Friday, 5 August 2011

"Cynics" and "Dreamers", but where are the "Moderates"?

There are two groups of people in Malaysia with a very different opinion about the state of Corporate Governance.

On one side we have who I like to call the “Cynics”. They don’t trust at all what is going on, they won’t bother to lodge complaints since they are sure they will lead to nothing. One would expect these people to be in coffee houses, complaining about all the (perceived) misdeeds. But apperantly in these group there are also many fund managers.

If you cannot stomach cynicism, do not bother asking fund managers and research heads (or for that matter, anybody who follows the corporate sector) their assessment of the state of corporate governance (CG) in Malaysia. They are more than likely to sneer, roll their eyes and scoff at the idea of even taking a minute to come up with a palatable response. Just about everybody has an opinion about this, and it is never in glowing terms. (…..) “Here, when the major shareholder is out to disadvantage the minority shareholder, there really is nothing much anybody can do about it.”

(The Star, 25 – 4 – 2009)

On the other side, we have those who I like to call the “Dreamers”: people who seem to live on a Cloud, they write and talk in glowing descriptions how good things are, patting each other on their back how well they have performed. The top layers of Bursa Malaysia and Securities Commission definitely (have to) belong to this group:

Bursa Malaysia owes a statutory duty to the public to always act in the public interest and to maintain a fair and orderly capital market. Adherence to ethical values will create and promote an environment of mutual trust, consideration for fellow employees and responsible behavior. Hence, personal integrity, honesty, discipline, commitment to act.”
(Bursa Malaysia, “Code of Ethics”).

“The SC must demonstrate the highest level of honesty and integrity in all our dealings with stakeholders and ensure exemplary conduct of our staff. The Statement of Principles and Standards applies to all business transactions entered into by the SC. All staff as well as those who do business with us, need to fully understand the requirements of the Statement and ensure its application in all dealings and engagements with the SC.”
(Securities Commission, “Statement of SC’s Principles and Standards”)

The recent CG Blueprint 2011 is also an example that clearly belongs to the group of the “Dreamers”. There is no mentioning at all about (perceived) pressure on authorities, about strongly biased information (“independent” reports), about procedures that are very much in favor of Majority Shareholders, etc. On the other hand, there are a few good suggestions included, especially about the poll voting and the public and private enforcement (although that might take a long time).

These two groups are in itself pretty normal and you can find them everywhere on the world. But in Malaysia, things don’t seem to be very balanced. The “Cynics” seems to be a much larger group then the “Dreamers”. The other strange thing is, you expect a (very) large group of people in the middle, the "Moderates", but there doesn’t seem to be anybody there in Malaysia. These people would, could and should act as a buffer:

·        On one side downplaying the “Dreamers” in the achievements so far: enforcement clearly insufficient, much too much focus on form instead of substance, no fair playing field for minority shareholders, independent reports are very biased, the possibility of (perceived) political pressure is very real, etc.

·        On the other side, they should point out the improvements so far to the “Cynics”, for the first time managers are being jailed (only very few, and for much too short time, but definitely a clear improvement from say 10 years ago when no one was jailed), more people are being fined (but the fines are only a fraction of the financial value of their misdeeds). Some ways of disadvantaging minority shareholders have been stopped by changes in the rules or made more difficult. There is definitely more information out there (although sometimes biased and important pieces still missing) and the press seems to slowly open up (a bit) on corporate misdeeds. At least (finally!) the train has been set in motion. If momentum would continue (not a certainty at all, Malaysia is notorious for its “flip-flop” strategies) then we could be moving to a situation which is more transparent and fair, and may be one day we can even witness a high profile corporate leader being jailed, or a minority investor winning a case against a majority investor.

My sympathy is (much) more with the “Cynics”, that was probably already quite clear to the readers from my postings so far, being a few times clearly disadvantaged by the majority shareholders and being stonewalled by the authorities. But I will try to move towards the centre when appropriate. Also, I will always try to come with practical improvements on the current situation, getting more transparency (to at least expose the misdeeds), doing away with biased procedures, trying to give minority shareholders a better chance.

To try to bridge the gap between the “Dreamers” and the “Cynics”, I strongly suggest the following:

·        A truly independent group of experts will do in-depth research on a few of the worst cases of the corporate misdeeds of listed companies in the last 20 years
·        An evaluation of all that has been wrong, plus the role that the relevant authorities played in it (why have they so seldom taken any action and never against a high profile corporate leader?)
·        A constructive, detailed plan of action to right the wrongs, leading to improved, practical and leaner rules and regulations
·        A clear commitment towards this plan for a better future, to prevent it from happening again

This plan might on one side bring the “Dreamers” back to reality and on the other hand give real hope to the “Cynics” for a better, more fair future.

Despite all, I still very much believe in the huge potential of Malaysia, otherwise I would not be writing this blog.

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