GLCs’ reform still at infancy


BY K.P. LEE

DON’T hold your breath if you’re waiting for the reforms of government-linked companies (GLCs) to quickly yield efficiency and bottom-line gains.  

The reforms are still in the infancy stage that promises a hectic schedule for the newly appointed chief executive officers (CEOs) and board of directors at Khazanah and the GLCs. 

A new report published yesterday by CLSA Asia Pacific Markets has revealed that most of the GLCs attained only between 6 and 8 from a total of 18 key points highlighted by the government as necessary changes in their boards and management towards becoming performance-linked corporations. 

Studying a total of 19 major GLCs (9 Khazanah Nasional Bhd-owned and 10 non-Khazanah-owned) as well as Khazanah itself, CLSA found that none had so far introduced key performance indicators (KPIs), linked their employees’ remuneration to performance, or had a succession plan in place. 

Ahead of the list with 9 points achieved was Commerce Asset-Holding Bhd while 4 firms (Petronas Gas Bhd, TIME Dotcom Bhd, PLUS Expressways Bhd and Khazanah) trailed behind with a mere 5 points each.  

Although 8 companies have seen new CEOs appointed recently, only 2 have (Khazanah and Telekom Malaysia Bhd) hired theirs on a fixed-term contract that is renewable on target achievement. This format, however, is likely to be adopted at all GLCs. All the companies have already separated the chairman and CEO roles. 

The companies were, however, not world-class players, said CLSA. Despite encroaching global competition only 3 – Sime Darby Bhd, Malaysia International Shipping Corp Bhd (MISC) and UMW Holdings Bhd – have forged strategic links to become global players, although Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd, export a large part of their output. As most of the firms are listed on Bursa Malaysia, they conform to many of the exchange’s requirements such as having an independent director chair their audit committees that are composed of a majority of independent directors. However, there is little impetus to apply the principles of good corporate governance when there are no rules enforcing such behaviour.  

According to the research firm, Khazanah scores particularly badly on transparency: it provides almost none of the information on its board and audit committee that most public companies have to do.  

In an earlier report, CLSA said some of the GLCs would fare better than others with the impending restructuring. Listing them as “on the right track,” CLSA said Maybank, MISC and Petronas Dagangan Bhd were already well-run and “have consistently delivered to shareholders.” 

Telekom, which had been adopting some of the key changes mapped out in the change masterplan (eg contractual terms for senior management and incentives) was “improving” as was Malaysia Airlines, now in the black. 

Sime Darby was seen as having the “most potential” as it had the best franchise value with core assets in key growth sectors: plantations, property and motor. Tenaga Nasional Bhd (TNB) was, however, the “problem child.” CLSA said the structural problems and a lack of transparency which were “so entrenched” meant that it would take a much longer time for TNB than a lot of the other GLCs to get back into shape.  

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