The New AOB Chairman

Great news, Dato Gumuri Hussain has been appointed Executive Chairman of the AOB. A distinguished professional that has always held himself with the poise and the demeanour that is becoming of a true professional. Amongst his stellar record is the fact that he was a very senior partner at Cooper & Lybrand and then PwC, Chairman of SME Bank, MD of PMB and a member of the Board of Commissioners of the SC. 

He has a cv that is better than the job requirement and that of the the person that he will be reporting too, notwithstanding this it is timely that a person of such calibre has been appointed to clean up the mess at the AOB thus far. 

He has many challenges in front of him amongst which will be to,

1. Establish a reputation for the AOB, to demonstrate very publicly that the AOB is not biased and favours the Big4.  

2. Introduce professionalism into the AOB.

3. Don't fall into the Big 4 trap/mantra of they know all, please listen to us.

4. Navigate the shifting sands of the SC with all its politicians.

Notwithstanding these I am sure he will do what  is right, rein in the auditing profession and  return integrity to the AOB.

Under the cloud of Bresih5, a Coup!

The general internal feelings around March of this year was that the person appointed to the post of Deputy Chief Executive was not of sufficient experience to be elevated to the position. Rumours  were abound that there was a mini uprising (all very peaceful) and that there were some that were unwilling to serve under the new DCE, hence the sudden creation of positions like Project Advisor etc. It would seem that this uprising did not go away and under the clouds of Bresih5 a coup of sorts has taken place.

In almost all organisations you have a chairman, a board of directors, comprising executive and non executive directors and then you have a person appointed as the chief executive or managing director.  In this organisation the chief walla is the Executive Chairman. The next person of responsibility and accountability under the Act is the DCE.

However a few years ago, so the story goes, that the then EC realising the powers of the DCE decided to do away with the DCE and had two MDs. The current EC, in fairness to him, decided to revert back to tradition and have a DCE. All things in Camelot was fine until the last DCE's contract was not renewed and the new appointee was announced, causing the mini uprising as there were those in senior management that felt that they had more right to the position due to their experience, long tenure etc. To placate the situation, 6 months later, the EC came up with this new structure, creating within the organisation, managing directors, executive directors, and directors, and in all this there is still the position and the person in the post of DCE.

To avoid bias, I called friends ask what their understanding was of a managing director and a deputy chief executive, and the majority was of the opinion that the MD was in a position of higher authority than the DCE........hmmmm. Before the  man goes off on a tizzy and says that this is all malicious and is the view of people  don't understand, please note that 90% is perception and 10% is reality.

To add substance to this I am also told that all the highways (read as bold lines) are to the EC and that trunk roads (read as dotted lines) are to the DCE, says a lot.

I am additionally confused by this role of Chief Regulatory Officer, General Counsel etc. If the EC actually understood the origins of the position of General Counsel he would realise its a non operational position, an that it is meant to be independent function.

Confusion, confusion, confusion, this is what happens when attempts are made to pander to egos, confusion and dysfunction sets in..........best of luck to the organisation.  

Speaking with Fork Tongues!

Being an overcast and dull day I thought I will troll the SCM's website and see whats interesting!

1. I looked at their leadership team and noted that there is no one that is responsible for regulatory compliance and enforcement. I suppose the SCM is in a very privilege position as they don't need one, as a friend said, "when they say do, everyone dutifully does!". But then again there are so many enforcement actions, I can only conclude that there is a ghost department somewhere that is doing all the work.

2. Did anyone notice that in the CLSA/ACG report Malaysia's ranking fell to number 6 and everyone is blaming it on public governance, i.e. 1MDB, is it all to do with 1MDB or is there a trend?

In 2012 we were no 4, in 2016 the report said we made great strides/improvement, so logic dictates that we would move to 3, or 2 or 1, but no we were still no 4! and now we are 6. Is it all 1MDB, i think not, maybe Tan Sri Dato Sri  Singh needs a deep look at the true state of corporate governance and not hide in the shadows.

3. Is the SCM seriously seriously concerned about Corporate Governance, if they are how come there are prospectus with unbalanced boards, seven (7) board members, three (3) are independent non executive, balance executive directors.

BNM is going towards a majority of independent non executive directors and SCM approves these. So Board minutes will read that the majority of the board approved the matters laid before the board, but hold on now, are these matters not put forward by the executive and they approve it.

Also don't forget under Bursa rules the AC is made up of non executive, majority independent, and every year the AC has to be evaluated by Nom Committee. Nom Committee's membership is..........non executive, majority independent. Alamak, how to do one ah!


SCM semua boleh!, maybe time for TSDS and his machans, and similarly CRO(BM) and her maciks to go, nine (9) year rule, in senior management!........cannot be doc heal thyself!

Of Board Balance and the need for majority independent directors(in FIs)

In the issue of the 8th August Edge Magazine, there is an article "tightened governance standards see banks dipping into a shrinking talent pool". The article draws reference to the future requirements that going forward there is a requirement that FIs must have boards, the majority of which are made up of independent directors. 

One should ask,

a. What is the objective of this new requirement?

If the objective is to bring about greater diligence, then is there really a need for more independent directors, would the board being made up of a majority of non executive directors not be sufficient.

b. Will the new proposal achieve the desired results?

If the reason is that the current non executive are unwilling to raise the necessary question in undertaking their oversight role, surely the answer cannot be adding more independence but removing non performing directors. Letting them continue can only be equated with rewarding failure!

