Thursday, October 8, 2009

Independent Directors: Bursa Malaysia's screwy thinking

The following extract reveals the blinkered thinking that dogs Malaysian regulators:

STOCK market operator Bursa Malaysia said it will not set a timeframe on how long an independent director can serve a company, but suggests that an annual competency assessment be carried out within the company itself.

"The Malaysian Code on Corporate Governance clearly says that on an annual basis, boards must undertake an assessment of competency, skills and experience. So in that assessment, they need to look at the independence element - is the independent director able to discharge his duty and does he bring an unbias judgement to the board?" said Bursa Malaysia chief regulatory officer Selvarany Rasiah.

Once a company is publicly listed, there is a need to protect minority shareholders who tend to be more focused on their day job than to be spending time tracking stocks. This is the reality. Malaysian minority shareholders are indolent and, have this tendency to wait for manna to fall from the heavens. When things go awry, as they tend to from time to time, they find themselves flailing helplessly in the wind.

Of course, the wise ones among us would respond to this by saying that such small investors and, yes, punters, should keep their money in the bank or, under their mattresses. But that would be missing the point on the matter of corporate governance.

The principle that has dogged regulators in Malaysia and, of course, the world over, is how much statutory or regulatory intervention is required without dampening the free market.

Well, we have witnessed how unfettered regulation has benefitted Wall Street. Perhaps that is a bit dramatic as an example and a tad unfair to compare with the issue of Independent Directors. But, if you care to extract the broad principles, you may find key things that are common to Wall Street unregulated activities and, the issue of leaving the fate of Independent Directors to the boards of Malaysian PLCs.

Independent Directors of Malaysian PLCs are an emasculated lot. Board papers are delivered at the eleventh hour. Board papers are hugely thick with reams of accounting data that are based on assumptions that are printed in size 8 fonts i.e. fine-print.

Independent Directors in Malaysia are invited to the board of Malaysian PLCs at the pleasure of his majesty the man in charge, whoever that might be. Usually it is the imperial dominant shareholder or, the imperious political master or, his eunuch.

So, absent any external regulation such as creating a pool of public directors that are empanelled by the likes of the Shareholder Minority Watchdog Group or, the Malaysian Institute of Corporate Governance or, some such body or group, Bursa Malaysia's stated position on Independent Directors points to 2 principles that tend to be ignored:

First, who will guard the guards themselves? Checks and balances and audits are necessary.

Second, can a person be the best judge of his own cause? If there is a true independent in the board, can the executive members tolerate his or her continued annoying presence? Or, will the recalcitrant independent's tenure not be renewed?

Independent Directors can only be independent if their appointment is externalised.

The guiding rationale and principle must be that once a company is publicly listed in Bursa Malaysia, the public investors and, yes, even punters, deserve protection not just by the auditors who come in each quarter but, also by genuinely independent directors.

The Achilles heel is actually the appointment process. But, it would appear that Bursa Malaysia has preferred to put its head in the sand on this matter.


donplaypuks® said...

"But, it would appear that Bursa Malaysia has preferred to put its head in the sand on this matter."

Bursa will never overtly champion the interests of minorities because it is incestuously listed on its own bourse!! Self interest and preservation will always act against public interest and transparency.

A classic example is Maxis. Hardly a month after it was taken private some 2 years ago, it did a deal with a Saudi party to sell a 30% stake for an additional whacking premium of 50 cents which all went directly into the pockets of Maxis' main shareholders. Did Bursa investigate whether Maxis had improperly kept silent to Maxis' minority shareholders? Not a word!

And now Maxis is back to rake it in again. When Maxis did the same thing in Indonesia, it's CEO was asked to leave the country in 24 hours!

It's obvious that worldwide, deregulation has not worked because human greed has grown in direct proportion to massive deregulation.

It's time for the pendulum to swing the other way. Let's face it, in the absence of stringent rules and regular enforcement without exception, main shareholders will always cheat.

So, it's time the Govt took the bull by the horns and independently appointed independent directors and non-Exec Chairman to the Boards of Plc's with no more tenure than 2 years. They should not be allowed to just walk away scot-free whenever fraud and accounting scandals surface as happened in Transmile (Ling Liong Sik)and Ocean Foods (Kadir Ali & Nazir Razak!

We are all of 1 race, the Human race

Born2Reign said...

Interesting read.

Independence: MIA is blinded. Most Sdn Bhd are audited by their own bookeeper and tax agent, all same partner/director, with different companies set up to bill these different services.

Is there any independence? Is is MIA not doing a thing about this? Is not the accounts material information for investor decision-making?

If we already know that 99% of these Sdn Bhd have non-independent audits, then why does MIA still insist that these be audited? Because the MIA board are all these small-timers, safeguarding their own rice bowls.

Audit Committees are also a laughing stock! They squeeze the cost of IA to pasar malam prices. RM10k-RM30k for an IA job for PLC for a year? Cannot even employ a freshie with this fee. And check this out for independence, the president of IIAM is also the MD of Tricor, who is undercutting everyone in IA.

Friend, this is business! Doctors look at profit margin first, not the sickness and healing. Integrity and courage cannot feed our tummies :-(