Malaysia has over
1800 GLCs, many of which are subsidiaries of statutory bodies and are not under
the direct management of MOF, nor are their policy objectives well defined. It
is this universe of GLCs which needs a review and stronger governance law, as
their proliferation presents a significant fiscal risk, and takes up talent and
resources which may be better utilised by SMEs that are seeking to grow in the
private sector. This large
network of government-linked companies (GLCs) is built on the premise that
state ownership can accelerate development, protect strategic industries and
generate returns for the public.
There is
merit to some of these arguments. Many GLCs are profitable, professionally
managed and economically important. Investments in major companies have also
generated significant dividends and capital gains for government institutions
over the years. But the profitability of selected companies should not prevent
Malaysia from confronting a more fundamental question.
Source: https://ms.wikipedia.org
Why does
the government need to own so many businesses in the first place? There is the
crowding-out effect, government procurements go to GLCs, stunted growth of
GLCs? How many are competitive in overseas markets?
Several
years ago, a-research led by Prof Edmund Terence Gomez showed that just seven
federal government-linked investment companies or GLICs controlled over 68,000
companies directly and indirectly through minority interests. Why should the
government continue to wield substantial influence over mature commercial
institutions such as Malayan
Banking Bhd and CIMB
Group Holdings Bhd when
these companies can stand on their own with greater private ownership?
Meanwhile,
repeated episodes of financial mismanagement involving government-owned
entities have shown what can happen when political influence, commercial
decision-making and public money become too closely connected. The ongoing controversy
surrounding Tabung Haji is a perfect example.
Political
appointments can weaken boards. Commercial decisions can be influenced by
objectives that have little to do with profitability. Acquisitions can proceed
despite questionable economics, while companies may accumulate debt because
creditors assume that the government will eventually intervene. When problems
become serious, taxpayers frequently bear at least part of the financial
consequences. That’s called moral hazard.
This
creates a governance problem that cannot be solved merely by replacing
directors after losses have occurred. Have you noticed no one is charged for
misdemeanours? We have an Institute of Directors and courses for directors, but
no one is culpable for mistakes.
Divestments
should therefore become a central part of GLC reform, not simply an occasional
exercise conducted when the government needs revenue. There are companies where
government ownership remains commercially lucrative or strategically justified.
Certain infrastructure, utilities and businesses involving national security or
essential public services may require substantial government participation. But
substantial government ownership should become the exception rather than the
default. A useful starting point would be to establish an ownership ceiling for
government stakes in companies operating in competitive industries.
Instead of
allowing ministries, agencies or state governments to retain controlling
interests indefinitely, Malaysia could consider limiting government ownership
to perhaps 20% in companies where there is no compelling strategic reason for
control. The government could continue benefitting from dividends and capital
appreciation without necessarily controlling appointments, procurement,
management strategy and corporate expenditure.
The same
reforms must apply to state governments. Discussion about GLC reforms in
Malaysia tends to focus heavily on federal institutions, yet states have
created extensive networks of corporations, subsidiaries, investment arms and
development companies of their own. Some perform legitimate economic functions.
Others operate in sectors where private companies are already capable of
competing. Every additional state-owned company introduces another layer of
directors, senior management, subsidiaries, procurement processes,
related-party transactions and financial exposure requiring effective
oversight. The issue becomes particularly important when political appointments
extend into these companies. A board seat in a government company should never
be treated as compensation for political service. Directors should be appointed
because they possess the financial, industry, legal or operational expertise
required to supervise a commercial organisation.
Management
should similarly be evaluated against measurable financial and operational
targets. Malaysia cannot promote a culture of excellence while maintaining a
system in which political access can influence appointments. Reforming GLCs
therefore requires more than divestment. A proper monitoring framework should
first identify every significant company owned directly or indirectly by
federal and state governments. Their purpose should then be reviewed. Companies
performing functions that can be carried out competitively by the private
sector should face a clear presumption towards divestment.
Companies
serving genuine public policy objectives should have those objectives
explicitly stated and their costs transparently accounted for. Commercial and
social objectives should not be mixed without proper disclosure. If it is not
commercially viable, then its social objectives is going to “drain” resources
and its imminent closure.
If a
company is required to provide a public service below commercial returns, the
cost should be clearly recognised rather than concealed within its corporate
accounts. When state-controlled companies compete extensively across property,
construction, financial services, plantations, infrastructure, hospitality and
other sectors, private businesses may find themselves competing against
shareholders with regulatory influence, cheaper access to financing or an
implicit perception of government support. Reducing unnecessary state ownership
can strengthen competition and expand opportunities for private capital.
Malaysia
does not need to abandon GLCs, but it needs to define their limits. But
ownership should not automatically mean control, and control should not become
permanent simply because it has existed for decades. The next stage of GLC
reform should therefore ask a more difficult question than how these companies
can be managed better: how many of them do the government really need to own at
all? In addition, there are GLCs who refuse to divest small profitable
subsidiaries to a primary bumiputra intrapreneur. Rationale is we need these
subsidiaries for our overall profit! This is why bumiputra entrepreneurs are
not emerging when GLCs shelter them with wrong motives. It is time to let go
and move on!
It needs a Commission
to review every one of them and Prof. Terrence Gomez should chair such a
commission which not only reviews but recommends next steps. Is Madani open to
that?
References:
Malaysia must shrink its GLCs, Ganeshwaran Kana, The Star, 15 August
2026
Post by Alissa Rode on LinkedIn
