I was asked to comment on the Sime Darby financial losses by Reuters. Alarmingly, this should not be viewed as a stand alone case. The Sime Darby management fiasco and poor investment decisions should trigger a deeper look at the government's GLCs strategy. I will touch on a few key points which must be considered before other time bombs are being set off.
The Malaysian Insider reported that the government conglomerate will next month announce that potential full-year net loss could top RM2 billion — and go as high as RM2.5 billion. Most of the losses are down to ill-advised investments in the energy and utilities sector in Qatar as well as tardy business practices in the development of the Bakun dam in Sarawak.
The online news portal also mentioned that property division managing director Tunku Badlishah Tunku Annuar has been removed from some units within his division while other top officials are being put on notice after Sime Darby instructed former chief executive Datuk Seri Ahmad Zubir Murshid to take a leave of absence last May 13 in relation to the losses.
There are several issues which must not be taken lightly:
1) There were calls for the removal of the entire BODs led by Chairman Tun Musa Hitam whom most critics argued was responsible for the losses and poor investment decisions. However, it must be noted that the removal of the BODs is not a solution to the current problem. It is a non-issue that the directors are responsible for the poor results and ought to step down. The main is the direction of the conglomerate and all other GLCs. Eventually the government should shoulder some responsibility for not properly defining the scope and objectives of the GLCs. What is the main purpose of GLCs?
2) The investment evaluation process for GLCs should be more transparent and stringent because they are public trust companies. GLCs should have a clear risk barometer or level that they should not break.
3) The executive appointment process has been in the limelight for many years. Are we putting the best people to run these companies? Are the executives and directors subjected to same rigorous standards set by private practices? Is affirmative action involved in the selection process and is it contributing to the poor placement record? Political nominees and retired politicians should stay out of running the GLCs if the government wants to protect its investments.
4) Are GLCs performing at their optimal level and doing business within their scope of core competency? In the case of Sime Darby, it is obvious that the company had overstepped its boundaries by investing in projects beyond its capability and capacity. This is not the first time it had happened. Its foray in the banking industry was equally disastrous.
5) GLCs are being assigned to help catalyst the development of several regional economic corridors. Now, the government must relook at this possibility of not overloading these companies. Should GLCs be further burdened with public projects and at the same time expected to deliver profitability as public listed companies?
6) Does the use of GLCs to spearhead and help fund public projects exposes the flaws and weaknesses in the BN socio-economic policies? Why aren't we able to attract private investments and foreign direct investments to help spur the economy through our economic policies?
The catastrophic performance of Sime Darby should not be taken as an isolated case. It may just be a trigger for similar cases in GLCs. We do not know how well or poorly these companies are being managed unless something bad has happened.
It is inevitable for the government to admit the weaknesses in its GLCs strategy and socio-economic policies and find proper long-term remedies to address them. Otherwise, it will turn into an agitated spirit which will haunt the coalition for a long time to come.
If not carefully managed, Malaysia may already be on a path of financial crisis.