Transcript Private Sector Experiences & Challenges

Private Sector Experiences &
Challenges
National Congress on Integrity
– Corruption the Weakest Link
Kuala Lumpur 2005
Recent High Profile Corporate
Scandals, Corruption & Fraud
In the United States of America
» Enron
» Global Crossing
» Tyco
» Worldcom
…were sent tumbling by
corporate scandals.
Asia Not Spared of Corporate
Corruption & Scandals
Malaysia’s Integrity Scorecard
» Transparency International Corruption
Perception Index (CPI)
Ranking
Malaysia
Total Countries
CPI
2004
39
146
5
2003
37
133
5.2
2002
33
102
4.9
» TI’s Bribe Payers Index 2002
» listed Malaysian companies as amongst those with
high levels of bribery
Malaysia’s Integrity Scorecard
» Financial Card Fraud
» Amongst the Highest in the World, RM242.5 million
EuroMonitor International
» Corporate Transparency
» Only 14% of 930 PLCs responded
» 83% of respondents experienced fraud
» National Integrity Institute’s Findings
» 30.5% of Undergraduates would accept kickbacks if in
a position of power
Corruption is pervasive at all levels in
Malaysia. Could get worse!
Some Incidences / Examples of
Corrupt Practices
» Tenders & Contracts
» Stock Manipulation
» Corruption Within Corporation
Tenders & Contracts
» A Senior Executive solicits bribes to influence
award of hospital project
» The project went into dispute and cost overrun
» A Design Consultant over-designed a building to
increase price but cahoots with a “preferred”
contractor to bid low
» The Consultant undertook an optimisation of the
design after contract was awarded.
» The Clerk of Works of a highway project was
lenient on site supervision for bribes
» One of the slopes collapsed, truck driver killed and
resultant major repair cost
Stock Manipulation
» Share Margin Financing – manipulated to drive
up share price in order to obtain financing
» “Creative” Accounting – manipulating financial
results by recording extraordinary gains as part
of operating profit in unaudited accounts
released to the public
» Insider Trading & Hot Tips - Leaking “hot tips” to
staff and media to influence share price
movements
Corruption Within Corporation
» A Director of a public corporation who is the
substantial owner insisted on partial payments of
a major business transaction be made to his
private company.
» A Senior Executive purchased equipments at
inflated prices to receive kickbacks.
» A Senior Executive disclosed and sold
company’s proprietary information for gains.
Challenges of the Private Sector
and Its Vulnerability to Corruption
» Difficulties in securing tenders / jobs
» Pressures to use shortcuts and corrupt practices
to maximise or just to protect their margin of profit
» Delays in getting approvals / decisions :
» Approvals for licenses, certifications and permits
» Applications / Appeals for exemption such as for duties
/ taxes
» New Regulatory requirements for an industry such
as product identification and standardization
Challenges of the Private Sector
and Its Vulnerability to Corruption
» Bureaucratic and complex procedures and paperwork
» Pressures from persons in position of authority asking for
favours
» Fear of retribution including the danger of investigations,
raids and even threats of withdrawal of licenses
» Requests for bribes and even extortion
» Difficulties in getting court hearing and recover loss
» The temptation to quick gains and not be caught
» The Malaysian culture of not questioning up the chain of
command
» Collusion can be common
The Cost & Deadly Effects of
Corruption
» Not the best vendor is selected and quality of goods and services
compromised
» Corruption raises the cost of doing business and makes consumers
pay more
» Man in the street is hurt and minority stakeholders (including
employees) interest not protected. Loans are granted only to default
» No real economic growth when companies do not focus on core
activities
» It deters investment, especially FDI
» It undermines the legal and judicial systems
» It fuels the growth of excessive and discretionary regulations
» It is like a cancer that grows
Premium Price for Good Corporate
Governance
» Mark up of more than 20% for shares of
companies with Good Corporate
Governance
Survey of 200 Institutional Investors in
USA, Europe, Asia & Latin America
Malaysia’s response to the need for
sound Corporate Governance
Malaysia Code
on
Corporate
Governance
KLSE / Securities
Commission
• Listing Requirements
• Enforces Code
• Internal Controls
Financial Reporting
• FRF
• MASB
» Broad principles of good governance and Best Practices for PLC’s
» Enforcement by disclosure - “Let the market decide”
» Backed by a barrage of Laws
The Key Issue
» Disclosure is all very well if what is disclosed is the truth
» Example : Some 10 companies’ share prices plunged steeply in the last
6 months!
