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!