Malaysian government-linked investment companies (GLICs) have grown making them the “poster child” of the country’s economic success. But GLICs’ corporate and investment decisions have become increasingly more difficult and complex. With combined assets under management of over RM1.8 trillion, GLICs are as big as the Malaysian economy in value. They are also some of the biggest lenders to the government.
For example, the Employees Provident Fund (EPF) and the Retirement Fund Inc (KWAP) alone own about 30% of the Malaysian Government Securities (MGS) and Government Investment Issue (GII). The other GLICs are Khazanah Nasional Bhd, Permodalan Nasional Bhd (PNB), Lembaga Tabung Haji, the Armed Forces Fund Board (LTAT) and Minister of Finance Inc (MoF Inc). There is also Petroliam Nasional Bhd or Petronas. While it is not considered a GLIC, it is a massive cash cow that could be misused in the absence of good oversight. These entities have an entrenched presence across the Malaysian economy and have been criticised for crowding out private investments.
Source: https://ms.wikipedia.org
As revealed by economist Edmund Terence Gomez in 2017, the GLICs controlled over 68,000 government-linked companies (GLCs) directly and indirectly. As it is, the sheer size of GLICs presents a growing challenge with regard to how the monies are managed. Another challenge is to ensure proper corporate governance, free from political interference and internal abuse of power. While there are check-and-balance mechanisms for internal and external oversight, Centre to Combat Corruption & Cronyism (C4 Centre) chief executive officer (CEO) says significant gaps remain. Many GLICs, he argues, are plagued by conflict-of-interest issues.
Given the gaps in oversight, there have been many examples of failed or mismanaged investments by GLICs. These include the globally known 1Malaysia Development Bhd (1MDB) scandal, the crises in LTAT’s Boustead group of companies that included the non-delivery of six littoral combat ships (LCS) as well as Tabung Haji’s failed property and equities investments that eventually required government intervention worth RM19.9bil. There is also the case where government guarantees from the Finance Ministry led KWAP to lend RM4bil to the infamous SRC International Sdn Bhd.
Realising the need for greater accountability, beginning from Nov 1, the Auditor-General has been authorised to audit 1,856 entities – up from 925 previously – including GLCs. While it is a positive move, an audit typically unearths irregularities after they take place. In fact, in some cases like 1MDB, international accounting firms such as Deloitte and KPMG signed off all 1MDB’s accounts from financial year 2010 (FY10) to FY14, despite the dubious transactions that were taking place. It is also impossible for the Auditor-General to audit all entities on an annual basis and this likely prevents irregularities from being identified early on.
The administration of Prime Minister understands this. Under the National Governance Strengthening Movement, a new circular was issued to enhance the governance of GLICs, GLCs and companies limited by guarantee (CLBG). The circular seeks to increase the accountability of ministries in providing oversight on the governance of SBK and CLBG under their responsibility. It prohibited the same individual from holding the roles of chairperson and CEO of GLICs, GLCs or CLBG simultaneously.
The board of directors of the entities must also consist of at least one-third independent directors. Any individual who has served a GLIC, GLC and CLBG as an adviser or officer can only be appointed as independent director after three years from the date of retirement or cease of service. Interestingly, the circular did not prohibit the appointment of politicians as the chairperson or directors of GLICs, GLCs and CLBG.
To an extent, the bipartisan Public Accounts Committee (PAC) has been examining several key irregularities including the non-delivery of six LCS worth RM9bil by Boustead Naval Shipyard Sdn Bhd and the Federal Land Development Authority (Felda). However, there should not be over-reliance on the PAC. Some observers have noted that Parliament’s special select committees have not been utilised to the fullest.
Currently, there are 10 select committees such as Finance and Economy; Health; Infrastructure, Transportation and Communication as well as Environment, Science and Plantations.
These committees can also play a greater role in examining government-related entities and large-scale projects, based on the focus of the select committee. To achieve this, the select committees should be able to hold public or private hearings in Parliament by summoning key government officials, including ministers, if necessary. If the MPs in the committee get external help from consultants or think-tanks to provide analysis and insights, the select committees could have a bigger impact. A bigger budget is necessary.
For Parliament to play a more active and effective oversight role, the MPs could benefit from training or briefing from domestic and international research institutes, experts, think-tanks and civil society organisations that do specific research on the topics. Additionally, the MPs should be supported by capable and adequate research officers. In other countries, comprehensive scrutiny by MPs happens because they are supported by adequate and capable research officers. At the moment, our MPs have minimal support. GLC and GLIC board members should be composed primarily of independent, non-partisan professionals and also be subject to term limits to prevent the entrenchment of power and influence.
We need not only transparent, accountable GLCs (and GLICs), but more effective monitoring of their investments and programmes. Quality of leadership is key to success of an organisation. If the Chairperson and Board members are qualified professionals with integrity, chances are it will be run well. But in Malaysia, we have politicians running some GLCs with clear conflicts of interest! So, it becomes difficult for satisfactory results and we move from one scandal to another. The best way forward is for oversight by various Parliamentary select committees with open, public hearings on their programmes and results.
Reference:
Fine-tuning GLIC governance, Ganeshwaran Kana, Star Biz7, 07 Dec 2024
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