Sunshine Smoothies Berhad (Sunshine) is a company with its shares traded on the

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QuestionSunshine Smoothies Berhad (Sunshine) is a company with its shares traded on the Bursa Malaysia. The Board of Sunshine has recently agreed to adopt the Malaysian Code of Corporate Governance (Code) as the Code against which the company will 'apply or explain an alternative', in accordance with the Bursa Malaysia Rules. The Board already has in place a nomination committee, audit committee and remuneration committee whose memberships comply with the Code.   An issue which has been of concern to the Company Secretary of Sunshine, Jivin Gati, is the lack of diversity on the Board of Sunshine which, in addition to the chair, consists of four non-executive directors and three executive directors, all of whom are men. The executive committee below the Board comprises five men and one woman. There is no evidence of ethnic and social diversity either. The majority of the mid-level managers in the company are women. Two of the four non-executive directors on the Board of Sunshine have been on the Board for eight years and the other two have been on the Board for seven and five years respectively. The chair of Sunshine, Mahbub Rahman, had previously resisted suggestions by Jivin that the Board should have a diversity policy for the Board and senior management, on the basis that he was satisfied that the Board members have a good diversity of skills and attributes, but he has now accepted that the adoption of the Code means that the Board needs to change its approach to diversity.   The other issue that Mahbub, who is a member of the remuneration committee, wants to review is the way in which the non-executive directors are remunerated, including his own remuneration as chair. The non-executive directors all receive the same fixed annual fee which has not been reviewed for three years and the additional fee paid to Mahbub as the chair has also not changed for three years. The company has not disclosed the remuneration level of its directors and senior management from public view.  Mahbub is concerned about whether the current level and type of remuneration offered to the non-executive directors is appropriate and wants to know whether Sunshine could introduce a new structure, including share options for the non-executive directors.   (a) Recommend what Sunshine needs to do in order to comply with the Code practices in relation to diversity and the measures that the Board and the nomination committee could take to try to create a more diverse group of non-executive directors, executive directors and senior managers. (15 marks)   (b) Explain how Sunshine should decide on the remuneration of its non-executive directors and the chair of the Board, and what issues and factors should be considered in order to determine the transparency, level and type of remuneration that they receive. (10 marks)  
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(a)

Sunshine must make sure that its board and executive committee are representative of a range of backgrounds, experiences, and abilities in order to adhere to the Code principles of diversity. In order to accomplish this, Sunshine should create a formal Board and executive committee diversity policy that outlines the standards and requirements for Board members and calls for the nomination committee or appropriate representatives to identify candidates with the necessary qualifications and diverse backgrounds for consideration as Board members and executive-level decision-makers.

The Board and the nomination committee should also actively seek out candidates from a variety of backgrounds, such as different genders, ethnicities, social classes, geographic locations, and more in order to create a more diverse group of non-executive directors, executive directors, and senior managers. They should also make sure that applicants are judged on their abilities and performance rather than other factors that have nothing to do with the job. Additionally, in order to improve diversity on the Board, the Board and the nomination committee should take into account the amount of diversity among the entire organization.

(b)

Sunshine should take into account the following elements when determining the compensation of its non-executive directors and the board chair. The following factors influence senior management compensation:

1. The company's overall goals;

2. The level and type of senior management compensation currently in place;

3. Market conditions outside the company;

4. The degree of transparency regarding the compensation of the company's directors and senior management;

5. The performance of the company and individual board members and executives;

6. The complexity of the company's operations and the range of board and executive responsibilities; and

7. The company's overall objectives.

In order to motivate non-executive directors and the board chair for excellent performance, Sunshine should also take into account the prospective introduction of share options for them, as this may be an effective motivator. Sunshine should also make sure that board members' compensation is made public in order to uphold transparency and adhere to any regulatory requirements.

Step-by-step explanation

Sunshine should adopt a clear Board and executive committee diversity policy and actively seek out board members and executives from a variety of backgrounds to maintain compliance with the Malaysian Code of Corporate Governance (Code). Sunshine should take into account the company's overall goals, the current level and type of senior management compensation, the external market environment, the degree of transparency in relation to compensation, the performance of the company and the individuals, the complexity of the business operations, and any potential changes to the compensation structure before deciding on the compensation of its non-executive directors and the chair of the Board. Sunshine can also think about giving its non-executive directors share options as a perk, and it should make sure that board members' compensation is made public for transparency's sake and legal compliance.

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