Part of the current issue with board performance is that most non executive board members keep silent, guarding their financial and non financial packages. This in my opinion is  because non executives don't fear the repercussions of non performance. In cases of action it is the executives that face the brunt of the regulators. Maybe in future when something goes wrong what the regulators must do is to charge the whole board, this will more likely to increase the board effectiveness and performance more then having a majority of independent directors. If a person has lock jaw, he has lock jaw, having more independent directors won't loosen those jaws, it will only add to more lock jaws, the newly appointed directors after sometime will adopt the herd mentality.

c. Is there really a shrinking pool of persons available?

No there really is no shortage. The truth is that even with the regulators the persons appointed must be "acceptable and part of the establishment". Those that are willing to play that role are never invited, as they are not seen as being part of "us". How can the regulator complain when they are not willing to be transparent and accept this group, if they want independent minded persons may come with some dsyfunction, but this is the trade off!. Additionally the regulators must be transparent and clear throughout the industry, they cannot keep silent and turn a blind eye to persons that are sitting on non performing companies and yet are considered acceptable to sit on FIs or even be future CEOs. Adjustments are required at both ends of the scale if they are serious and want to attract those that can play this role!

  

Governance after all is about doing the right thing, maybe what is needed on the part of the regulators is to go seek  out those that are willing to "be the pleasant irritant on the board" afford him the necessary protection and make sure that he is appointed. Trying to train persons under various programmes only addresses the technical challenges, it becomes a compliance issue and never ever addresses the cultural issue that is the objective. 

The intention is good, but the approach flawed and result in all probability not achievable!

The Consultation Paper on the Malaysian Code of Corporate Governance 2016

As much as one criticises, one must also praise where praise is due.

After days and weeks, i finally got around to read the consultation paper on the MCCG 2016. What a wonderful document it is, congratulations Securities Commissions Malaysia!

Here are my comments:

1. The person that wrote this paper obviously understood the intention of the authors of the original MCCG 2000 as in many aspects it goes back to the original code and removes any doubt at to what it was intended to achieve.

2. It leaves no doubt that the mechanistic approach that listed entities adopted is no longer acceptable. No more CG Statements for the sake of compliance, it is now has to be factual and be practiced.

3. It reiterates the leadership role of the board and that boards are not subservient to management or dominant shareholders. I wonder if this is laying the foundation for action not just against the Executive Directors and Audit Committee Members but all directors!

4. It has Core practices that is the minimum and CORE+, that are exemplary practices that companies are encouraged to follow. Since the Core+ are nothing so difficult one can only ask "how can companies not embrace them?"

Unfortunately for companies, it boards and their dominant shareholders it is not going to be an easy ride any longer, time to deliver for what you are paid.

My reminder to the SC is that I hope the Issues/Corporate Finance head at the SC will understand this. I still cannot understand how he approved the number of listing where there was an obvious imbalance in the Board.

Once again sybas  Securities Commission, now lets get it implemented and ensure its compliance!

"What Business Leaders Fail to Understand about Trust"

People do not get caught because they are stupid, they get caught because they are damn arrogant, they think that they occupy a position of power and that their audience are less informed than they are! How sad and silly, has no one realised that we live in an infocomm world where knowledge and information are so readily available. There is no more hiding, everything we do is in the public domain, don't believe me..... as you drive around the city, look up and see the number of cameras that are on the poles, even at the same spot!

In today's Starbiz there is an article with the above title, purportedly written by the managing partner of a big 4 professional services firm! Being written by the managing partner of a Big 4 professional services firm it goes without saying that the highest standards of professionalism, probity and trust is expected of the writer and his organisation by the ordinary people, which I think is not an unfair expectation.

In the article it is stated that people are looking for the following, if a company is to be considered trustworthy;

• Competence
• Experience
• Value

Now all three of these elements by coincidence are linked to the people dimension and hence culture, so I think its only fair that the some questions are asked of the writer/commentator himself;

1. By publishing this article are you suggesting that many clients of the firm need a serious dose of trust or is this a subtle message to your banking client? Now irrespective of whichever it maybe, why not come out and say, trust your integrity and professionalism, surely you must believe that the stakeholders of these companies that have a trust deficiency have a right to know!
2. Demanding such elements from companies I can only gather that in the organisation that you manage these elements are at the core and practiced without exception!
3. In your second last para you say, "so why can't businesses be that something", I presume that it does not include your firm and the other firms that belong too in your profession.
4. Finally your last para calls out to corporate leaders. Why only corporate leaders not everyone? Surely trust is for everyone, not just corporate leaders!

What is that saying, put the brain into gear first, maybe all these articles etc(pseudo marketing and arrogance I call it), should take a back seat, improve that standards on auditing first, make sure that when people see you and your firm there is a resounding chorus of "trustworthy organisation and people, total reliance on what they say!"

Always remember less is more!

Thinking Aloud - Do journalist have hidden agendas

Of course we all know that they don't, or do they?. Be friendly enough, know the bosses, entertain them and abracadabra!

Last Saturday I was reading an article in the business section of a daily, where the writer brought up the issue of the vacant position of Chairpersons in Public Listed Companies. In that article the writer was highlighting the pivotal role a Chairperson plays etc and that as part of good governance even that the Malaysian Code of Corporate Governance had highlighted this most important of roles and made recommendations there too.

Now what I found "funny, that the writer only highlighted/named two companies in his article and I began asking myself why he would do that as he could have brought into play the many other practices that corporations had been practicing, for example,

• Daddy founder, now retires  son takes over, daddy assumes role of Executive Chairman and son CEO/MD, or
• Former CEO retires, appointed deputy executive chairman, new person is MD and yes there is still a Chairman.

Before I get ahead of myself, I know, all of you are saying must read the position description and see what their roles and responsibilities are! True, however there is also what is disclosed and what the ordinary man on the street will conclude from reading these positions. Can you imagine the responses from Company Secretaries, if a shareholder writes and ask for the position descriptions for these positions!

