topglove risk assignment

BKAI 3043 TOP GLOVE COPORATION BERHAD

TABLE OF CONTENTS

1.0 OBJECTIVE OF THE STUDY.....................................................................................1

1.1 INTRODUCTION.....................................................................................................1

1.2 METHODOLOGY.....................................................................................................2

2.0 RISK MANAGEMENT PROCESS..............................................................................3

3.1 TECHNIQUES USED TO IDENTIFY THE RISK FACTOR..................................8

4.0 TWENTY FIVE (25) SIGNIFICANT RISKS............................................................10

5.0 RISK MATRIX...........................................................................................................12

6.0 TEN MOST SIGNIFICANT RISK.............................................................................15

7.0 RISK APPETITE.........................................................................................................17

8.0 THE RISK IMPACT TOWARD COMPANY OBJECTIVE, MISSION AND VISION..............................................................................................................................19

9.0 CORPORATE GOVERNANCE.................................................................................20

10.0 COPRATE SOCIAL RESPONSIBILTY..................................................................24

11.0 WHISTLE BLOWING POLICY..............................................................................27

12.0 RECOMMENDATIONS...........................................................................................28

13.0 CONCLUSION..........................................................................................................30

LIST OF TABLES

Table 1: Twenty Five (25) Significant Risks Of The Company

Table 2: Risk Analysis

Table 3: Risk Matrix Analysis3

Table 4: Ten Most Significant Risks5

Table 5: Risk Appetite of Top Glove7

Table 6: Corporate Governance practices of Top Glove Bhd0

Table 7: MCCG 2012 for Top Glove Bhd3

0


1.0 OBJECTIVE OF THE STUDY

To know on how company manage risk management process.

To identify the benefits of risk management in helping Top Glove to achieve

company objective.

To know what is the role of internal auditor in Risk Management

To Identify and list at least 25 significant risks to the organization.

Get to know what the most critical risk for Top Glove.

How does corporate governance play an importance role in risk management

toward achieving the goal of Top Glove.

Evaluate on how Top Glove react in corporate social responsibility activities.

1.1 INTRODUCTION

Top Glove Corporation Berhad was established in 1991 by the founder Tan Sri Dato Sri

Lim, Wee- Chai. Top Glove Corporation Berhad is a rubber glove manufacturer base in

Malaysia. It listed in Bursa Malaysia on 27 March 2001. The company owns and operates

23 factories in Malaysia, Thailand, China and marketing office in Malaysia, United States

and Germany. The company is currently marketing its products to more than 185

countries.

The reason of choosing Top Glove as our research company is because of the capability

of Top Glove in their risk management and corporate governance. We have done several

analyses on Top Glove annual report to make sure that this company is suitable for our

research before we decide to choose it as our research company.

An interview has been conducted with the senior manager internal auditor, Mr Wong

Choon Ming. From the interview, we gained a lot of useful information that can

contribute to our project. We analyse all the information that provided and those

important information will be present in our research project.

1


Meeting is an important way for our group member to communicate on the issue or

problem that we face. A lot of meetings have been conducted to complete our research

project. Besides that, we also consulted our lecture for the problem that unable to solve

by us during our meeting.

1.2 METHODOLOGY

We were using several methods to obtain the information we need to conduct this project.

The methods that we used are interview, online data research and documentation.

1. Interview

We have conducted an interview on 29 October 2012. Mr. Wong Choon Ming, senior

manager of internal audit department is our interviewee for the interview. Prior to the

interview, we have studied about their company background and annual report of the

company. We had prepared some question in related to our project beforehand. During

the interview, the interviewee shared and explained about their company risk

management process and other issue that we ask.

2. Online research data

We get a lot of information though internet especially from the company homepage.

Internet also provided us some related article and information to support our research. By

using the sources that we found from internet, we learn more about risk management.

3. Documentation

To have a clearer picture of the company, we have studied on Top Glove annual report.

Besides that, by studying those documents, we know about Top Glove mission, vision

and their company objective.

2


2.0 RISK MANAGEMENT PROCESS

Based on the interview, we have found that the risk management process of Top Glove is

basically based on the enterprise risk management of COSO Framework. Mr Wong told

us that the risk management will be applied across the enterprise, at every level and unit,

and includes taking an entity-level portfolio view of risk. It is an on-going and flowing

process through an entity and it affects people at every level of an organization.

There are eight important components in Enterprise Risk Management which interrelated

between each other. These components are derived from the way management runs an

enterprise and are interrelated with the management process. We'll discuss it in detail in

the following section.

a) Internal Environment

In the internal environment of Top Glove, Tan Sri Dato Sri Lim Wee Chai concerns

about the importance of risk management, and he decided to establish a risk management

committee by year 2013. Prior to this establishment, the risk management process will be

carried out by management committee which comprises of top management and head of

departments and it will be exercised during the meeting held between the members of

management committee. Besides that, Tan Sri Dato Sri Lim is also very concerns about

the integrity and the ethical values within the organization. Several controls are

implemented to ensure the integrity and ethical values of the organization. For example,

the contact number of the top management is shown on the website and also bulletin

board of the company for the purpose of whistle blower, employees are required to attach

the customized Top Glove badge with the words " Be Honest, Against Corruption" with

the staff card to remind them to be honest and ethical.

b) Objective Setting

Top Glove aims to be a world class glove manufacturer providing top quality products

with excellent services that enrich and protect human lives. In order to achieve this goal,

Top Glove requires the employees to follow corporate values which are global customer

satisfaction, do it right first time and every time, integrity and total commitment,

3


excellence in quality and competitiveness, environmental friendly and social

responsibilities. These are the objectives that set by the Top Glove's management in order

to achieve their mission and vision.

c) Event Identification

In the Top Glove production, external events like weather condition, minimum wages

rate, and latex price could affect Top Glove from achieving their desired objectives. For

example, unstable latex price could bring extra cost to the production of the company,

and thus the revenue would be reduced and the company's performance will be affected.

