SINCE Nor Mohamed Yakcop became the economic adviser to the government in 2000s, government-linked companies (GLCs) and government-linked investment companies (GLICs) have hired professional managerial personnel.

A 10-year GLC Transformation Programme was introduced in 2004 to drive GLC performance, which includes effectiveness, social agenda, accountability and transparency agendas. There is much to be done since the major transformation measures on GLCs and GLICs. 

Whenever a new administration comes into power (either a new coalition of parties or new prime minister), some of the key roles in GLCs and GLICs will change. These usually benefit the political warlords, leading to the question of political patronage.

On the other hand, it is understandable that GLCs and GLICs, as part of state owned-enterprises (SOE), need to support social agenda, notably affirmative action.

However, more information is needed in public to evaluate the success of the policy and whether the entities fulfil their roles to that end. 

In this article, reforms on GLCs and GLICs are discussed from two perspectives: government intervention in business and political patronage.

Ways to exit market

The existence of GLCs and GLICs can be due to involvement in strategic industry or purely for commercial purposes. Malaysia is a developmental state in nature, in which the state relies on strong government involvement to develop the state.

That explains why the government needs to control the strategic industries through GLCs and GLICs, such as the banking, utilities, transport and construction sectors. 

On the other hand, there is a need to justify why the government is involved in commercial activities without a strategic purpose. 

The role of GLCs needs to be clarified. A periodic review of perhaps at least once every decade has to be carried out to justify the involvement of GLCs in the private sector. 

GLCs that no longer have strategic purpose should gradually exit the market in four different ways, namely consolidation, privatisation, liquidation or corporatisation.

Institutionalising best practices in the appointment process

Both the Pakatan Harapan and Perikatan Nasional governments set a good example by not letting the prime minister hold the role of finance minister at the same time. However, there is no guarantee in the future.

When there is a change of government or prime minister, one should expect a lot of changes to personnel appointments (directorship, chairman, managing director/chief executive officer) in SOEs, including statutory bodies. This could easily lead to political patronage. 

People would doubt if the new appointments have their merits, simply just to secure support within the party or for election purposes. 

Common questions that arise are: Should an elected representative or politician become a chairman of board of directors or CEO of a SOE? In what circumstance can an elected representative or politician be justified to become a director in a SOE? Should an elected representative or politician hold any position in a SOE? 

In my opinion, elected representatives should not hold any position in SOEs as their elected role is legislative, which is supposed to check against the executive branch.

The frontbenchers – cabinet members – should refrain from holding any position, unless in special circumstances. 

Professional managerial personnel in GLICs or GLCs, or bureaucrats or technocrats in statutory bodies should lead the way and show good examples in leadership, as these can help prevent claims of political patronage.

There are special circumstances where the government has strategic stakes (for example the seven GLICs – Ministry of Finance Incorporated, Employees Provident Fund, Retirement Fund Inc, Armed Forces Fund Board, Tabung Haji, Permodalan Nasional Bhd, Khazanah Nasional). 

The government will appoint its “own people” in the directorship, because the positions are either statutorily or “conventionally” appointed by the relevant minister. 

In many other instances, bureaucrats can become directors and even form the majority but the big question is, will the bureaucrats cooperate fully with the elected government even if the decision stands against their own professional judgment? Thus, the mechanism of veto in directorship is vital, which I will elaborate below. 

Current legislation on the appointment process focuses more on the financial sector.

The Financial Services Act regulates the qualification of appointing board members and CEO and empowers the central bank to vet the appointment of directors of GLCs in the financial sector. 

Public-listed companies – including public-listed GLCs – need to adhere to governance-related rules set by Bursa Malaysia and the Securities Commission. 

The MOF has its own set of Board of Directors Guidelines, which apply to the companies controlled by MOF Inc. The Green Book on Enhancing Board Effectiveness, published by the GLC committee, contains best practices for appointment of GLC board members in federal-level GLCs.

Guidelines or best practices do not have legal enforcement power, as there is also a lack of uniform guidelines on the qualification and appointment of directorship, chairman, and managing director or CEO. 

Guidelines are best institutionalised to be legal enforcement. The mechanism of veto against unqualified individuals (such as “outsider” political appointees) should be established. 

Aside from federal bodies, state level-GLCs should also be regulated because Menteri Besar Incorporated/Chief Minister Incorporated (MBI/CMI) receives attention and growing concern from the general public, as they act like MOF Inc in its direct involvement in business. 

Worse, the state bodies do not usually have a board of directors comprising various stakeholders. Given that the menteri besar or chief minister has sole power over decision making in the MBI/CMI (if they do not have a board of directors), this often can lead to questionable decisions and deals against public interest. 

There are also suggestions to remove golden shares, which is a special mechanism in MOF Inc to veto decisions that are not in favour of the government. 

It often leads to not respecting the decision made by professionals. This is problematic as some companies controlled by MOF Inc, which have golden shares, are public-listed companies that ultimately need to be more professional, such as Malaysia Airports Holdings Bhd. 

The government should consider a gradual removal of golden shares, which could start from non-strategic GLCs, and establish a legal framework to regulate the strategic industry for phasing out golden shares. 

In short, a periodic review on the existing GLCs is required and their exit from the market is strongly recommended if they do not have a strategic purpose anymore.

Uniform guidelines that contain the qualifications and requirements of chairman, board members, managing director or CEO and a veto mechanism based on qualified judgment should be institutionalised.

A proper legal framework should be established to oversee the strategic industry instead of continuing the use of golden shares by MOF Inc. – June 13, 2022.

* Nick Tan Beng Teong graduated with Bachelor of Economics at University of Malaya. A member of Agora Society, Tan believes in policy reforms in order to build a better nation.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.