Too Many GLCs?

 

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