Internal events refers to events that could occur internally and within the organization

itself, such as lack of labours, the quality of the raw material, machine breakdown, lack

of technology and many more. For example, lack of labours in the production line will

cause a delay in production line and it might affect Top Glove's goal to deliver the quality

product to all the customers timely and free from defect.

d) Risk Assessment

In the case of Top Glove, as mentioned above they discuss and analyze the risk during

the meeting of management committee. Risk will be identified and bring up to the

meeting for discussion. Likelihood and impact of the risks will be further discussed

during the meeting. For example, the currency exchange risk will be assessed during the

meeting, top management will analyze on the likelihood of a weaker or stronger US

dollar happens in the future and also the impact of both options on the company's profit.

e) Risk Response

Risk responses will be decided during the meeting of management committee. It will be

discussed by taking into account of the risk appetite and tolerance that has been set by the

management. Take the currency exchange risk as an example, response will be made by

the top management in align with the risk appetite which is 10% of the annual profit

made in this case. If the currency exchange risk will have impact on the company's profit

by more than 10%, then it's considered as significant and the top management will decide

accordingly after gathered all the information of this risk.

4


f) Control Activities

Top Glove has once made borrowings of US dollar with the bank to reduce the damage

from the weaker US dollar. Although Top Glove has a strong financial power and equip

with strong internal fund, but the purpose of that borrowings is to reduce the impact of

weaker US dollar on the company's profit as 95% of Top Glove products will be exported

and the profit will be returned in US dollar. Besides that, to prevent the insufficient

supply of the raw material from happens, Top Glove has acquired a land in Sumatera,

Indonesia last year. The purpose of this acquisition is to internally source the latex. This

is to reduce the reliance on the outside suppliers and also to ensure a consistent supply of

the latex. The whole plan will takes 13 years to complete.

g) Information and Communication

In the case of Top Glove, information is communicated in a broader sense, flowing down,

up and across the entity. Top Glove ensures effective communication by having meetings

between the chairman, executive directors, and head of departments frequently. Not only

the top management, the supervisors are required to attend the meeting with the head of

department to report on the progress of the production and the problems that identified .In

addition to that, the workers from the bottom line of the organization chart are also

required to have meetings with their supervisor periodically to report on the problem and

daily reports on the position.

h) Monitoring

In the case of Top Glove, one of the most obvious monitoring activities can be seen on

Tan Sri Dato Sri Lim Wee Chai. Although he aged 53 years old this year, but he insists

on a meeting with all the senior management staffs of Top Glove every 2 months to

ensure the competitiveness of the company. The staffs are required to make a

presentation about the progress of their in-charge department to Tan Sri and explain to

him if any new program has taken place in this 2 months’ time. Besides that, Tan Sri will

plan a surprise visit to the factory occasionally to ensure the production is on correct

track.

5


3.0 RISK FACTOR

Top Glove has some of financial and non-financial risks like credit risk, liquidity risk,

interest rate risk, foreign currency risk, human resource risk, raw material supply risk and

ethical risk. The occurrence of Foreign Currency Risk is high compared to the other

financial risk. Based on our interview session with Top Glove, we found that the foreign

currency risk is occurring because there were changes or fluctuations in US dollar.

Foreign currency risk defined as a risk of an investment's value changing due to changes

in currency exchange rates. It can strongly affect businesses that export and/or import in a

variety of ways. Even if a company does not engage in foreign sales or purchases, it can

still be subject to a risk because of exchange rate fluctuations. This is because the price of

its foreign competition's products may be affected by a change in the exchange rate.

Besides that, it can also affect investors making international investments. For example,

when money converted to another currency for certain investment purpose, any changes

in the currency exchange rate will cause that investment's value to either decrease or

increase when the investment is sold and converted back into the original currency. As

95% of the Top Glove’s products are exported to overseas and its will be traded in US

dollar. Thus a slight change in US dollar might cause a big impact to the Top Glove

production’s revenue.

Financial crisis caused recession in US in 2008. Economic recessions in US are caused

by a decline in GDP growth, which caused by a slowdown in manufacturing orders,

falling housing prices and sales, and a drop-off in business investment. The result of this

slowdown is rising of unemployment, which causes a slowdown in retail sales. This

creates a downward spiral in manufacturing and increases layoffs. This risk factor would

be the slowdown in US economic in recent years. Slowdown in the US economic made

the US dollar currency weaker. So, there are possibilities that the Top Glove can be

affected by the changes in US currency.

The next financial risk in Top Glove is Government Regulation risk. Government

regulations are principles and laws issued by various federal government departments and

agencies to control or govern conduct. Government regulation affects businesses of both

6


small and big companies. Regulatory compliance puts a disproportionately large burden

on these companies. Regulations make less competitive against foreign competition

which adds uncertainty and keeps businesses from investing in capital purchases, services

and hiring. New regulations also add complexity and often have unintended

consequences.

Lately, our Prime Minister Datuk Seri Najib Tun Abdul Razak has announced that the

minimum wages for private sector employees will be RM900 per month in the Peninsular

Malaysia and RM800 for those in Sabah and Sarawak. In Top Glove case, it only gives

out basic RM500 per month added with other allowances which made up total of RM800.

Therefore, Top Glove now has to add another RM100 for their employees. This caused a

big burden to the production costs. Top Glove used additional RM 45 million per year in

order to comply with this regulation. Furthermore, Top Glove has to learn to plan the

strategic better and they have to successfully overcome competitiveness in the industry.

This is going to be a big challenge to them.