Thinking out aloud, can there not be a case for not having Chairman of the Company, but instead Chairman of the Meeting by rotation, it could actually foster better governance as everyone knows that they will be under the spotlight! Oh, as for Chairman's statement in the Annual Statement it can be Statement of the Board of Directors, even better for responsibility and accountability, it will get those that tend to good off to stay awake!

Coming back to the original question, I wonder if there was an agenda with regards to last weeks article?, I suppose the days for balanced and unbiased writing is some distant dream.

OH NAZIR, OH NAZIR

In yesterday's Starbiz, the headlines on the frontage was that YBHg would be resuming his role as Group Headhanco as the independent review found he did nothing wrong! There were some shortcomings in the processes, so it said.

Putting aside the rights and wrong of YBhg,  I just want to know if the EY report now says that passing money through one's account is legal, and cannot be tantamount to infringing the AMLA Act? Funny that the only body that actually has a right to comment, BNM, remains silent! I suppose the best way to communicate what some thoughts are on the subject is to reproduce my text with a banker:

Me: Money passing thru accounts now OK?, BNM not saying anything.

Banker:This is classic hoodwink. If public including the bloody journalist understand the scope of work, they won't writing such headlines.
Looks like BNM will only react if their position threatened.

Me:Well is their position not!Is it not suggesting money laundering to be ok. BNM has to make a statement.

Banker: They should, technically.

Thinking out aloud I wonder who had done the greater wrong:

a) The CEO of an islamic institution for his Facebook posting, and who was summarily dismissed,

or

b) A person that pretended to be virtuous until the foreign press draws attention to "an error in judgement" for himself, but for anyone else a grave crime I suppose.

To those chappies on the Audit Committee, I suppose the systems of control are sound, to the external auditors, I suppose tyour private report on the statement of risk management and internal controls still stands, and to EY, hi guess what with these type of engagements you guys can change the name to AA, ala Enron II, akan datang.

OH NAZIR OH NAZIR, questions for the AOB

I asked around (two big 4 firms) and was told that there is no requirement for an AMLA review when undertaking an external audit. Ok if thats not a requirement, then its not a requirement. However there is a requirement that the Statement of Risk Management and Internal Controls need to be reviewed by the external auditor and a private report be issued.

Now bearing in mind that AMLA is a huge risk area, could the external auditors please clarify whether they had reviewed the compliance mechanism in CIMB and paid special attention to the accounts of depositors that were related to public and politically connected persons. Seems that there could be multiple failures, both internal and external.

Thinking aloud I am wondering whether AOB will be looking at the external auditors and the standards that it adopts since they were also the auditors for a large plc that lost lots of money in qatar, that not long ago their client in the transport business said there were misaproprations in their procurement process (taking place over a four year period) and now this. Surely AOB this cannot be mere coincidences, pure bad luck!

Oh I forget they had an Executive Director seconded to the AOB that may have created a process that results in every time that firm's name appears the system denies all knowledge!

OH NAZIR OH NAZIR, the saga continues!

Since the public announcement and the comment by the borrower and squash buddy that it was a "class act"the saga continues!

I recently heard the extracts from the Malaysia Kini video, so here are a few questions that maybe the good DS (Dato Seri) can answer,

1. "Since it came to public domain and is of concern to CIMB stakeholders", so if it was not leaked by the american papers, it would have been silence and business as usual, I suppose so since this happened three years ago.

2. Since you alluded to the internal compliance unit, the fact is that  all banks are required to look at AMLA closely, could you please provide a your answer as to whether the bank's internal compliance unit reviewed your accounts and if so did they raise this. If not would this not be a failure on the systems of compliance within the organisation, would you be reviewing the system and would the head of compliance be removed for shoddy work.

3. As the Group CEO and an experienced officer of the bank (and well aware that larger financial institutions like HSBC and Standard Chartered have been levied fines for such transactions) did you not think that what you were doing was wrong, if you say that it was a mistake etc, then I believe that makes you not a fit and proper person to be running the bank. What if someone else within your organisation had done it, I am sure you would not have hesitated to report them to the authorities and had terminated them.

Finally I noticed the article in the Edge, everyone has such nice things to say, is it a PR campaign? I am thinking out here and wondering why the need for this. Anyway you have a good week ahead.

OH NAZIR, OH NAZIR

There was an excited voice that asked me, did you hear what Nazir Razak("NR") did? I said no, and was promptly told that the gentleman ("NR") had taken an immediate leave of absence to ensure an independent inquiry as to whether he had done anything wrong in facilitating payments through his account. As the afternoon wore on, I heard that EY (formerly know as Ernst &Young, one of the mega big global professional services firm) had been engaged to undertake this "INDEPENDENT" review!

Now before I proceed to ridicule this perception of an independent review being undertaken, it is important to go back in history. In the late 1990s there were five big professional services firms, Arthur Andersen, Deloittes, Ernst & Young, KPMG and PwC, in the fallout of the Enron saga, Arthur Andersen was forced to cease, and the business of Arthur Andersen in most parts of the world was bought over by Ernst & Young, this also happened in Malaysia. The joke amongst those in the know in Malaysia is that EY bought AA, but today in Malaysia the significant positions of leadership are occupied by legacy AA partners.

So Dear Nazir Razak, could you please explain to us the following, not withstanding that you have taken an immediate leave of absence,

• Whilst you have taken leave, is the process truly independent considering that Datuk Zainal and Cik Habibah are members of the board within CIMB. Was not Datuk a Managing Partner of AA, and Cik Habibah a partner of EY (when E&Y bought AA)- based on google search. Is the current Managing Partner of EY not a product of AA.