Alleviating Corruption & Enhancing
Good CG
»
»
Transparent systems of public procurement by open tenders
Transparent systems of public decision making
Government’s links to business in Malaysia
Market Capitalisation in
Billions of Ringgit
Percent Owned by
Government
Telekom Malaysia
33.8
65%
Tenaga Nasional
31.4
66
Maybank
36.5
49
MISC
23.8
66
Commerce Asset Holdings
13.4
40
Golden Hope
4.2
73
Malaysia Airlines
3.9
74
Proton
4.8
57
PLUS Expressways
2.9
78
Company
Source: AWSJ
The Government’s example in greater Transparency and Accountability
in these large GLC’s would set the tone for good Corporate Governance.
Alleviating Corruption and
Enhancing Good CG
» Cutting down bureaucracies, simplifying procedures and
instituting checks and balances on decision making
powers
» Toughen up monitoring to ensure more effective and
consistent implementation of existing legislations and
codes
» A stronger & more efficient judiciary
» Much steeper penalties including prison sentences and
fines for the key decision makers/fraudsters
» Strengthening accounting and auditing standards to
address off the books transactions and other deceptive
entries and practices i.e Sarbanes-Oxley
Internal Structures for Enhancing
Good Corporate Governance
An Effective & Independent Board
» Independent Non Executive Directors
» Qualified & Knowledgeable
» Restrain from focusing on interest of major shareholders
» Widening the Gene Pool
» Family owned companies now listed
» Mindset changes
» Diversity in skills, ages, experiences
» Directors & Executive Remuneration
» Shareholder revolt overseas
» Remuneration policies
» Independence of all other Board Committees
» Information access
Education & An Ethical Corporate
Culture
» Adopt a written Code of Ethics for management
and employees
» Clearly written legal and ethical guidelines to
help promote honest and ethical conduct and
deter wrongdoings
» Positive background checks on key personnel
» Training of employees on the Code and to be
aware of “rationalising” and “socialising” tactics
» Ethical conduct reviewed and discussed in
performance appraisals
» Annual signatures of compliance
Enforcement & Protection for
Whistle Blower
» Code of Ethics & systems of internal controls important
but insufficient
» Must have mechanisms for reporting unethical conduct
» Commitment to investigate ethical concerns expressed
by employees
» An Anonymous employee hotline can be
very effective and beneficial
» Protection for whistleblowers
» Encourages staff to disclose wrongdoing
internally
» Help attract and retain good staff
» Enhance and protect company’s brand and
reputation
External Structures
Strengthening Professional, Trade & Other Ethical
Associations
» Professional Bodies such as Institute of Directors to
uphold high corporate governance standards
» Trade Associations to address issues related to dealings
with the various authority structures
» Other Business Associations to help nurture, support and
protect ethical business from the strong and powerful
» Example : Lordman Alliance
Encouraging Shareholders Activism
» A collective voice to facilitate participation by retail
investors
External Structures
Protection for Whistle Blowing in all Sectors
» Protection for whistle blowers in all sectors including for
government officials, civil servants and external auditors.
» Only 30% of Malaysia Civil Servants willing to report incidents of
grafts
National Integrity Institutes Findings
» Allow for greater freedom of press to report corruption in
high places
Foster friendly environment for NGO’s
» Encourage and fund NGO’s focused on corruption and
integrity issues
It all begins with VALUES
“…….no matter how good our institutions,
legal framework, rules and regulations may
be, they will only serve a limited purpose if
the people who work within those rules and
regulations are not imbued with a sense of
values. Integrity and character comes from
within.”
PM, YAB Dato Seri Abdullah Haji Ahmad Badawi
Speech at “Corporate Sector against Corruption” fund raising dinner
Our Values Must Move us Toward the
Right Goals
Values of Integrity
“You shall not steal, nor deal falsely, nor lie to one another…You shall
not oppress your neighbour, nor rob him. The wages of a hired man
are not to remain with you all night until morning”
Leviticus 9:11,13
“He who profits illicitly troubles his own house” but “A righteous man
who walks in his integrity – how blessed are his sons after him”
Proverbs 15:27 ; Proverbs 20:7
Values & Beliefs Control Behaviour:
Examples:
» Environmental Projects obtained with integrity
» Construction project obtained without yielding to pressures
Honesty Pays!
The Need to Move Beyond
» Beyond Profitability to Integrity
Are we REAL?
» Beyond Addressing Personal Sins to Corporate Sins
“Woe to you who are heroes at drinking wine, and valiant men in mixing
strong drinks..” (Personal)
“Who acquit the guilty for a bribe and deprive the innocent of his right”
(Corporate / Structural)
(Isaiah 5:22, 23)
Do we CARE?
» Beyond church Buildings to Nation Building
Life
Teaching & Programs
Are we RELEVANT?
Marketplace
Church
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Church
Marketplace
The Power of ONE
I may not change The World but I can change
My World
… Everyday in Everyway Little by Little
our World can get Better
You too …
Can Make a Difference and Contribute
Positively to Nation Building
Thank You.