Next, we move on into non-financial risk. Human resource risk is the set of individuals

who make up the workforce of an organization, business sector or an economy. Human

Resource risk is the risk that involves the workers’ capacity skills, recruitment and

retention if it is not well managed. Currently, Top Glove has total of 11,000 employees

which include foreign workers, local workers and management staff. Since the

government policy does not recommend foreign workers, therefore it has become

difficult to recruit foreign workers and most of the local people are not willing to work in

the factory. It is due to the local people are expecting a high salary, position and to

promoted.

The difficulties to recruit workers for production sector have increased for Top Glove. In

this modernisation era, it has become complicated to find a good and ethical worker.

Workers should exhibit a good work ethic in their organisation so that the organisation’s

culture can be maintained and ensure Top Glove’s sustainability. Top Glove has

expanded their production and this needs many workers but the supply of quality workers

doesn't meet Top Glove's demand.

7


The next non-financial risk is the risk of supply in raw material. Rubber is the most

important material that is used in Top Glove’s operation. The weather condition in latex

estate area caused the supply of latex slow down. The bad weather condition in Thailand

such as severe drought and unusual heavy rainfall caused the supply of latex is limited. In

addition, the prolonged wintering season and outbreak of rubber tree bark disease in

Vietnam reduce the supply of latex to the Top Glove. Moreover, China and India’s

demand for latex has increased for their booming auto and tyre manufacturing industries.

The latex price increased due to the high demand of latex. A slight change in the latex

price causes a huge impact on Top Glove production. Thus, there are high possibilities of

production cost changes in Top Glove will occur.

3.1 TECHNIQUES USED TO IDENTIFY THE RISK FACTOR From the interview section, we found that TOP GLOVE is using brainstorming to

identify risk factors. Brainstorming is useful when the management want to generate a

large number of ideas about issues to tackle, possible causes of problems, approaches to

use, or actions to take. This method has been conducted among the company’s top level

management and the staff. There will be several meetings will be held between the top

management with the Head of Department. The purpose of this meeting is to discuss

about the current problem occur during that particular time and possible risks might occur

from the problem. The employees are the people who can really know the entire

department’s problem. They also will discuss the solutions to control the risk might arise

from the production process in every aspect and prevent the risk from incur. This

department meeting will be conducted weekly within their employees. The following step

will be the Head of Department will submit the risk identification report and assessment

report to their superior officers. This is because the risk management process involves

every level of employee in the company.

In Top Glove, they follow few procedures when conducting the brainstorming method.

Firstly, the Head of Department will review the rules for Brainstorming. They will set the

time limit for brainstorming and state the topic to be brainstormed in the form of

question. Assuring that everyone understands the topic is important during that time.

After allowing a few minutes for the participants to think about the question, they will be

8


asked to give their ideas. The ideas then will be recorded on a chart pack and display the

ideas where everyone can see them. This is to avoid misinterpretation and helps stimulate

creative thinking by other team members. The same procedure will be used when

discussing about any problem and risk incurred in Top Glove.

As we know, brainstorming is an approach which provides a very different and

stimulating interaction between the employees. The employees in Top Glove prefer this

method to discuss the department problem because it provides a very different interaction

procedure where they enjoy mostly. The unleashed and concentrated mental power

generated in a brainstorming session guarantees both individual and group achievement.

It also can lead to new and original solutions to problems.

According to the interview conducted with Mr Wong, his opinion towards this method is

it fosters a sense of ownership. When all the members actively participate in the

Brainstorming process, it fosters a sense of ownership in the topic discussed and in the

resulting activities. When the people on a team contribute personally to the direction of a

decision, they are more likely to support it. The employees also can generate creative idea

because brainstorming encourages creativity. It expands their thinking to include all

aspects of a problem or a solution. They also can identify a wide range of options. At the

same time, they rapidly can produce a large number of ideas. By encouraging the

employees to offer whatever ideas come to mind, it helps the groups develop many ideas

quickly.

Lastly, Mr Wong shared that Brainstorming method in Top Glove provides a permanent

record and aids in developing solutions to the production level problems. The results of

the sessions can easily be reproduced or reused to design alternate procedures and

programs for solving problems or meeting objectives. The production of the employees

takes on value as a permanent evaluation record and as testimony to individual and group

effort.

9


4.0 TWENTY FIVE (25) SIGNIFICANT RISKS

Throughout the study, we have been able to collect information and identified the twenty

five (25) significant risks of the company.

Table 1: Twenty Five (25) Significant Risks Of The Company

No Risk Description1. Liquidity Risk Liquidity risk is the risk that a company or bank may be unable to

meet short term financial demands. This usually occurs due to the inability to convert a security or fixed asset to cash without a loss of capital and/or income in the process.

2. Interest Rate Risk The risks that the fair value or future cash flows of the company and the company financial instruments will be fluctuate because of changes in market interest rates. Arises mainly borne from interest-bearing financial instruments, namely loans and borrowings

3. Foreign Currency Risk

Risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rate. Top Glove is highly exposed to this risk because they are trading in a lot of foreign country.

4. Credit Risk Risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. Credit risk arises mainly from trade receivables

5. Increase in Raw Material Price

The risk of increase in latex price will affect top glove production cost and reduce the profit

6. Government Regulation Risk

The risk that how the government regulation affect the company objective. Policies that establish by government to be comply by company, for example government setting minimum salary of workers will affect the company expenses

7. Investment Risk The risk face by company when doing investment for example expansion of business. Top Glove is doing a lot of expansion in building new factory and purchasing land for plantation of rubber tree.

8. Quality Control Risk

The risk that company fail to achieve expected quality of the product produced in an acceptable standard.

9. Operation Breakdown Risk

Risk that company may face losses due to operation breakdown of machine or energy that stop production run smoothly

10. Unstable Oil Price Risk

The risk of unstable oil price will affect the cost of production and transportation of raw material and product delivery

11. Risk of Substitute Product

Risk of other product solutions (substitutes) can replace products that are product by the company thereby reduce sales.

