Corporate Governance of the State-owned Enterprises

Posted on 26 August 2020

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Photo Credit: Getty Image
Photo Credit: Getty Images

The Auditor-General has published and released its Auditor-General Report (AGR) 2019 Series 1 recently. In the AGR, there was a specific chapter on the audit finding on the management of the selected federal government companies which are non-listed and state-owned.

These companies include TH Hotel & Residence Sdn Bhd (THHR) (owned by Lembaga Tabung Haji, which is under the purview of Prime Minister’s Department), Amanah Raya Berhad (ARB) (owned by Minister of Finance Incorporated, which is under the purview of Minister of Finance), Talent Corporation Malaysia Berhad (TalentCorp) (owned by Ministry of Human Resource) etc. 

It is interesting to note that the Auditor-General was auditing the corporate governance of these companies, by making reference to Malaysian Code on Corporate Governance 2017 (MCCG) and Green Book on Enhancing Board Effectiveness (Green Book), among others. Although MCCG is targeted at listed companies, the non-listed companies which include state-owned enterprises, are encouraged to adopt its best practices and implement its recommendations, as to enhance the accountability, transparency and sustainability. 

The AGR also highlighted the non-compliance to the MCCG, by these federal government companies, among other things:

  • Practice 1.2, where the chairman is responsible for instilling good corporate governance practices, leadership and effectiveness of the board is appointed. THHR and TalentCorp were found of non-compliance. 
  • Practice 1.3, where the positions of the chairman and chief executive officer are held by different individuals. THHR and TalentCorp were found of non-compliance. 
  • Practice 2.1, where the company shall have a board charter and it is periodically reviewed and published on the company’s website. THHR and TalentCorp were found of non-compliance. 
  • Practice 4.1, where at least half of the board of directors shall comprise independent directors. THHR, ARB and TalentCorp were found of non-compliance. 
  • Practice 10.1, where the audit committee ensures the internal audit function is effective and able to function independently. THHR and TalentCorp were found of non-compliance. 

State-owned enterprises (or government-linked-companies) play the role model for others, in supporting the government effort in enhancing corporate governance and compliance. Though MCCG is not mandatory for the non-listed state-owned enterprises, and it is an applauded when they are setting the example for others in adopting the MCCG. However, they must take the compliance sincerely and seriously, and any incompliance may jeopardise the government effort in promoting corporate governance and compliance. 

Clement Ong is a part-time lecturer on corporate governance and law of a private university. This short article was published on LinkedIn and was written for educational purpose.