coordinators (“OCC”) appointed at each functional department of AmREIT. The intention of the establishment of FLOD is to establish personnel who are competent, to enhance accountability and promote proactive risk management culture.

The internal control is mainly driven by policies and procedures which are designed to provide reasonable assurance to the Board that the Trust will achieve its objectives. In addition, although it is not mandatory for REITs to comply under with the MMLR, the Board has voluntarily adopted the best practices in corporate governance by establishing an Audit Committee and internal audit function. The internal audit function is undertaken by the Group’s Internal Audit Department. The Manager also has a designated Compliance Officer to ensure compliance with regulations, internal policies and procedures. In relation to the above, external auditors has included understanding and assessing the internal control system as part of their audit.

The current risk management framework and internal control is adequate and effective.

Practice 9.3 [Step Up]

A Risk Management Committee at AmREIT was established to assist the Audit Committee in assessing the adequacy of internal control and risk management. The Risk Management Committee comprises of the Chief Executive Officer and Heads of Departments of the Manager, with the support from the Group Risk Management Department.

chart

Practice 10.1

The Board has adopted the best practices by establishing an internal audit function, although not compulsory for a REIT under the MMLR.

The internal audit function is performed by the AmBank Group’s Internal Audit Department (GIAD) operating under a charter which gives it unrestricted access to review all activities of the Group. The Head of GIAD reports independently to the Audit Committee.

GIAD has internal procedures in place to ensure that the audit personnel are free from any relationships or conflicts of interest and their objectivity and independence are not impaired when conducting audits on the Manager.

The current structure allows GIAD to perform its function effectively and independently.

Practice 10.2

GIAD is headed by the Group Chief Internal Auditor (“GCIA”) Encik Shamsul Bahrom Mohamed Ibrahim, who has over 19 years of comprehensive internal auditing and management experience in the financial services industry. En Shamsul holds a BSc (Hons) Finance & Accounting from University of Salford, Manchester as well as Masters in Business Administration from University of Strathcylde, Scotland.

GIAD focuses its efforts in accordance with the Annual Audit Plan which is developed based on a structured risk assessment of all the activities undertaken by the Manager that ensures all risk-rated areas are kept in view to ensure appropriate audit coverage. The risk-based audit plan is reviewed periodically, taking into account the changes in the business and risk environment.

The Annual Audit Plan, including the internal audit resources required to execute the plan is approved by the Audit Committee.

The main objective of the audit reviews is to assess the adequacy and effectiveness of the risk management and systems of internal control system.

Apart from the above, GIAD also performs ad-hoc reviews and investigations involving fraud, misconduct, or when requested by Regulators or Management.

The results of audit reviews, including Management’s action plans to address issues highlighted by internal auditors are tabled to the AC for deliberation. GIAD conducts follow-up and reports to the Audit Committee regarding the status of implementation of Management action plans, until full resolution.

The AC is of the view that GIAD is adequately resourced to perform its functions and has maintained its independence from the activities that it audits.

PRINCIPLE C: INTEGRITY IN CORPORATE REPORTING AND MEANINGFUL RELATIONSHIP WITH STAKEHOLDERS

chart

Practice 11.1

The Board emphasizes the need to communicate with stakeholders regularly, effectively and in a transparent manner.

Apart from media write ups, the Manager posts key information on the Trust’s official website (www.amfirstreit.com.my) for stakeholders awareness.

The stakeholders are able to query or reach senior management both via e-mail or telephone. The contact details are listed in the said website.

chart

Practice 12.1

The Board through its management and company secretary strictly complies with the Annual General Meeting (“AGM”) notice issuance to the shareholders. As a matter of fact the Manager gives more than 28 days notice prior to the meeting. The number of days of notice period provided since past 3 years were as follow:

chart

Practice 12.2

All directors are required together to attend the to address any questions raised by the Unitholders.

All the questions raised with responses provided during the AGM are minuted by the Company Secretary and will be posted in the official website for Unitholders reference.

In addition, Senior Management team are also required to attend the AGM to support the Board and explain on operational matters. Stakeholders will be better informed and understand the nature of the Trust’s operations.

Practice 12.3

At all times the Board and the Senior Management encourage its Unitholders to attend its General Meetings. Where possible, electronic means were considered to facilitate Unitholders’ participation. As a start, electronic poll voting was introduced during the AGM in 2017. In the best interest of Unitholders, the Board emphasizes that the General Meetings are held at locations easily accessible within Klang Valley vicinity. The logistics are critically considered by the Senior Management team.