10


12. Tax Risk Tax risk management is managing tax uncertainties in relation to the application of tax law

13. Supply Risk Availability of resources especially raw materials provided. Inadequate of input to meet production demand will cause operation disruption and arise of costly stock out or perhaps loss in goodwill

14. Ethical Risk This includes financial losses from business supply chain, assets theft and other fraud; regulatory violations and allegation of bribery and corruption as well as issue relating to corporate responsibility such as breaching environmental safeguards

15. Incapability in Technology Risk

These risk may be particularly significant because of the advance of technology pressure

16. Environment Standard Risk

Risk of incompliance with the environment standard regulation will cost the company in penalty

17. Weather Risk Unstable weather like raining and storm will affect the harvest of raw material that will affect the supply of raw material and increase the price of raw material

18. Service or Product Failed Risk

Risk that the company failed to service or produce product to their customer

19. Competitive Risk Risk that the company unable to sustain it competitive with the competitor in the industry

20. Financial Resource Risk

Risk of insufficient funding, poor budget management

21. Human Resource Risk

Risk of staff capacity skills, recruitment and retention

22. Information Resource Risk

Risk of inadequacy of information for decision making , protection of privacy information

23. Physical Asset Risk Risk of physical asset being theft24. Scanning Risk Failure to identify threats and opportunities25. Reputation Risk Risk related to the trustworthiness of business. Damage to a firm's

reputation can result in lost revenue or destruction of shareholder value, even if the company is not found guilty of a crime. Reputational risk can be a matter of corporate trust, but serves also as a tool in crisis prevention

11


5.0 RISK MATRIX

After identified risks that might be a threat to the Top Glove Corporation Berhad, next

step is to assess those risks. It is important to assess the impact of the risk to Top Glove

and the likelihood of the risk how frequently it will occur. This will help Top Glove in

making decision about committing the resources to control the risk.

Top Glove does not implement the risk matrix in their company, but they use

brainstorming to discuss the risk in their company by conducting meeting frequently. In

the result of the brainstorming there are several risks that Top Glove give more attention

and take control which is liquidity risk, interest rate risk, foreign currency risk, credit

risk, increase in raw material price, government regulation, investment risk, supply risk,

incapability in technology and human resource risk.

Assessing risk involves analysis the possible consequences or impact of an event and the

likelihood that an event will occur. During the interview session, Mr. Wong have help us

to rate the 25 risk that we have listed (please refer to APPENDIX A), we will plot them

into the risk matrix based on the rating.

Table 2: Risk Analysis ( please refer to APPENDIX B for the description)

No Risk Score Impact(A) Score Likelihood

(B)Matrix Index

1. Liquidity Risk 3 Serious 2 Medium 62. Interest Rate Risk 3 Serious 2 Medium 63. Foreign Currency Risk 3 Serious 3 High 94. Credit Risk 3 Serious 2 Medium 6

5. Increase in Raw Material Price 3 Serious 3 High 9

6. Government Regulation Risk 3 Serious 2 Medium 6

7. Investment Risk 3 Serious 2 Medium 68. Quality Control Risk 2 Moderate 1 Low 2

9. Operation Breakdown Risk 2 Moderate 1 Low 2

10. Unstable Oil Price Risk 2 Moderate 2 Medium 4

11. Risk of Substitute Product 1 Minor 1 Low 1

12


12. Tax Risk 1 Minor 1 Low 113. Supply Risk 3 Serious 2 Medium 614. Ethical Risk 3 Serious 1 Low 3

15. Incapability in Technology Risk 3 Serious 3 High 9

16. Environment Standard Risk 2 Moderate 2 Medium 4

17. Weather Risk 2 Moderate 2 Medium 4

18. Service or Product Failed Risk 2 Moderate 2 Medium 4

19. Competitive Risk 1 Minor 1 Low 1

20. Financial Resource Risk 1 Minor 1 Low 1

21. Human Resource Risk 2 Moderate 3 High 6

22. Information Resource Risk 1 Minor 1 Low 1

23. Physical Asset Risk 1 Minor 2 Medium 224. Scanning Risk 2 Moderate 1 Low 225. Reputation Risk 3 Serious 1 Low 3

Table 3: Risk Matrix Analysis ( please refer APPENDIX B for the description)

13

11,12,19,20, 22

MINOR

LOW

23

8,9,24 10,16,17,18 21

3,5,151,2,4,6,7,1314,25

MODERAT E

SERIOUS

MEDIUM

HIGHLIKELIHOOD

IMPACT


Based on the risk matrix above, we can see that the red colour area is risks that Top

Glove needs to carefully manage and take control. The main priority should be given to

the red area compare to the others risk. Those risks are: liquidity risk, interest rate risk,

foreign currency risk, credit risk, increase in raw material price, government regulation,

investment risk, supply risk, incapability in technology and human resource risk. Where

else the yellow colour area is risks that need moderate concern, which is not so serious

compared to the red area. Risks that in yellow area are: ethical risk, reputation risk,

unstable oil price, environment standard, weather risk, service or product failed. Lastly,

the green colour area is risk that only needs low concern and occasionally monitoring

because it have lesser impact and low likelihood to occur in the company. Risks that fall

into the green area are quality control risk, operation break down risk, scanning risk,

physical asset risk, information resource risk, financial resource risk, competitive risk, tax

risk, risk of substitute product.

As the result of using brainstorming and the risk matrix is the same. We suggest Top

glove can use the risk matrix as another alternative in assessing the risk. This is because

the risk matrix can help us to have a better view in understanding the risk and have

clearer picture which risk that is more serious and need more attention to take control

immediately.

14


6.0 TEN MOST SIGNIFICANT RISK

Table 4: Ten Most Significant Risks

Significant risks Response taken by Top Glove (TG)

1. Liquidity Risk Maintain sufficient levels of cash or cash convertible investments to meet its working capital requirements. Use banking facilities of a reasonable level to its overall debt position.

