IN an interview with a business weekly shortly after his appointment, the Sapura Energy Bhd CEO said the following:

“The question is not whether you can win bids, but also whether you can win the bid with enough risk mitigation so you can be comfortably delivering. Winning a series of bids is good for the headline, but what pays us is profit ... Based on what we see now, the difference between profitability and losses in our projects is the way we manage risks.

“We need to start looking at not only winning (bids), but also whether a contract is onerous, are the terms too difficult? It is less important to talk about your bid book. It is more important to look at risks that you need to mitigate once you turn it into order book.”

From the above, it is clear that the company admitted that its failure and significant losses were due to its massive growth strategy that led to poor acquisitions.

The board of directors also appears to accept procedures that were clearly inadequate for enhancement of the company’s performance in tandem with its massive growth strategy.

The company’s present predicament has led to the question of whether the board had breached of either one or more of its moral obligations: to monitor the performance of company’s business; 
to keep informed and delegate power in an appropriate manner; to exercise independent judgment and not fetter discretion; and to monitor risk management system.

The boards of large corporations in Malaysia have never had to face personal liability for failures of oversight that lead to large penalties or losses to their companies.

This question is both timely and important now in view of the possible meltdown of the company. Moreover, the answer could have a great impact on the means of protecting the company stakeholders and private enforcement of the directors’ conduct

Debates on the causes of corporate scandals, scams and failures have mainly focused on fraudulent auditing, false accounting, human greed, corruption, internal control and management behaviour. 

One could say that the directors who had committed the causes of corporate failures should be penalised.

It is no surprise that directorial mismanagement and incompetence have been the primary causes of the failures and collapses of many corporations.

Many papers have been written with the aim of aiding comprehension of regulatory measures to protect companies against fraud, dishonesty, mismanagement and corruption. 

It is not easy to find an answer to how to resolve what causes a company to collapse. Almost zero attention has been paid to the directors’ breach of standard of duty of care, skills and diligence in this country. 

Failure to monitor risk and accounting controls, lack of an efficient audit committee or other important supervisory structures to safeguard the company from specific risks is a breach of directors’ duty.

The issues facing Sapura Energy are the natural and logical consequence of trends and forces that have been developing for a long period of time. There were signs and indications of this disastrous event, but apparently nobody paid any attention. 

It is clear that the directors did not perform their duties. They failed to safeguard the company’s finances and contributed to its present situation.

Poor corporate governance by way of absence of internal as well as external oversights appears to play a significant role in Sapura Energy’s likely collapse. 

The company can claim that the board comprises intelligent, honest and careful people but the investors want to know if it exercised its duties as the director of the company.

Admittedly, it is not easy to prove breach of duty of care as shown by the almost zero suits filed against directors of public companies in Malaysia.

The directors would be compelled to show better duty of care if they are held liable for their actions, or inaction, as the case may be, by the courts.

Alternatively, the directors should resign and or have their remunerations and allowances returned to the company if they are found to have failed to live up the codes of conduct which they have pledged to to uphold.

This will improve corporate governance as well as to provide an outlet for public dismay. If the directors know they will be penalised,  they will redouble efforts to ensure the company operates differently. In fact, lenders and investors appreciate good governance and good corporate governance is good business.

Will Sapura Energy survive this? It all depends on what the management decides to do next. – April 11, 2022.

* FLK reads The Malaysian Insight.

* 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.