• Is there not a senior person in your organisations that is married to a partner in EY?

• Considering the ongoing saga relating to this case and especially to absolve yourself, would it have not been better to have formed an eminent group of elders that would have communicated absolute independence, like Justice Harun, Justice VC George and even the Royal Prince that is winning the hearts and minds of ordinary Malaysians, imagine what the rakyat would say.

• Considering what transpired is a compliance and governance issue, would it not be better to have chosen a legal firm that would be better experienced in law and regulations than a firm that is better know for auditing and taxation.

• Should this not be a matter for regulators like BNM, whats the end game, EY says, "no compliance or regulatory issue with money flowing through NR's account". If that be the case then would it not make a mockery of all our banking rules and regulations, and would it not be a tacit approval for money laundering. I am just looking at the risk scenario.

To EY here are a couple of questions to sleep on,

• Did global risk management approve of this. 

• You guys do remember why AA ceased, don't you?, because in that case too it was a case of being pandai, pandai!

Finally Datuk NR, you really need better advisors, had no one done their homework before this charade was executed? Remember two things, in today's world there are no secrets, and what President Kennedy said,

You can fool some people all the time,

All the people some time

But not all the people all of the time!

What's with O&G SPACs

Can it even be true I asked, cause it was very surreal. Only the previous day I had posted my piece on the Cliq and Sona saga, and there early in the morning, blaring away on BFM Radio was the CEO of Reach Petroleum, non stop claiming that the qualifying asset they have is such a sure winner  etc etc and it would be criminal (not his words) for anyone not to buy into it.

So just like my previous question to Sona, so good bankers will fall over each other wanting to lend you money, no need to have SPAC, oh I forget you want to share this wonderful opportunity with everyone, so generous you are!

Also I am wondering whether the Dowager of Bukit Kewangan should not be reviewing the interview for falling foul of market making antics. Honestly it was so nauseating to list to the CEO, that I switched to the CD player and listened to Bowie!

A case of a Cliq and a Sona!

One of the standards that is used to assess the action of directors in discharging their duties is to judge them on par with the ordinary man on the street with similar qualifications and experience.

So today when I read in the newspapers that Cliq Petroleum was seeking a judicial review of the Securities Commission's rejection of their Qualifying Asset, I could not but feel elated, congratulations to the Board for this action.

Its about time that the regulators are challenged in their decision making. Too often the regulators sit on their high chairs and make decisions with impunity, totally ignoring their own edicts.

What puzzles in the case of Cliq Petroleum is that the SC had rejected their qualifying asset (and I am sure for many good reasons), I would not had anything to say if they had responded similarly in the case of Sona Petroleum. However with Sona I found it very peculiar that there is a sweetener (in the form of Capital Repayment) to the shareholders, that  is conditional on them approving the QA.

Hold on now, conditional on approving the QA, is that not(to the ordinary man on the street) sounding like a threat or bribe, er is that not shareholder's money in the first case. If the QA is so wonderful why the need to do this, if the QA is so wonderful and a sure winner, why not return all the shareholder's money and the director's borrow from the bank in their personal capacity. I am sure with such a good deal, the banks would be falling all over themselves wanting to lend, the directors and bankers can earn lots of money! However what is intriguing in all this is the fact that the Securities Commission is silent, pin drop silence some might say! 

So moral of the non action/action to us ordinary men on the street is that what is good for Sona is not good for Cliq. Thinking aloud, I wonder if I buy shares in Sona and it fails I could sue the SC, since by their silence one could assume that there is nothing wrong and that they are indirectly supporting the proposals by the Board and Management of Sona.

Yes  silence does not mean acceptance et al but there is a relativity test that I am sure a smart and crafty lawyer can use.

The Panama Leaks and the Dilemma for Boards.

I keep telling those that would listen, in today's world there are no more secrets. Whilst we toast the creators of the world wide web and all the ensuring information technology marvels, it does come at a price, NO MORE PRIVACY, NO SECRETS, everything is captured in zeros and ones.

The leaks or more importantly the revelations from the information from Messrs. Mossack Fonseca has already resulted in the resignation of one Prime Minister, and another in the space of a week had to come out with five press releases, with each more revealing. 

Fairly or unfairly, the perception associated with tax havens is that they have something to do with hiding, a negative or illegal connotation always being associated. Then there are those that would argue that having a tax haven is totally legitimate, solely for tax planning purposes, that there is nothing sinister. 

To many there is a very thin line between tax avoidance and tax evasion. Put simplistically, tax avoidance is using the various rules and regulations to mitigate the taxable income thereby reducing the amount of tax payable. On the other hand with tax evasion, it is hiding the income and not declaring it so that it is never subjected to tax, NO TAX IS PAID, one is legal the other illegal!

However if you were to study taxation, over the last twenty to thirty years many of the provisions for parking income from the prying eyes of the tax department have been plugged. In fact anyone submitting a tax return would notice that there is a declaration and not declaring all income is an offence. In other words there is no reason for having an entity in a tax haven, other than to possibly hide something. Admittedly there could be other reasons that one would need an entity in a tax haven, maybe to have a separate bank account so that the wifey won't know the amount spent at karaoke bars, or on new golf sets or on the girl friends!

When the list on Malaysia came out I was surprised to notice that there were a considerable number of public listed companies, theirs chief executives, their chief financial offices, all on this list. Naturally I could not help but wonder why these entities and the officers would want to have accounts in a tax haven especially since their businesses were/are primarily conducted in Malaysia. 