2. Interest Rate Risk Actively reviews its debt portfolio, investment holding period and the nature of its assets. This help TG capitalize on cheaper funding in low interest rate.

3. Foreign Currency Risk Sign forward foreign exchange contracts with bank, material foreign currency transaction exposures are hedged.

4. Credit Risk Trades only with recognized and creditworthy third parties, trade receivables were screen and monitor on an on-going basis.

5. Increase In Raw Material Price

Acquire own rubber plantation land which will provide up to 50% of current latex consumption.

6. Government Regulation in setting minimum salary of workers

Transform to automation production line which will decrease the number of workers needed and also improve the efficiency and effectiveness of production.

7. Investment Risk Ensure feasibility analysis, proper planning and consultation with expertise before investing a project which the result of investment is secure.

8. Supply Risk Maintain good relationship and sign contract with suppliers to get the first priority when there are shortage of latex in the market.

9. Incapability In Technology TG had hired expertise in technology field to perform research on the latest technology to ensure the company performance is up to date.

10. Human Resource Risk TG have strict requirement in terms of recruitment and screening process. They also implemented the ESOS programme to retain their employees.

For more details description please refer to APPENDIX C

15


In a nutshell, Top Glove chooses to reduce and avoid most of the risks by taking control

to minimize those risks. We will further discuss in more details on the human resource

risk because the interviewee Mr Wong stresses the importance of a human resource and

we concluded that it is the best response among the 10 significant risks.

Top glove has implemented a strict recruitment process on its employees. For a job

applicant, he needs to go through 5 stages of test which are the IBM test, the smoking

test, English test, IQ test, and mathematics test. A person who is overweight and smokes

will be rejected. After the person passes the IBM and smoker test, then only he will

proceed to the IQ test, English test, and mathematics test. Interview will be called upon

passing all the 5 tests. This is to ensure Top Glove hires the most suitable person who has

the quality and ethical value which enable Top Glove to minimize the risk of

unproductive and fraud. By hiring the right person can create a good culture in the

company. Top glove has a good policy which stated that workers in TOP GLOVE who

caught smoking regardless inside or outside of the company will be penalized.

In addition to that, the salary for their employee is high if compared to the market price ,

this is to motivate their staff to increase efficiency and effectiveness in doing their job

and also their only recruit people who are 1st and 2nd classes above , so that their company

is more competitive compare with their rivalry.

Besides that, TG also implement employee share option scheme (ESOS) for their old

staff to gain they loyalty and commitment toward the company. It will reduce the risk of

losing valuable employees and increase the retention rate of the company.

While the production workers will be reduce in number by replacing to the automation

machine in the near future. Due to the risk of the worker salary has been increase by the

government and also most of the workers are foreign workers there are problem in term

of renewing the contract and license.

By taking these actions, Top Glove managed to control the human resource risk and

minimize the undesirable impact to the company. Top glove is taking preventive control

to the risk.

16


7.0 RISK APPETITE

According to Mr Wong, currently Top Glove Corporation Berhad does not have a clear

framework to set their risk appetite. It is because they have not established risk

management committee or risk management department in the current practice but the

top management is carrying the task of the risk management. Although they do not have

risk management department but the process of risk management are still going well

implement by the top management. Top management will evaluate the risk based on their

experience and the impact to company performance. The audit committee and internal

auditor will give advice on the decision the top management take.

Top Glove Corporation Berhad plans to set up a risk management committee in the

coming year which is year 2013. The top management of the company have draft the

proposal related with the risk management committee. Risk appetite is an important

element in the proposal. They have state down how they evaluate the risk appetite for

their company. They set their risk appetite base on the percentage of annual profit in their

company. Following is the table that formed by Top Glove for the risk appetite:

Table 5: Risk Appetite of Top Glove

RISK DEFINATION RISK APPETITE

Insignificant risk Less than 10% of the annual profit

Significant risk More than 10% of the annual profit

Mr Wong said Top Glove Corporation Berhad concern with maximum of shareholder

profit. They make any decision in the company have to refer back whether can bring

profit or loss to their shareholder or not. This is the reason of why Top Glove set their

risk appetite according to the percentage of their annual profit. They control on the

significant risk so that their shareholder can be protected. If the draft of the proposal

approved by the top management, Top Glove will implement the risk committee in year

2013 and the risk appetite will only start after the establishment of risk management

committee.

17


Mr Wong said currency risk is the significant risk that Top Glove will face if they did not

take any control on it. Although it just a small different in the currency exchange rate, it

may bring loss to the company transaction. It is because 95% of Top Glove business is

international business and the product that their company sell are low profit margin

product. He mentions that the product that Top Glove product the profit margin is around

10% to 15% only. The loss in exchange rate will easily overcome all the profit they earn.

It will bring more than 10% loss in Top Glove annual profit.

Besides that the latex prices also a significant risk for Top glove. In year 2011, the profit

before tax of Top Glove reduced from RM305 million to RM145.5 million. The major

reason of the decrease in profit before tax is due to the increase of latex price. This is a

significant risk because the latex price will bring a big impact in their profit of the year.

The increase of latex price cannot be transferred to customer by increase the product

price. It is because there are a lot of competitors in this industry. Top Glove has to

maintain their customer so they will not increase the product price. Thus, increase of cost

of produce will eventually reduce their profit of the production.

Operational breakdown risk is not a very significant risk for Top glove because this will

not affect the annual profit of Top Glove. Mr Wong said, there is a timely check on their

factories machines to make sure that the machines can bring the maximum benefit to the

company. This will not be a significant risk for Top Glove because the breakdown of

machine is seldom happen in their factory. If there are breakdowns happen, this will not

cost a lot for Top Glove because they can buy the same product from the other factories

and the breakdown will not effect on their product delivery.

