Can a company director be forced to sign off decisions by the foreign HQ?

Short answer: no – at least not lawfully. Under Malaysia’s Companies Act 2016, directors must exercise their own, independent judgment in the best interests of the company. That duty belongs to the board, not to a parent company, shareholder bloc, lender, or joint-venture partner.
Long-term commercial commitments are fine when they are entered into for proper purposes and on an informed basis, but clauses or side letters that predetermine how directors must vote in the future risk unlawfully “fettering” the board’s discretion.

For EuroCham members, this question particularly surfaces in three recurring settings:
(a) Malaysia-incorporated subsidiaries receiving “instructions” from European headquarters;
(b) joint ventures where a nominating shareholder expects its nominee to vote a certain way; and
(c) financing or supply arrangements that try to lock in approvals far into the future.

The Companies Act and common law are very clear

The law draws a clear line. Sections 213 and 214 of the Companies Act require directors to act in good faith for proper purposes and allow them the protection of the business judgment rule if they decide on an informed basis, free of material personal interest, and in the company’s interests. Section 217 reminds nominee directors that their duty runs to the company itself, not to the nominator. Sections 221–222 on disclosure and abstention reinforce that when conflicts arise, process matters.

Add to that the Federal Court’s decision in Tengku Dato’ Ibrahim Petra v Petra Perdana confirms that management power rests with the board; shareholders may recommend, replace directors, or amend the constitution, but they cannot micro-manage day-to-day decisions by simple resolution.

What undue involvement (unlawful fettering) looks like in practice

What, then, does unlawful fettering look like in practice? One common example is a side letter in which a parent company tells its nominee directors how they must vote on any future acquisition, budget, or personnel decision, regardless of changing facts. Another is a joint-venture “reserved matters” regime drafted so rigidly that directors are forced to approve or reject future actions without genuine room to assess the company’s interests at the time. We also see management services agreements that effectively strip the board of decision space, and lender or supplier covenants that purport to bind the board’s future approvals mechanically. These instruments are problematic because directors cannot contract out of their statutory duty to apply independent judgment each time a management decision arises.

We must contrast those examples with ordinary long-term deals – exclusivity, take-or-pay, multi-year supply, or strategic partnerships. Malaysian law does not prohibit directors from committing the company to robust, multi-year obligations. The touchstone is how the commitment is made and managed: did the board act for a proper purpose, weigh alternatives on adequate information, and believe in good faith that the contract served the company’s interests at the time? And did the contract preserve lawful flexibility through review triggers, material-adverse-change or hardship clauses, performance-based termination, or other mechanisms that allow the board to reassess if circumstances move?

Having the right internal processes in place to ensure compliance

Process is your best defence. Boards should minute the business judgment pathway explicitly: the commercial aims, the options considered, the data and expert advice relied on, the risks weighed, and why the decision serves the company’s interests. When shareholders pass recommendations, the minutes should record that those are not binding on the board unless the constitution says otherwise or a special resolution properly changes the governance framework – and even then, directors must still apply section 213 of the Companies Act.

Delegation – used properly – is about execution, not abdication. The board may authorise the managing director or a named executive committee to sign within clearly defined limits, but directors remain responsible for oversight. Before delegating, ensure the delegate is competent, set scope, thresholds and reporting lines, and record why the board had reasonable grounds to believe the delegate would comply. Require periodic reports and pull the matter back to the board if assumptions change. A tidy paper trail – terms of reference, approval matrix and minutes – is what proves supervision.

Indemnities and D&O insurance are safety nets, not shields. Company indemnities and D&O policies typically fund defence costs and some civil exposures, but they cannot cure breaches of statutory duty or pay regulatory fines where prohibited. Keep coverage aligned to the risk profile, check notification and cooperation clauses, and maintain run off cover on leadership changes. Most importantly, do not rely on insurance in place of compliance – well-kept minutes and a documented decision process remain your first line of defence.

What nominee directors should do

Nominee directors should have a standard response ready when “voting directions” arrive from a parent or JV partner: they will consider the request, disclose any conflicts, and vote only after applying their duty to the company. Where a personal interest exists, the director should disclose and abstain under sections 221–222; the minutes should show who stayed in the room, who voted, and on what information.

Traps in contract drafting

Contract drafting is where many problems can be avoided. Language like “Director X shall vote in favour of …” or “The board shall approve …” is a red flag because it hard-codes a future decision. Safer phrasing sets intent but preserves lawful discretion, for example, “The company’s intention is to pursue [objective], subject to board approval exercised in accordance with directors’ duties and applicable law.” Where counterparties seek predictability, build it through commercial mechanisms – objective performance milestones, periodic reviews, and MAC/hardship provisions – rather than promises about how future directors will vote. If a parent company wants alignment, it should use shareholder-level tools that are consistent with the constitution and Malaysian law, not director-level undertakings that overreach. And when using group policies or management service frameworks, ensure they support, rather than supplant, the board’s role.

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Contact Aqran Vijandran’s corporate governance team to set up an HQ–subsidiary decision-making call – we will map your decision flows, stress-test group policies and upgrade your contracts so they respect Malaysian directors’ duties while preserving commercial agility. Contact our corporate governance specialists today for further assistance.