Management 2013, 3(2): 105-111 DOI: 10.5923/j.mm.20130302.07 Multiple Directorships, Board Characteristics and Firm Performance in Malaysia Rohaida Abdul Latif 1,* , Hasnah Kamardin 1 , Kamarun Nisham Taufil Mohd 2 , Noriah Che Adam 1 1 School of Accountancy, College of Business, Universiti Utara Malaysia, Sintok, 06010, Kedah, Malaysia 2 School of Economics, Finance and Banking, College of Business, Universiti Utara Malaysia, Sintok, 06010, Kedah, Malaysia Abstract The objective of the study is two-fold. First, the study examines the extent of multiple directorship practices of Malaysian public listed companies. Secondly, the study assesses the relationship of several board characteristics with firm performance. Using a sample of 132 companies in 2008, the result shows that almost 90% of directors of Malaysian public listed firms have between 1 to 3 directorships. The multiple directorships affect firms’ market performance positively but not significantly. Ex-government officials and founders have positive and significant influence on performance. Family ownership is significant and has U-shaped relationship with performance. The findings to some extent have policy implication to corporate governance practices. Keywords Multiple Directorship, Corporate Governance, Ex-Government Officials , Firm Performance 1. Introduction Recent development in the corporate governance literature expresses concerns on the effectiveness of the roles played by the board of directors[1]. Principle 4 of the Malaysian Code on Corporate Governance 2012 expresses that the board of directors should devote sufficient time to carry out their duties effectively and be careful before accepting new directorship as more directorships might impinge effective discharge of their responsibilities. In Malaysia, multiple directorships of independent directors are found to be common among listed firms as in[2].This practice is not surprising because of the high limit of directorships allowable to directors. Section III of the Bursa Malaysia Practice Note no. 13 and Bursa Listings Requirements allow directors to have up to 25 directorships. The number is higher in Malaysia as compared to the U.S., where a director holding less than three directorships is often considered as the best practice. “Busy directors” in the U.S. are defined as directors holding three or more directorships (see for example[3] &[4]). In a concentrated ownership environment where substantial shareholders serve as managers, the directors have to protect the interest of minority shareholders. Outside directors have an important position to monitor the management and executive directors’ actions[5]. They are expected to bring independent views into the board and add * Corresponding author: rohaida@uum.edu.my(Rohaida Abdul Latif) Published online at http://journal.sapub.org/mm Copyright © 2013 Scientific & Academic Publishing. All Rights Reserved to the diversity of skills and expertise of the directors. However, findings on the effectiveness of independent directors are mostly insignificant which are not consistent with the argument of agency theory. In fact, the roles played by the executive directors and non-independent non-executive directors (gray directors) are found to be very critical in strategic activities, as in[6]. It is a common feature in Malaysia that ex-government officials serve on the board of directors. From the resource dependency theory, ex-government officials may provide resources to complement the board’s expertise in terms of having specific experience and networking with government agencies. In addition, shareholdings by managers and families would be expected to act as incentives for them to maximize firm performance as their wealth is tied up to performance. Non-linear relationship is expected between executive directors’ or family directors’ ownership and firm performance as the entrenchment effect would be expected at the medium level of shareholdings and the convergence-of-interest with the outside shareholders would be expected at the lower and higher level of shareholdings. Founder is commonly associated with family controlled firm. From the agency theory perspective, having founder as the CEO (owner-manager) may reduce the agency costs[5]. As founder is responsible in initiating the business and overseeing its early growth, the way the firm is governed might be different from other managers as sustaining the firm’s growth is crucial to their descendants’ future. It is expected that CEO cum founder would enhance the firm performance. The knowledge acquired by BOD is assumed to improve the quality of actions taken. There are several reasons to