I had one CEO chappie quickly pronouncing that he could not understand why their name was there, naturally I laughed, I was told that I should be more trusting. My reply was that I looked forward to the company convening a Board of Director's meeting to discuss this affront to the company and the press release stating that they had appointed a reputable firm of lawyers to write to Mossack Fonseca to ask why their name was there. I reminded him that  if left alone it would cause unfair reputational damage to the company and its directors.

In fact I believe that all public listed companies should do similarly, however just keep in mind one thing, Do Not Do a David Cameron, on Monday of last week DC said it had nothing to do with him, by Friday he had to make another three additional press statements, and by Sunday he released his abridged tax filings that  revealed that he had not received Stg100,000.00 from his mother, as previously stated, but actually twice that amount. In other words if you wish to tell the truth make sure its the whole truth, don't leave anything out.

I wonder if the Inland Revenue Board, the Central Bank and the Securities Commission are forming a task force to look into this?. After all we are dealing with public listed companies and confidence and trust from time to time needs to be reinforced and assured.

In fairness to all, apart from companies and individuals, there were also lawyers and professional services firms (accounting firms). 

Even the Heavens Cried.

Towards 6pm the sky turned grey and there was a light drizzle, at about 6.12pm the winds picked up and the heaven's poured open.

Once again in Malaysia we have done the "right"thing! We have a permitted our best and most experienced to go, while we keep silent and watch the organisation's downward spiral.

Today at 6pm marked the end of Dato Dr. Nik Ramlah Manhood's career at the Securities Commission Malaysia. Below is the bio of the lady as extracted from the SC website.

"Dato Dr Nik Ramlah Mahmood was appointed Deputy Chief Executive of the SC on 1 April 2012. With more than 20 years experience in SC, she joined in 1993 as Manager of Law Reform and went on to become Director of the Policy and Development Division in 1997. She was made Managing Director and Executive Director of the SC’s Enforcement Division in 2008. Dato Dr Nik Ramlah has worked in areas ranging from legal and regulatory reform, product and market development, Islamic capital market, investor education and enforcement.

Currently, she sits on the board of the SIDC and CMDF. She is also a member of the Professional Development Panel of the International Centre for Education in Islamic Finance (INCEIF), global university of Islamic finance. Dato Dr Nik Ramlah holds a First Class Honours in Law from University Malaya and a LLM and PhD from the University of London. Prior to joining the SC, Dato Dr Nik Ramlah was an Associate Professor in the Faculty of Law, University Malaya."

I was told that over the last two weeks the lady's lunch and dinner diary was chocker blocked by past and present staff that wanted to toast her and thank her for her over twenty years or leadership and guidance.  Seldom was a leader better regarded and loved than Dato Dr Nik at the SC. Truly speaking this should have been the person that should have been the Chairman/Chairperson, but thats a post for another day. 

Kudos to Dato Dr. Nik Ramlah, shame on you Board of Commissioners for letting the talented slip through your fingers.

The tale of the two Tan Sri CEOs.

I could not help but notice the many glaring similarities and yet dissimilarities between two Tan Sri CEOs, even though one is no longer a CEO. The case raises governance questions not only for boards and shareholders but equally for any CEO. 

The similarities of both are:

• That are Accountants.
• They are religiously pious persons.
• There is no hint of corruption or personal scandal.
• They are morally upright persons.
• Their loyalty is not questioned.

The first Tan Sri was in the financial services industry, before being asked to go and restructure a group (probably the most indebted GLC during the 1997 financial crisis). From there he moved on to helm a communications company and later a large banking group before being asked to assume a position in the government. 

This Tan Sri is know for his long hours of work and his dedication to the organisations that he serves, in order words he leads from the front and he does not move from one organisation to another with his courtier. People that he hires he leaves behind, one would say that he adopts a professional mindset that says, "I hired A because he was the best fit and the company needs him, similarly when he introduces policies such as, air travel below certain hours must be on economy class, he too observes it". This Tan Sri CEO does not possess any negative sentiment in the market place, some say because he never destroyed value!

Then there is the other Tan Sri CEO, who was in the auditing profession, foreign banking institution and was then asked to go helm a local financial institution, a community owned plantation company and now supposedly one of our largest company. 

This Tan Sri is also know for working hard, however when he moves from organisation to organisation he has his people that follow him (I suppose these people have such unique skills that are not available else where). However this Tan Sri has his fair share of news item that suggest that he has a history of value erosion. 

So from a corporate governance perspective:

• Should the Board, without fear or favour not re-evaluate the performance of the CEO and say " sorry but we need change".

• Is there not equally a moral obligation on the part of the individual to recognise his own shortcomings and do the right thing.

Just like the stages in the product life cycle, introduction, growth, maturity and decline, we must recognise that we are only good at certain stages/things and when our sell by date comes along, we must say thank you for the memories and move along. 

The phenomenon of taking our key lieutenants along with us from organisation to organisation is a bad habit, either we want to be surrounded by Yes men or we are insecure, if anything we must strive to ensure that we have enough people that are willing to stand up to say NO, for we are not always correct and we must guard against, "the boss said, so we must do". 

As good leaders we must remember that that we were hired to lead and that includes hiring the right people and creating cultures for each organisation so that we establish successful organisation with  sustainability and longevity. 

So to all that are short of meeting their targets, maybe, just maybe we should be brave enough to do the right thing. 

Petronas and the Golf Club Mentality.

The story headlines in yesterdays biz paper read, "Cost reduction saves billions for Petronas".  The item even had a photo of a smug looking Petronas official.

The story went on to state that, under the Coral Project, they had made significant inroads, since March 2015, with regards to costs relating to their upstream activities.

