By Raman Letchumanan

KUALA LUMPUR, Malaysia: Prime Minister Anwar Ibrahim, since he took over the reins of the government in November 2022, has been ruthless in his crusade to eradicate corruption. He has set a target to improve the Corruption Perception Index (CPI) world ranking from 57th currently to 25th by 2033. 

 Whether all this is mere anti-corruption rhetoric joining all prime ministers in the past five decades is for the readers of this article to decide. One thing for sure, none of the prime ministers have been bold enough to tackle the obvious root cause and source of corruption.

 Companies are the primary, if not the only, creators of wealth. Consequently, companies are the source and breeding grounds for corruption and money-laundering to squander this wealth. 

 Companies can range from a one-person Sdn Bhd entity to the mammoth public listed companies.  It includes government owned, government linked, statutory bodies, or any government authority or agency that is incorporated under the Companies Act 2016 (government company).

 The Companies Act is probably the longest piece of legislation which has over 600 primary sections in as many pages, not to mention the numerous rules and regulations. It makes legally binding rules from establishment, operations, to winding up of a company. Any violation of the Act especially corruption, money-laundering, and abuse of power can be easily detected and curtailed through annual, periodic, and material changes reporting to the authorities concerned.

 Therefore, the primary focus of any anti-corruption measure should be through the Companies Act and related legislation such as the Securities Commission Act 1993, and Capital Market and Services Act 2007.

 The Companies Act states that the “business and affairs of a company shall be managed by, and under the direction of the Board (of directors)” (section 211). Section 212 states that a director shall exercise reasonable care, skill and diligence through having the necessary skill, knowledge and experience. Section 213 states that directors should exercise business judgement for a proper purpose and in good faith, have no material personal interest, and in the best interest of the company.  

 Therefore, the shareholders or owners of the company have no legal right to interfere with the business and affairs of the company. To protect their interests, the shareholders can only appoint the directors, set the limit of powers of the board of directors in managing the company, and appoint the external auditors, among others. The Companies Act does not recognize such organs as Board of Advisors, Advisor Emeritus, the office of the Prime Minister, Finance Minister, or any Minister in the business and affairs of a company.

 The underlying principle is that a company and its shareholders are distinct separate entities. A shareholder gets to limit his personal liability to only his shareholding, and should therefore not interfere in the business and affairs of the company, or worse still steering it to his personal benefit. This principle has been affirmed by several federal court rulings.

 Likewise, the Board or any of its directors that claim to be influenced by the shareholders, however powerful they may be, is guilty of a criminal offence and should be charged in the first instance for mismanagement of the company. The only recourse for a director is to tender his resignation there and then if he cannot stand up against the shareholder.

 In the classic case of 1MDB, there has been allegations of the prime minister and his representative dictating or influencing the decisions of the Board of Directors, who in turn claim they had to follow, in contravention of their duties as per the Companies Act. Vast amounts of funds were illegally channeled out with or without the knowledge of the Board. External auditors signing off such financial statements as representing a true and fair view have violated the Companies Act and their professional duties.

 In government companies it is common practice for the government as shareholder to appoint politicians, or senior serving or retired civil servants as directors. Would such politicians or civil servants have the qualifications, skills or experience to run a competitive market driven business (sec. 212) or can exercise business judgement (sec. 213) in the best interest of the company, without influence from the shareholder.

 From the latest Auditor-General’s report on HRD Corp, there has been adverse findings of the Management reporting to and taking directions from the Minister rather than the Board. Such practice is common in most government companies.

 Serving senior civil servants are often appointed to the Board as directors purportedly to protect the interests of the government. I believe many of them are paid director’s fees and allowances on top of their salary as career civil servants. If such fees and allowances are retained by the civil servants wouldn’t that compromise their role as full-time civil servant, director, and representative of the government as shareholder. 

 We had a case of a former chief secretary to the government who claimed to have received RM30,000 per month without attending any meeting of the 1MDB Board of Advisors.

 Anwar Ibrahim has reportedly refused and returned the fees and allowances paid by Khazanah Nasional. That is a bold and necessary move. Would he practice that across-the- board, so that the interest of the companies they manage would not be compromised?

 Anatomy of corruption as cancer

 Corruption is usually compared to cancer, a silent, invasive and painful killer. Based on previous failed and struggling government companies, we can construct an anatomy of corruption spreading like cancer against the backdrop of the Companies Act. The five stages of corruption and money-laundering can be represented thus.

  • Stage 0

 There are early signs of corruption but has not become invasive. Usually at this stage symptoms can be easily dealt with by applying the provisions of the Companies Act.

  • Stage 1

 A pattern of symptoms appears. The company may be slacking in its operations, missed revenue targets, escalating expenses, staff discontent but nothing serious. Any symptoms can be treated and contained internally by applying the Companies Act.

  • Stage 2

 The symptoms start to manifest. Poor product or service quality. Cash flow problems. Staff demoralized and delayed salary payment. At this point, the effect of a mix of qualified and unqualified directors managing the business and affairs of the company becomes apparent. Revenue and profit dives. Complaints on violations of the Companies Act surfaces. Auditors will sign off on financial statements but with caution on several matters, but not warranting a qualified report. The company may venture into taking over other successful business to cover up and sustain its operations.

  • Stage 3

 All these symptoms become severe and cripple the company. The company makes deep losses and needs injection of taxpayers’ money to survive. There will be frequent changes of board members. Company will invest heavily on expensive consultancies for business-restructuring and turn-around plans. Government will be forced to pump in more money. Staff may leave and whistle-blowers emerge but will be swiftly silenced. The Companies Act demands absolute transparency, but matters will be put under official secret. Multinational auditors will leave and new local auditors will be appointed. The required reporting to the Companies Commission will be deliberately delayed or halted.

 The National Audit Department may uncover financial irregularities, mismanagement and abuse of power. Enforcement agencies such as MACC and the Police may start investigations.

  • Stage 4

 The company is either dead or dying buried by mounting debts. The government may rescue the company by bringing it under its fold. All losses will be written off. Depending on political divide, culprits may be brought to book. The directors of the company will move on to mismanage other companies with impunity.

  Anwar Ibrahim has vowed to bring radical and bold reforms even at great political risk. Will he be radical and courageous enough to bring these reforms and nip corruption before it becomes invasive at the company level, by strengthening the institutions responsible for implementing the Companies Act and related Acts. 

 Reforms at the company level is the only cheapest and effective way for the government to progressively attain 25th CPI position in 2033. 

 Enough of anti-corruption strategies, action plans, task forces, committees, and the latest Chief Secretary CPI special task force. 

 *Dr. Raman Letchumanan is a former senior official (environment) in Malaysia and ASEAN, and Senior Fellow at Nanyang Technological University Singapore. He is an accredited accountant (Malaysia/UK) and has a Ph.D. in environmental economics, among other qualifications.*