Sunday, June 13, 2010

A gentleman knows when to cut losses

If the company screws up, the board must take responsibility and quit. Good corporate governance and accountability should prevail.

IT’S pretty straightforward. In any public listed company, it is the board of directors that leads and controls the company but the series of news relating to Sime Darby and Kenmark have put corporate governance in Malaysia in bad light.

It is not just the chief executive officer who must take responsibility but also the executive and non-executive directors for all decisions taken.

Read the rest here.

1 comment:

Wenger J Khairy said...

Dear Datuk Seri,
I assume that you have to sometimes "dumb down" your writings so as to not overwhelm the readers. So I would take liberties to comment on a more technical and deeper level as to the issue of corporate governance.

Firstly, any trained analyst worth his salt could have spotted the issues with Kenmark and even the issues with Transmile. I believe in Transmile, the Cash Operating Cycle changed dramatically in the years leading up to the disclosure, my lecturer for my CFA class had pointed that out.

But rather than being overwhelmed each time a scandal hits the front page lets ask ourselves a serious question: Can the public trust the directors and management officers in a PLC?

This problem is not endemic to Malaysia. It has been studied and the issue is down to that of agency cost. Management acts out of their own self interest and not of the shareholders.

Now, management can do that and not break the law. Some actions however are illegal and Kenmark/ Transmile are examples of such activities.

To me, this issue is linked with many other factors. Assuming we had a well developed capital market with strong disclosure requirements, akin to the SEC. Investors (I mean the big boys not the mom and pops) would be more willing to invest in companies that have good disclosure and act in the interests of shareholders. The share price goes up, and management earns a windfall thru share linked compensation. Everybody is happy.

But in order for this virtuous cycle to exist, we need to attract foreign funds. Here lies the problem, at the Government level, ethics and morality is at all time low. Money gets siphoned, costs overrun, debt gets compounded.

So investors are extremely leery to park money here. It has nothing to do with the subsidies. It has to do with disclosure. Thus the share market lacks the depth and liquidity and sustained appreciation to enable management to get amply rewarded thru share based compensation. Thus some turn to criminal manipulation of the financial statements.

So lets look at the big picture and not pick a fight with the Kenmark and Transmiles.

After all isn't there a saying, "bapak borek anak rintik."

Thank You.