WE all like to root for the underdog. This is why we fancy the notion of shareholder activism becoming a major element in the Malaysian corporate scene.
Who would not be heartened by the story of a small band of individuals foiling a listed company's plan to take minority shareholders for a ride?
When small-time investors taste victory over the unscrupulous, it is a classic David-versus-Goliath scenario.
Unfortunately, it is also pretty much a dream right now. The local retail investors are nowhere near ready to be a significant factor in Malaysia's corporate governance reform.
How can it be so when they are more interested in quick gains via speculative punts than in solid, long-term investments?
It was not surprising then that the Securities Commission (SC) recently spoke about measures to prod domestic institutional investors into playing a larger role in shareholder activism.
After all, these institutions control more than a third of the market capitalisation of the Kuala Lumpur Stock Exchange (KLSE). These players have the resources and clout to push shareholder activism to the fore.
More importantly, the hope is that when the big investors start standing up for their rights, the other shareholders will be emboldened to join them. And that should lead to a more spirited and enlightened breed of retail investors.
On March 26, the SC's chairman Datuk Ali Abdul Kadir said the regulatory body was coming up with a set of best practices and standards that will guide the institutional investors in their approach towards the corporate governance of the companies they invest in.
In addition, the SC has proposed that these institutions disclose what they have done in ensuring that the investee companies comply with the relevant corporate governance standards.
The commission does not pretend that these measures are a cure-all. And Ali has acknowledged that introducing more regulations is not quite the answer.
It appears therefore that the authorities are not going to go around twisting arms and wielding the big stick to transform these institutions into shareholder rights advocates.
In other words, for shareholder activism to take off here, the institutional investors must voluntarily accept the lead role, and supply the impetus for changes to happen. Now, that is a worrying thought.
Let us first look at the big boys among them government-linked fund managers such as the Employees Provident Fund (EPF), Permodalan Nasional Bhd (PNB), Lembaga Tabung Haji, Social Security Organisation (Socso) and Lembaga Tabung Angkatan Tentera (LTAT).
You can add to the list other statutory bodies and federal government-controlled organisations, state economic development corporations and state unit trust funds.
Typically, with listed companies in which they have controlling stakes, these entities have board representation and appoint managers to run the businesses.
But these institutions also hold shares in dozens maybe even hundreds of other companies on the KLSE. In such cases, these institutions are not known as being outspoken investors, even when the companies act against the interests of minority shareholders.
We are sometimes told that it is not part of our culture to be openly confrontational. Apparently, these institutions prefer quiet diplomacy in dealing with such touchy matters. That may be so, but it is still a flawed approach.
Those who have contributed to the funds managed by these institutions have a right to know how their money is invested and how the investments are protected.
If the investment in a listed company is at risk because the company's management has proposed a dubious deal, the contributors expect the fund manager to at least try to block the transaction. And such a move must be communicated clearly to the contributors.
It is commendable, though, that EPF, PNB, Tabung Haji, Socso and LTAT have pooled funds to establish the Minority Shareholder Watchdog Group (MSWG). The watchdog group has made headway in promoting shareholder activism and corporate governance.
However, there is a question mark. The institutions' deal to bankroll MSWG ends this year. To date, there is no firm indication as to whether they will continue to back it.
It is clear that the authorities are banking on the watchdog group being around for a long time.
Ali, the SC's chairman, has floated the possibility of MSWG (or a similar shareholder champion) being the conduit through which the institutional investors exert their rights as shareholders.
That makes a lot of sense. The institutional investors have to band together so that there is enough weight behind their voices whenever they deal with the management of the listed companies.
Institutional investors in the private sector (such as unit trust companies and asset managers) tend to be smaller than their government-linked counterparts.
These private institutions specialise in managing and marketing funds, not in overseeing how investee companies are run. Besides, they lack the resources to keep track of the goings-on in these companies.
As such, if they do not like what is happening at a company, they dump its stocks. Now, with the SC producing the best practices and standards, there is a sense that the institutions can soon do a lot more as shareholders.
Nevertheless, the matter is very much in the hands of the government-linked institutions. They have more influence and their actions are always seen as a reflection of the government's policies. The big boys must lead.
The problem is they come under different authorities. The Finance Ministry oversees EPF. Tabung Haji and PNB are under the Prime Minister's Department.
Socso is supervised by the Human Resources Ministry, while LTAT answers to the Defence Ministry.
We can probably count on the SC to produce well-crafted guidelines. But whom can we rely on to ensure that the institutional investors embrace the guidelines whole-heartedly?