Kasturi Nathan
THE renowned psychologist and thinker Sigmund Freud once quipped that “flowers are restful to look at; they have neither emotions nor conflicts”.
Unlike flowers, humans are exposed to situations of conflict as they face pressures, seek to cash in towards opportunities and undertake to rationalise their actions. Simply put, conflict of interest occurs when an individual has multiple overlapping interests which may cause them to compromise the responsibilities entrusted to them.
Indeed, the inherent traits of humans and exposures they face explain why conflict of interest appears to be rather pervasive, particularly in an organisational setting.
To this end, many of us can vividly chronicle past instances of conflict of interest which involve individuals writing letters of approval to themselves and auditing their own books.
Some individuals even wear multiple hats in an organisation and undertake incompatible roles akin to the proverbial saying of being the prosecutor and defence counsel simultaneously.
In fact, findings from the recent Deloitte Asia-Pacific Conduct Watch Survey Report 2024 showed that conflict of interest represents a sizeable proportion of whistleblowing disclosures for companies in this region.
It must be said that conflict of interest can yield far reaching consequences especially when it involves those with governance and management responsibilities.
Such actions at the top end of the hierarchy among others bring about huge financial losses and subversion of opportunities to the organisation and others along the value chain.
Premised on this reason, the laws surrounding conflict of interests are quite wide ranging, thus, allowing deterrent actions to be meted against the perpetrators. Of course, those who occupy public office and helm state-owned enterprises (SOEs) are held to a higher moral standard and accordingly, there are additional legislative provisions to cover them.
While the Attorney General’s office is spoilt for choice in terms of bringing forth a charge for offences relating to conflict of interest given the wide-ranging legislative provisions on this matter, the importance of reinforcing the prevention aspect cannot be overemphasised.
In this regard, the rollout of the guidelines on governance for SOEs and government-linked companies limited by guarantee by the Prime Minister’s Office in May 2024 with an amplified focus on conflict of interest should be well greeted.
The wide catchment of entities that are subjected to the said directive alongside other accompanying reform measures by the government lend further credence on governance, especially in dealing with matters on conflict of interest.
Among the other reform measures instituted is the commitment by the National Audit Department to audit 2,000 government-linked companies beginning next year.
Tracing back to the guidelines, it is worthy to note that this directive underscores the need to manage conflict of interest among board members in an end to end manner which entails identifying the competing interest, declaring the interest and managing it.
Clear procedures
In other words, there should be clear procedures which contemplate the potential scenarios of conflict of interest and how to deal with them including the expected disclosure and abstention mechanisms.
Indeed, from experience, we have seen many cases whereby disclosures on conflict of interest are made in a non-specific and narrow manner. For example, declaration on immediate family members conveniently excludes a coverage on de facto spouse and foreign domiciled immediate family members. Sometimes, declarations are even made informally and bilaterally to selected individuals instead of open forums such as board meetings. Absence of monitoring
Worryingly, there are also instances whereby board members treat the declaration process as an annual ritual or as a “one and done” exercise at the onset upon joining the entity.
To put it simply, there is no monitoring and updating of interests undertaken pursuant to the initial declaration made.
As an added heft, the integrity preservation measures outlined in the guidelines also call upon the chief executive officers of SOEs and government-linked companies limited by guarantee to perform an asset declaration covering the possessions held by them and their immediate family members or trustees.
The declaration is to be escalated to the secretary-generals of the supervising ministries and the Malaysian Anti-Corruption Com-mission based on the premise that legal actions can be taken in the event the declarations are false.Recognising that board members are the key levers in shaping the strategic and policy direction of an entity, it is imperative to ensure that conflict of interest is averted in the appointment of such individuals.
The guidelines therefore emphasised the need for board appointment to be made based on objective and meritorious considerations.
Most notably, in the event politicians are to be appointed to these boards, official consent from the Prime Minister has to be obtained upon completion of the due screening process.
This dovetails with recent studies which shows the current government recorded a relatively lower proportion of political appointments in federal statutory bodies and government linked companies. Having safeguards in place when politicians is key to ensure political interest or even constituency interest do not take precedence over the objectives of the SOEs and government-linked companies limited by guarantee.
In terms of board composition, the need to watch against conflict of interest is reinforced with the clarion call for SOEs and government-linked companies limited by guarantee to have at least one third of its board composed of independent directors.
The quest for objectivity is fortified with the restriction on board chairman to chair any board committees so as to ensure that recommendations which flow from the board committee to the board can be mediated in an impartial manner.
Annual assessment
Moreover, boards are urged to conduct an annual assessment to evaluate the performance of the board as a unit and the individual directors. All in all, given that conflict of interest is a human issue, the solution has to be human centric with a firm anchor on culture and conduct.
In this context, the guidelines put in place a coherent frame of reference to catalyse the goal of strengthening integrity, transparency, and accountability across the country with a honed focus on conflict of interests.
In order for the intended impact to be realised, the guidelines need to be accompanied with the molar for implementation and supervision as well as capacity building efforts.
Indeed, better governance of SOEs including averting conflict of interest is imperative to sustain the economic dynamism in the country.
Kasturi Nathan is partner while Krishman Varges is director of Deloitte Malaysia. The views expressed here are the writers’ own.