18


8.0 THE RISK IMPACT TOWARD COMPANY OBJECTIVE, MISSION AND VISION

According to Mr Wong, the significant risk will not give much impact on the objective,

mission, and vision of the company after Top Glove take action to control it. He mentions

that if Top Glove does not take any control on the significant risk, there will be an impact

on the company performance. However, Top Glove takes action such as preventive

control, detective control and damage control to make sure that all the risk they may face

or the company facing are under control.

There is a significant risk that haven’t take any action on it before it may have an impact

in Top Glove objective, mission and vision which is incapability in technology risk. Mr

Wong said that the technologies of Top Glove are not followed up with the market new

technology this maybe a disadvantage for their company because other company are

implementing the latest technology in their production line. This will have an impact on

Top Glove vision which is to be the world’s leading manufacturer with excellent quality

glove products and services that enrich and protect human lives. To be a leader of an

industry, Top Glove should sensitive in the technology that they use. It is because the

current technology they using are producing glove in an inefficient condition.

Top Glove take actions toward the risk that they identify before it bring any impact to

their company. For example, tax risk that may occur in Top Glove Corporation Berhad.

Top Glove will not pay excessive amount of tax charged, they hired two experience

accountants as their tax planner in the company. The tax planners help the company to do

the tax planning so that the company will not get any penalty due to late payment of tax.

Tax risk will not bring any impact to Top Glove due to they have taken the correct action

to prevent the risk happen.

From our study we know that Top Glove have enough resources to overcome the

significant risk. They have taken the correct action to prevent those risks to bring impact

toward their company objective, mission and vision. In conclusion, most of the

significant risk that Top Glove faces will not bring any impact on their company

performance because their company have done a good control on it.

19


9.0 CORPORATE GOVERNANCE

The Board of Directors of the Top Glove continues with its commitment to achieve and

maintain the highest standards of corporate governance throughout the Group. Table

below showed that Top Glove has generally complied with the best practices set out in

the Code, which is Malaysian Code on Corporate Governance, revised 2007.

Table 6: Corporate Governance practices of Top Glove Bhd

BEST PRACTICES IN CORPORATE GOVERNANCE

MCCG 2007 Top Glove practices

AA THE BOARD OF DIRECTORS

Chairman and Chief Executive Officer

A decision to combine the roles of chairman and chief executive officer should be publicly explained.

Complied

Tan Sri Dato Sri Lim, Wee-Chai is Chairman and CEO of Top Glove. Annual report showed that he is the person who can give confident to their shareholder and he is a person that they can trust.

Board Balance

Independent non-executive directors should make up at least one-third of the board membership.

Complied

The Board currently comprises nine (9) members, made up of five (5) Executive Directors including the Chairman and

Managing Director and four (4) Independent Non-Executive Directors.

Size of non-executive participation

The board should identify a senior independent non-executive director in the annual report to whom concerns may be conveyed.

Complied

The Board has identified Mr Sekarajasekaran as the Senior Independent Non-Executive Director to whom concerns may be conveyed

Directors’ Training

Company should provide an orientation and education programme for new recruits to the board.

Complied

Mr Lim Han Boon, the Director appointed during the financial year, has been given a comprehensive briefing on the Company's history, operations, financial control system and plant visit to enable him to have first-hand understanding of the Company's operation.

20


Board structures and procedures

The board should meet regularly, and should disclose the number of board meetings held a year and the details of attendance of each individual director in respect of meetings held.

Complied

The Board meets quarterly, and the attendance of the Board members showed in page 33, Annual Report 2011.

Quality of Information Complied

All Directors are provided with an agenda of the meeting and board papers which contain Company's financial performance, and business outlook.

Access to Advice Complied

All Directors have access to the advice and services of the Company Secretaries, Chua Siew Chuan

Use of Board Committees

Where the board appoints a committee, it should spell out the authority of the committee and, in particular, whether the committee has the authority to act on behalf of the board or just the authority to examine a particular issue and report back to the board with a recommendation.

Complied

Audit Committee (established on 5 September 2000)

Nomination Committee (established on 7 November 2001)

Remuneration Committee (established on 7 November 2001)

ESOS Option Committee (officially implemented on 1 August 2008)

BB ACCOUNTABILITY AND AUDIT

The audit committee

The board should establish an audit committee comprising at least three members, a majority of whom are independent. All members of the audit committee should be non-executive directors.

Complied

Top Glove audit committee comprised 4 Independent Non-Executive Director

21


All members of the audit committee should be financially literate and at least one should be a member of an accounting association or body.

Complied

Mr Lim Han Boon is a member of the Malaysian Institute of Accountants, the Chartered Management Institute, United Kingdom, fellow of the Association of Chartered Certified Accountants, United Kingdom.

CC SHAREHOLDERS

The relationship between the board and shareholders

Complied

The Company views the timely and equal dissemination of information to Shareholders and Stakeholders as important.

Through the study from the Top Glove, we found that the group had compliance with

many aspects of the Code. The Board will continuously review the Group’s corporate

governance processes and will strive to make appropriate adjustments to reflect its

position as a good corporate citizen. Therefore, we are agreed a Very Good rate to the

governance practices of the Top Glove.

22


RECOMMENDATION ON CORPORATE GOVERNANCE

Base on the Malaysian Code on Corporate Governance 2012 (MCCG 2012), several

principles has been added. Principle 3 is the additional principle that stress in Reinforce

Independence which was suggested that the board should have policies and procedures to

ensure effectiveness of independent directors. We are highly recommending Top Glove

to compliance this principle in order to strengthen the current board structure. Below is

the table that show our recommendation reasons to Top Glove base on MCCG 2012:

Table 7: MCCG 2012 for Top Glove Bhd

MCCG 2012 Reasons

Principle 3 Reinforce independence

3.2

The tenure of an independent director should not exceed a cumulative term of 9 years.

Tan Sri Dato’ Seri Arshad Bin Ayub was appointed as an Independent Non-Executive Director of Top Glove Corporation Bhd on 4 September 2000. Total is 11 years.

