We in G25 are surprised to read in the press that Mahiaddin Yasin said he sees no problem with appointing politicians to the boards of government-linked companies.
His statement is surprising because it contradicts the reform measures that were introduced following the devastating effects of the 1997-98 East Asia financial crisis, to strengthen the system of corporate governance in both the private sector as well as in the government-linked companies sector.
The new guidelines introduced by our Securities Commission follow world best practices as recommended by the Organisation for Economic Cooperation and Development (OECD). All boards are required to take full responsibility over board appointments, without being influenced by political or other interests.
Where politically linked candidates are proposed for board or management positions, the boards must analyse whether they are politically active and whether they are professionally qualified. The world best practice is that no politically active candidates should be accepted for board appointments or for top management posts.
Khazanah Nasional Berhad also took action to strengthen corporate governance among government-linked companies. It led other government-linked investment companies to introduce the government-linked companies transformation plan for the top 20 government-linked companies among their subsidiaries to set a good example on corporate governance so that the shareholders in their listed companies, especially foreign investors, have confidence in the integrity and transparency of their commercial decisions.
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In the banking and financial sector, the central bank, Bank Negara, is empowered under its new legislation passed in 2001 to oversee that banks and financial institutions have proper systems and procedures in making board appointments, especially in banks with links to government-linked companies. The Bank Negara governor will intervene if a bank is considering appointing a politically active person to the board.
Statutory bodies are not government-linked companies as they are not incorporated under the Companies Act. They have their own legislation governing their establishment and operation. They are the implementing arm of ministries and therefore their governance system is different from government-linked companies. The Securities Commission guideline does not apply to statutory agencies of government ministries.
Government-linked companies, on the other hand, operate in the private sector, competing with local and foreign companies in the market place for business. Therefore, they should not have politically linked directors on their boards so as not to create unhealthy suspicions about their business decisions. This is a very important matter especially to foreign multinational corporations as they look around for a suitable location for their business operations in South East Asia.
As all countries are now adopting the world best practice in their system of corporate governance, Malaysia will lose out to our neighbours, and globally, if we continue with the bad practices of the past. – G25
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