What really puzzles:

1. Why these initiatives only since March 2015?

2. Prior to March 2015 there must have been uncontrolled costs?

3. The comments that the initiatives under the Coral Project will be rolled out to other areas can only mean that currently there is no cost control in these areas?

What is really telling is that all these fat cats (the many bosses in Petronas) seem to react only when the crisis hits, if not I suppose they were seated on the top floors of the towers, in rooms larger than many people's houses, being chauffeured in their large cars, and oh yes flying around in the private jet taking a "could not care attitude", or as many would say, "it's company money, why you care". All this while we have been made to believe that Petronas is one of those better run corporations.

No wonder they were always making it difficult to get hold of their financial statements!

What people must understand, particularly those in the employ of Petronas, is that they are all privileged to be working for a company that enhances their knowledge and experience and makes them more marketable.

They must remember that they are a National Oil Corp (NOC), owned by the people of the country and not an Independent Oil Corp (IOC) that is owned by shareholders. A IOC operates in a market environment where competition is rife, a NOC in many respects has everything handed on a platter.

So fat cats ask again, do you think your salary, perks and privileges should be equal to the Shells, Exxons, Conoco Phillips etc?

I put it to you that this should not be. After all until recently almost every upstream  activity was through a PSC, which means you took no risks but enjoyed the fruits of your partners.

You see fat cats, your attitudes are in many respects not dissimilar to the office bearers of social clubs, for example golf clubs. If you go to one of these clubs, the first thing that you will notice is, there will reserved parking for all the management committee members, President, Captain, Club Champion, Past President etc. What is amusing is that these persons put their names up, canvass for votes and then upon election have all these privileges. Nobody forces them into it, so why should they be treated any differently to that of ordinary/ non office bearer members.

If I was to adopt the same thinking, you guys choose a career with Petronas, you are compensated for this, so why all the perks.

In fact with all the horror stories of what is said and discussed in the town hall meetings, it should be, (for the fat cats),

1. Drop in salary

2. No more private jet. All flights less than 5 hours, economy, above that maximum business class, irrespective of designation.

3. No more company's cars, in fact you should buy your own, and I will bet you not all will buy the  same types of cars that are currently allocated to them.

4. Reduce the size of the rooms, can save on utilities.

5. Who was responsible for these poor cost controls all these years, and what action, if any, has been taken against these people?

Seriously fat cats the time has come to rethink and relook at how you have been living, because it seems that all this while you were not as good as you thought of yourselves, so why must you be rewarded for mediocrity!

The ICC and The Bursa Malaysia

If any of you thought that the reference to the ICC was in relation to the current Twenty20 cricket tournament being played out in India, I am sorry to disappoint. No in this article I am referring to the International Criminal Court.

The International Criminal Court in the Hague is one of those organisations under the United Nations, created to bring to bear the full brunt of the law against war criminals. But one thing glaring about the ICC is that all the recent cases are primarily against leaders from the African continent, with the exception to the guys from the former Yugoslavia.

To date there have been no cases against the leaders from Israel or more importantly against George Bush and Tony Blair for the illegal war waged on Iraq, the untold death and misery brought on the people of Iraq. It is a no wonder that the Chilcot Report (in the UK, on the Iraq war) is being delayed, probably it maybe alluding to the fact that those responsible for the Iraq situation need to be charged at the ICC too!

To put it plainly, the powerful do things with impunity, without regard to rules and regulations, knowing that they can get away with it, whilst the insignificant and those that can be sacrificed, get paraded as part of the success and KPIs and (probably) to justify the institution's existence.

Our Bursa Malaysia is not very dissimilar to the ICC, just like the ICC they too have very well defined rules and regulations and for those that are directors of entities listed on this exchange, they  require them to sign letters of compliances, that they will abide by all the rules and regulations.

Just like the ICC, the Bursa only institutes actions against those that are weak or maybe those that are not connected or maybe those that they do not favour, whilst proclaiming loudly the many actions that are taken (against the unknown).

Now before I am accused of being malicious and not providing examples, without divulging too much, I will cite three examples of this bias (why three, you see I look at things with this perspective, it happens once, ignore, its a blip; it happens twice it's a coincidence; now if it happens three or three and more, then there is a pattern emerging!).

So Bursa please explain why no punishment, at least a public reprimand, in these types of infringements:

1. All directors that join the Board of a listed company are required to attend what is know as a Mandatory Accredition Program and must finish this within a stipulated time period, can The Bursa please state that all those that have failed to comply have been issued reprimand letters?

2. Have all persons that have flouted the rules on independent director, especially bursa's prescriptive rules, been issued letters of reprimands.

3. Have all person that had suffered penalties and sanctions, other than traffic offences, made such declarations and if not have letters of reprimands issued. After all the intention is that the investing public will be better informed of the characters behind the listed companies.

I am not alone in this opinion, that action is never taken against the well connected, but then again, it could be a failure in the system and processes, or it could be a failure on the part of the people that are in charge of regulatory compliances, maybe being too long in the job, resulting in misguided confidence or arrogance. Now don't forget, it happens once, ignore, its a blip, it happens twice it's a coincidence, now if it happens three or three and more, then there is a pattern emerging! So which is it? 

In any case not much dissimilarity between the ICC and the Bursa Malaysia, two institutions that are required to apply the rules and regulations fairly and squarely but falling short of fairness!  

Thinking Aloud - Can We trust what the CEO's say?

In 2012 when a large well regarded construction company bought into a diversified group in transport solutions and oil and gas industries, the shares of the acquirer went down, the shares of the acquiree went up. The original investment of 10% has since grown to 25%, by way of the convertible loan stock, the "well regarded" construction company has now become the biggest/single largest shareholders.