3.5

The board must comprise a majority of independent directors where the chairman of the board is not an independent director

The top Glove Board currently comprises nine (9) members, made up of five (5) Executive Directors including the Chairman and Managing Director and four (4) Independent Non-Executive Directors.

For the independent director who served more than nine years to continue serve the

company can impair independence. Hence, it should be limit at nine years. While a

chairman who is an independent director can provide strong leadership by being able to

marshal the board’s priorities more objectively. If the chairman is not an independent

director, then the board should comprise a majority of independent directors to ensure

balance of power and authority on the board.

23


10.0 COPRATE SOCIAL RESPONSIBILTY

Top Glove understands the need to contribute and work together with society and the

community in conjunction to achieve its vision of becoming the world’s largest rubber

glove manufacturer with excellent quality glove products and services that enrich and

protect human lives. Through our studies, this company have made some excellent

progress based on their CSR framework of commitment to talent, commitment to the

community and commitment to the environment.

Commitment to Talent

In order to encourage the employees the company provide technical and soft skills

training that could help enhance their skills. Besides that, held health campaigns with

health checks and talks by health professionals, weekly fresh fruit day, providing

toothbrushes and toothpaste and BMI monitoring are carried out to encourage them to

lead a healthy lifestyle.

Commitment to the Community

The company designed Top Glove Foundation (“TG Foundation) to reach out to the

underprivileged and destitute. They made donation to the underprivileged and needy

through various organisations like the Selangor and Federal Territory Association for the

mentally handicapped, and Mercy Malaysia and Malaysia Association for the blind. Top

Glove also gave education aid in the form of donation to public schools. Besides that, the

company also gave form of scholarships for undergraduates, who are doing their studies

in local public universities.

Commitment to the Environment

Top Glove developing and implementing measures and strategies that promotes waste

minimisation, pollution prevention, and conservation of resources. The activities done by

the company are usage of biomass fuel, minimise water pollution, minimise air pollution,

3R campaign and on-going improvement in business processes.

24


Usage of Biomass Fuel

Top Glove has started to switch to using biomass fuels since 2005. About 40% of our

heat energy is generated from biomass fuels. Going forward, new factories will no longer

be using natural gas

Minimise Air Pollution

There are a few ways that Top Glove uses to minimise the air pollution which is by

implementing the scrubber system, dust collector system and boiler system. by

implement the system, Top Glove can make sure that the smoke will be treat before it

disposed to the environment.

3R Campaign

The company promote the awareness of greener environment by initiating the 3R

campaign in their workplace to encourage their staff to “Reduce, Reuse and Recycle”

Top Glove has policy to reduce the usage of water by recycling water, reduce the usage

of paper internally and externally by introduce the ERP system. Besides that all old

materials including mechanical parts are highly encouraged for reusing before they are

scrapped out to the recycling centre. The recycling campaign is enhanced with a 3R

competition among factories once every three months. Another conscious effort that Top

Glove undertakes in protecting and caring for the environment is to recycle all rejected

gloves that do not meet our quality standard.

On-going Improvement in Business Processes

Top Glove carries out continuous innovation and improvement of product, processes,

equipment, and overall operations to reduce carbon footprint. They are currently using

medium level ammonia latex concentrate that are produced by their own latex

concentrate plant, as compared to the ones available in the market which has high level

ammonia content.

In our opinion, Top Glove Corporation Berhad has been doing an excellent job in

corporate social responsibility. Malaysian government's increasing focus on CSR has

25


resulted in the development of new frameworks for implementation of CSR initiatives for

the country's businesses. The most significant of these is "The Silver Book", published by

the Putrajaya Committee for GLC Transformation (PCG) in September 2006. The

framework contains guidelines for Government Linked Companies (GLCs). In

accordance with this, all listed companies are required to disclose their CSR activities,

but it is stressed that all activity occurs on a voluntary basis.

The Silver Book sets three principles to guide the Government Linked Companies on

how contributions should be made and managed. Principle 1 is the GLCs’ primary

objective should be to enhance shareholder returns and meet the needs of other key

stakeholders such as consumers and employees. Principle 2 is GLCs should proactively

contribute to society in ways that create value for their shareholders and other key

stakeholders. GLCs should aspire to lead corporate Malaysia as socially responsible

corporate citizens. Principle 3 is GLCs should actively manage their contributions to

society in the most efficient and effective manner in line with industry norms and best

practices as well as the relevant regulatory framework.

Top Glove has complied with “The Silver Book” requirements. For Top Glove, CSR is

an area of strategic focus. They cannot achieve their objective to be recognised as the top

rubber glove manufacturer in the world without holding responsibility, integrity,

transparency and sustainability at the very centre of our business. Top Glove has done

CSR activities to safeguard the environment, communities, employees and shareholder. It

gives high priority for the environment. They also are aware about how their activities

affect the environment and what tools are available to reduce the burden. In 2012, Top

Glove has received an award, named Penghargaan Industri Negeri Perak 2011/2012

from the Department of Environment (Perak). This shows that Top Glove is socially

responsible towards environment and at the same time consumers have become more

aware of how business activities affect society and the environment.

Other than that, Top Glove has socially responsible towards their employees. In 2012,

Top Glove received MOSHPA Occupational Safety & Health Awards 2012 given by

Malaysian Occupational Safety & Health Professionals’ Association (MOSHPA). The

26


main objective of MOSHPA is to guide safety practitioners and to achieve best practice

in Occupational Safety and Health. When Top Glove received this awards, it shows that

they are more concern about their employees’ safety during they are at work. Top Glove

has foster safety and health culture in their work force besides increasing and expanding

work skills among its employees. Therefore, we are agreed a Very Good rate to the

corporate social responsibility within the Top Glove.

