By Nagiah Ramasamy
For decades, Malaysia’s government-linked companies have functioned as a major instrument of government policy.
Their formidable presence in the economy is clear in the 42% of the total market capitalisation of Malaysia’s stock exchange, Bursa Malaysia, as well as the RM440.4bn in assets or 24.9% of Bursa Malaysia’s entire market capitalisation overseen by government-linked investment companies.
The government has thus taken a controlling stake in the major decisions of such companies such as the determination of management positions, contract awards, strategy, restructuring and financing, acquisition and divestments in many such companies.
So the quality of the appointed leaders becomes vital not just for the commercial success of these government-linked companies but also for the statutory bodies and Ministry of Finance Inc companies.
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Top government leadership positions have also been given out to certain politicians, despite their notoriety for corrupt practices or incompetence, in return for their support to help prop up a shaky government.
Economist Dr Terence Gomez has written much about Malaysia’s long history of close political-business links in various forms. According to him, a key factor contributing to corrupt practices within government-linked companies is the appointment of politicians to their boards of directors – a form of political patronage.
Gomez also warned that when political appointments are made, government-linked companies tend to lose direction, because of a lack of governance and oversight.
Previous administrations have used government-linked companies as a political tool to consolidate power, sustain party support and offer lucrative directorships to pre-empt ‘party hopping’.
Within this political culture of patronage, companies would be subject to manipulation. This made the ground fertile for the birth of the biggest scandal in Malaysian history – the massive 1MDB scandal.
Indeed, it is difficult to convince society that political appointees are there to take care of the public interest.
Political appointments have been a norm in Malaysia. Directorships and chairmanship posts were often used to buy and reward loyalty, a culture long nurtured under Barisan Nasional rule and followed by subsequent governments – the Pakatan Harapan government in May 2018, the Perikatan Nasional government in March 2020 and the Barisan Nasional government in August 2021.
Before the 2018 general election, the PH coalition promised to reform the governance of government-linked companies. These reforms included ensuring that it would make the appointments of directors to the company boards based on merit rather than political considerations.
On 16 May 2018, then Prime Minister Dr Mahathir Mohamad announced his PH government would end the contracts of 17,000 political appointees who served in the previous Najib Razak government.
However, his government failed to live up to its promise to bar the appointments of board members in government entities based on political consideration.
Announcing that political appointees would end was one thing. In reality, the Ministry of Rural Development, for example, saw the appointment of many politicians from Mahathir’s Bersatu party (a PH component) who had lost in the 2018 general election to the boards of statutory bodies.
After Prime Minister Mahiaddin Yasin toppled the PH government in February 2020, he too rewarded his PN supporters with board positions in government-linked companies. The government also appointed three special envoys for foreign affairs, all with ministerial status.
All these political appointments, aimed at developing political patronage, incentivised the MPs to support Mahiaddin’s slim-majority PN government and helped him to tighten his grip on power.
However, the significant increase in the number of political appointees within federal statutory bodies under Mahiaddin’s successor, Ismail Sabri Yaakob raised concerns when it shot up to 234.
Ismail Sabri, sworn in on 21 August 2021, marked the return of Umno to the federal leadership, three years after the party lost power amid public anger at corruption and the multibillion-ringgit 1MDB scandal.
Table 1: Number of political appointees under the various administrations
Adapted from: Ong, S (2022) Worrying increase in political appointments under Ismail Sabri’s government – Ideas, The Edge Markets, 18 October https://www.theedgemarkets.com/article/worrying-increase-political-appointments-under-ismail-sabris-govt-%E2%80%94-ideas
* 115 appointments retained from the Mahiaddin administration; 119 were new appointments in the Ismail Sabri administration
** Perdana Menteri Malaysia. https://www.kabinet.gov.my/bkpp/index.php/anggota-pentadbiran/perdana-menteri-malaysia
The PH government of 2018 did not get its coalition partners’ unity in order, which led to its collapse with the 2020 Sheraton move.
In contrast, a PH-led multi-coalition government won power last month, after an unprecedented hung parliament and five days of deadlock.
In a bold and refreshing move, new Prime Minister Anwar Ibrahim declared on 24 November he aimed to end the practice of rewarding MPs with cabinet positions, adding that special envoys will only be considered when absolutely required.
On 14 December Anwar’s cabinet decided to terminate political appointments in a string of federal firms and statutory bodies.
On 16 December the new administration sent termination letters to political appointees in federal government-linked companies, government-linked investment companies, statutory bodies and Ministry of Finance Inc companies.
But disappointingly, the next day, Zahid Hamidi, who is both Deputy Prime Minister and Rural and Regional Development Minister in Anwar’s government, announced that former Machang MP Ahmad Jazlan Yaakub will be reappointed as Felcra chairman.
This came when only a few days earlier, Anwar had issued a statement saying the cabinet would end the contracts of the political appointees to the chairs and boards of federal government-linked companies and bodies – a move many had welcomed.
Zahid’s decision to reappoint Ahmad Jazlan sparked a debate on social media, with users lambasting the PH-led government for one more U-turn in its policies.
With this reappointment, certain quarters are seeing the government as a joke, putting the nation back to where it was before the recent general election.
Back in May 2020, when Zahid was Deputy Prime Minister in Mahiaddin’s government, political appointments served to incentivise the MPs to support the slim-majority PN government.
The PN administration defended the move, arguing that the appointments of MPs to head government-linked firms and agencies was to ensure that the government’s agenda was carried out and to take care of the people’s interest.
The appointment of politically connected board members carries a risk of a conflict of interest because they may ignore or override the independence of individual directors to advance their party’s political interests.
Investors are not assured that the board will act in their best interests and therefore do not view political appointments favourably.
Political appointments should not be a revolving door for failed politicians, nor should heads and directors of government-linked firm and statutory be changed with each change of government – which would be the case if they are appointed based on political affiliation.
Political appointments raise the issue of competency of political appointees in government-linked firms and statutory bodies. For companies to be managed free of political interference, their boards should comprise professionals and technocrats.
As companies’ environmental, social and governance (ESG) focus increases and in a rapidly changing environment, their boards should know that the G in ESG raises several governance issues, including board diversity and independence.
Assessment criteria would include whether the company has an adequate composition of the board members in terms of skills (eg ESG), independence, and diversity; and whether the company has conducted performance assessments of the board members.
Dr Nagiah Ramasamy, an Aliran executive committee member and trade union adviser, previously worked as an associate professor in human resources management. Based in Subang Jaya, he constantly strives to make a difference in the lives of others