In a 2012 interview, the then CEO/MD of the construction company said (refer to Star Online 27th September 2012 article), "that it gave the construction company an easy entry point into the o&g sector and that they could tap into the group's transport engineering business." This year when the construction group became the single largest shareholder there was a similar interview with the current CEO/MD, and these are some of his quotes:

1. "We need to look at the various possibilities of how best to enhance the group, we will definitely share with them with our shareholders once we have come to a conclusion", 

meaning that since the investment in 2012, the "well regarded" construction company has done nothing?

2. "More board representation in the group doesn't necessarily mean its business will improve overnight". 

Mr CEO/MD this was quoted in the same interview you gave, "Sceptics will point to the group's track record and share performance. Even when oil was trading north of US100/barrel in the middle of 2014, its market capitalisation shrank by half from RM1.44b in December 2003. Today its market value is RM279.76m. An investor who held the group's shares since 25.9.2012 would have lost 52.64%, there has been no dividend since 2008".

Mr CEO/MD, are you still sure that more Board representation is not needed, is it not the responsibility of the board to lead and control and to oversee the conduct of the company's business! In fact Mr CEO/MD should you not follow the case of Sime, when they lost billions in their Qatar project the Board took responsibility and stepped down and a new management team was put in. Should you not be looking at similar action?

3. You went on to say, "Looking on the bright side, the group has an order book of RM5.3b in its order book, (I presume that it includes the o&g sector), if that be the case, can you do a quick review and inform/clarify to your investors how much of this is has a true possibility of being realised into profits. Additionally have you taken into account the current problems that the company is having with the Land Transport Authority, and have you taken into consideration that your own company has been divesting out of India over the last few years and whether there are no skeletons left there for this investment of yours?

In the Edge (Feb 22, 2016) you were quoted as saying, "Instead of cash redemption, we opted to convert the bonds into 348.80 million shares, worth RM62.8m. Now bearing in mind that your original investment was RM149.00m(as per Star online Sept 2012), would it not have been better to cut the losses and move on, I am sure that the possibility of you recovering "anything" is probably slim considering the many comments by the different research houses that the management in your investment has shown a consistent capability for not delivering!

Mr CEO/MD I am sure the investing public will be very curious in your responses in putting your investment right, if not the investor's would hold you responsible for such a glaring failure to recognise the true situation, painting a more than optimistic picture similarly to your predecessor, unless of course you have fully provided for this investment and the interview was nothing more than a opportunity to profile yourself in the business press!

Seeking Forgiveness

Before the Chairman of the AOB leaves I thought that I should help him redress the inbalace (in what seems to be) that action is only taken against smaller practices and not against the big boys! Here is the opportunity Mr. Chairman:

Not long ago there was a report in a news portal that a well know transport company had lodged a police report that there were possible "wrong doings" within their procurement process . The report went on to state:

1. That a police report had been lodge, hence the entity won't make further comments as it was now a police matter.

2. That this "wrong doings" had been going on for four (4) years.

3. A forensic audit would be undertaken. I heard that this was conducted by the same firm as the auditors! Questions could be asked about independence IF this was true.

Now:

1. As you know Mr. Chairman, in auditing you select samples based on statical sampling and good practice dictates that there must be rotation of the samples and the auditor should also look for outliers. To some, common sense would say that there is a 1 in 4 chance of uncovering this "wrong doings", so this should have been uncovered. I suppose with the benefit of hindsight everyone is an Einstein.

2. As you know Mr. Chairman the external auditors also provide a private report on the "Statement of Risk Management and Internal Controls", we assume that the private report contained nothing negative, if not the Board had to amend the Statement and bring the weaknesses to the attention of the stakeholders.

3. Mr. Chairman the company has an internal audit function, I know internal auditing does not come under the AOB's purview, but imagine all these good practices adopted and yet the "wrong doings" were going on for four (4) years.

Surely Mr. Chairman there must merit for an investigation as to whether the external auditors had met the minimum international auditing standards, if not Mr Chairman history would say there must be truth to all those malicious rumours pointed in your direction and the partner at Crowe Howarth may think that he was unfairly treated.

Thinking Aloud - Culpability of the Board

Now the way it is supposed to work with Public Interest Entities (see i learnt that from reading
the Securities Commission's website) is as follows:

An entity enters the capital market by subscribing interest from the public by way of subscription to their shares being offered. These shareholders then will appoint Directors and these Directors collectively form the Board of Directors.

The Board of Directors appoints a CEO/MD/President to operationalise the strategy and achieve the key goals. Every quarter the management reports back on its performance, in almost all cases the performance report first goes to the Audit Committee, with the blessings of the Audit Committee the performance report is presented to the Board and ONLY upon the approval of the Board is the performance report lodged with the exchange, released for public interest consumption.

Now what  baffles me is, why when regulators take action against Directors of companies (e.g. Transmile, Megan Media, MEMS Technology, Silverbird,.....), its only against the executives and not the Board, bearing in mind,

A. The Board is the ultimate decision making body, so they are ALL responsible and accountable.

B. All Board members receive fees and remuneration, so as the lawyers would say, there is consideration, hence their fiduciary responsibility has to be contractual and without doubt.

C. The Companies Act states it is the Director's responsibility to maintain proper book of accounts and to ensure that proper sets of accounts are prepared. This is further affirmed in public interest entities where Directors in their Responsibility Statement acknowledge this fact.

D. Amongst the Boards responsibilities is, to lead and control and oversee the conduct of the business.

E. Bursa's rules clearly state that it is the Director's responsibility to inform themselves, so if they are not satisfied, dig, dig and dig until you are satisfied!

Therefore is there not the case for the Boards being collectively prosecuted, or is the trick in being a director is to be  a Non Executive Director, so as my friend says can "makan gaji".