11.0 WHISTLE BLOWING POLICY

Top Glove Corporation Berhad believed that having a good whistle blowing system in

the company will strengthen and support good management and at the same time

demonstrates accountability, good risk management and sound corporate governance

practices. Top Glove adopts the whistle blowing policy in 2010. The board aimed to

provide a platform to act as a mechanism for parties to channel their complaints or to

provide information on fraud, wrong doing or non-compliance to any rules or procedures

by the employee or management of the company.

From our interview, Mr Wong said that their employee can easily get the telephone

number of the CEO which is Tan Sri Dato Sri Lim private number. The employee can

blow the whistle to their CEO so that the action and investigation can be conduct. Besides

that, the employee can also blow the whistle to the company audit committee. Audit

committee is the independent party in the company. An investigation will be conduct by

whistle blowing committee. The identity of the whistle blower will be remained

confidential and protected by the company policy. This policy makes Top Glove more

transparency in their company operation.

Mr Wong also provides an example for the real case that happened in Top Glove. He

said, few months ago there was a head of department tried to demand money from a

supplier. This is an action that against their company policy. Up to now, they still cannot

identify the whistle blower that contacted the CEO. Investigation has been conducted and

at last the head of department was found guilty. Action was taken to penalize the head of

department.

27


12.0 RECOMMENDATIONS

1) Increase the competitiveness level in term of technology advancement

Machines in some old factories in Top Glove are still the old machine that aged more

than 5 years, some even more than 8 years. It might result in inefficiency in the

production process and also a lower productivity. The chances of getting defect product

will be much higher too. Hence, we suggest that Top Glove has to increase their

competitiveness by bringing in more and more new machine to replace the old ones. This

is to reduce the incapability in technology risk. Probability of getting a defect product

during production process will be reduced. Besides that, new machines also help in

increase the productivity of the factory. Most importantly, new machines ensure a better

quality of the product and the competitiveness level of the factories among the

competitors.

2) Take pre-caution action on over reliance of revenue related to currency exchange

rate

One of our findings in the interview with Mr Wong is we got to know that Top Glove's

revenue that generated from exports amounting to 95% of total revenue. Revenue that

generated from exporting the goods to other countries will be received in foreign country

currency, for example US dollar. Top Glove has to convert it back to Malaysian Ringgit

in computing the revenue yearly. A slight change in foreign currency rate would result in

a very big impact in computing the annual revenue of Top Glove. Pre-caution action must

be taken by Top Glove in order to minimize the impact of changes in foreign currency

rate. For instance, Top Glove once borrowed money from the bank in foreign currency to

minimize the impact of weaken US dollar on company's profit. This recommendation is

to minimise the currency risk and prevent that the impact of changes in currency

exchange rate from overtake or eaten the company's profit. If this matter doesn't handle

properly, it might result in deficit cash flow and company unable to pay back the debt to

the debtors. In worse case, it may leads to bankruptcy eventually.

28


3) Create a new business segment or a new product line

The main business segment of Top Glove is to produce and sell rubber glove to the

customers. Most of it will be exported to foreign countries. Top Glove is mainly relies on

the rubber glove to gain profit. Thus, we suggest that Top Glove has to create a new

business segment or a new product line within the organization to develop a different

market in current economic. For example, Top Glove can produce other rubber related

product such as rubber shoe, spare parts of car and so on. This is to minimise, control the

substitute product risk and avoid failure to bounce back if the rubber glove industry has

fallen or being substituted. Take Kodak as an example, Kodak is best known for

photographic film products. During 19th century, Kodak held a dominant position in

photographic film industry, and in 1976 had a 90% market share of photographic film in

US. Kodak began to struggle financially in the late 90s as a result of the decline in sales

of photographic film and its slowness in transitioning to digital photography. In Jan 2012,

Kodak filed for bankruptcy protection, eliminated 775 jobs and reported having loss at

$312 million in the third quarter of 2012. Top Glove is similar with Kodak in the sense

that Top Glove is the largest rubber manufacturer in the world accounted to 64% of

global rubber production and it is mainly focus on rubber production industry. To avoid

such scenario from happen, Top Glove has to create another business segment other than

just rubber glove to have another option if by any case the rubber glove industry has

fallen or being replaced by other substitute product.

29


13.0 CONCLUSIO N

Through the interview with Mr. Wong, surprisingly we have found out that the risk

management activities was not carry any risk management committee, but the internal

audit department of the company. This was due to the company has yet to establish the

risk management committee yet. However, according to Mr. Wong the establishment of a

risk management committee will take place on March of year 2013.

Besides that, we were impressed by the strict implementation in policy of top glove in

corporate governance and also corporate social responsibility aspect. For instance, TG

wouldn’t accept any donation for annual dinner of TG but instead they encourage

donation to TG foundation to concern for community. Policy will only be function fully

if it is being implemented strictly. The determination shown by the top management in

maintaining honesty and integrity value within the organization was very much admired

by us too. Support from the top management is a crucial factor for the long term

existence of a core value within the organization.

In the text book, we learned that there are steps to be taken to ensure effectiveness of the

risk management process. However, most of us have omitted an important factor of risk

management which is the people involved in the process. Risk management process

involved people, for a good risk management process to take place, cooperation from the

employees and top management must be obtained. Through the interview, we found that

in order to implementing an effective risk management in a company, fully understanding

of the process and the full cooperation from the people involved must be obtained.

In conclusion, we are glad that we have learned many new knowledge in related with our

syllabus in research project and interview conducted. We are satisfied with the outcome

of the research project and being grateful for the fruitful discussion with Mr. Wong

during the interview. Through producing this research project, it helps us understand

better about risk management process, corporate governance and corporate social

responsibility, and we believe that it will definitely help us in our working life in the near

future.

30

topglove risk assignment

Documents

glove bhd20table

glove bhd23

risk analysis13table

risk impact

risk matrix126

risk appetite178

risk factor84

critical risk