The time has come for the authorities/regulators to review this situation, they need to come up with a solution so that better accountability is created. Possibly the solution lies in adoption of Bank Negara's "fit and proper person" rule or a data base of Directors and Senior Management that were in Public Interest Entities during "scandalous" periods so that stakeholders are informed! There are without doubts persons that should not be Directors being Directors at Public Interest Entities and this practice needs to stop. Silence or denial cannot be the solution.

Seeking Forgiveness

The Chairman of the Audit Oversight Board cum Executive Director at the Securities Commission has not sought renewal of his contract. He has sent messages of farewell to his dearest of colleges thanking them for their cooperation and seeking forgiveness in case he was rude, harsh or unfair to anyone of them.

Personally speaking should the Chairman of the AOB not seek similar forgiveness of those in the Public Interest Entities for their selective cum strategic enforcement. If you study the sites relating to enforcement and sanctions what stands out is the fact that all action seems to be primarly against those from the smaller practices, there seems to be no action against those bigger boys which to say the least is odd. Surely this cannot be the case, or is it?

The latest case on their website is that of Lee Kok Wai, a partner in Crowe Howarth, in this gentleman's case it is claimed that he failed to apply to International Standards of Auditing, bearing in mind that auditing in Malaysia is opinion based!

Now if this be the case, then there are at least two companies that  one could question whether international standards of auditing were applied, one because they incurred tremendous loss is public, Sime Darby re Qatar fiasco, the other has managed to keep its nose above water hence remains unknown even though they flouted prudent standards and I am sure there are many more.

So Mr. AOB Chairman can you please correct/clarify as to why no action was taken against the auditors of Sime Darby, malicious rumours had it that a Director with the auditors was at that time seconded to the AOB and managed to "selesai" the matter, who has since returned to the auditors, and then there is the more malicious rumours that you appointment was facilitied by the Chairman and the ManagingDirector of a large practice, surly cannot be I scratch your back, you scratch mine!

To retain/restore your good name and that of the AOB it is imperative that before you leave you issue a press statement to correct these misconceptions!

We look forward to your assistance, in the event that all that was written above was rude, harsh and unfair, we unreservedly apologise and seek your forgiveness.

Please Mr. Chairman do enlighten us!

The 2015 Securities Commission Annual Report makes interesting reading with regards to the many actions taken. Of particular interest were those relating to insider trading, of note were those under the headings,

Actions against company directors and management for serious market misconduct, it was noted that the following were charged for insider trading

Lee Lin Thai - was with TH group
Ramesh a/l Rajaratnam - was with MMM
Amran Awaluddin - was with Ranhill 
Lim Kim Chuan - was with Melawar Industrial Group
Tan Swee Hock - was with Transocean

I assume that all these person's cases will be going through the judicial process and in time we will read a press announcement on the outcome.

Disgorgement of ill-gotten gains from wrong doers, it goes on to explain "Our civil enforcement powers provide us with the ability to pursue and deprive individuals of their ill-gotten gains derived from trading on material non- public information. CMSA allows us to claim disgorgement of up to three times the gains made or losses avoided by those in breach.The report says action was taken against the following:

Leong Ah Chai and Chan Soon Huat for insider trading breaches
Teng Choon Kwang and Tan Boon Hwa for alleged insider trading activities

and  the report further states,  "In 2015, a total of six individuals entered into regulatory settlements with us following letters of demand we had issued to them. These settlements led to the successful disgorgements of up to three times the illegal gains made or losses avoided from such market misconduct." Here the individuals named were:

Sip Way Keong and his wife, Pang Soo Ling
Puan Chan Cheong, Loo Poh Keng and Puan Kam Cook 
Chan Chee Beng

In total, a sum of RM3,083,666.70. 

What is most interesting is that if you go to the Securities Commission's web site, you will note the following:

All the above agreed to pay their fines"without admission or denial of liability, to settle a claim that the SC was proposing" All the individual concerned disgorged their ill gotten gains at a rate of three (3) times except for one at half the rate, i.e 1.5 times amounting to RM1,944,438. 

Now why this individual was given what would seem to be special/favourable treatment is unclear but if the commission had invoked the three times (3) rule that would mean an additional RM1,944,438, or additional 63% of the total collected from disgorgement. 

Perusing the commission's web site it was noted that for the whole of 2014 and 2015 only this individual had been disgorged at 1.5, whilst the rest were at 3 times! One could conclude that the either the Commission is cash rich or that it was a goodwill ang pow in view of the impending Chinese New Year.

While going through the web site it was also noted in another  case there was an individual together with thirteen others that had settled for a total of RM7,000,000.00 for manipulation of shares. Why settle, is this not a criminal activity and should never be condoned!

Maybe the Commission could clarify the following:

1. Who determines when an insider trading case merits civil action or regulatory and administrative settlement?

2. How and who determines if disgorgement is at 3 or 1.5 times?

3. Can all those that were disgorged at 3 times now seek a refund of 1.5 times seeing that they agreed to the settlement without admission or denial of liability. After all times are difficult and challenging?

4. If an individual can afford RM1,944,438, than how much more ill-gotten income did he generate, should the individual  not have been disgorged at 3 times, bearing in mind that the Annual Report states that the objective is to deprive them of their ill gotten gains!

5. Your report states "These settlements led to the successful disgorgements of up to three times the illegal gains made or losses avoided from such market misconduct." By not stating that not all the individuals were disgorged at 3 times (material facts) has the Commission not fallen foul of its own rules, the one pertaining to misleading statement as you failed to highlight the facts clearly and in keeping with your mission statement pertaining to transparency!