The duties of corporate board directors

It was business as usual at the monthly board of directors meeting of the Port Klang Authority (PKA) in September 2010. When it came to the last item on the agenda -- Under “Any Other Matters”, there was pin-drop silence when one man spoke. Without mincing his words, he spoke with conviction.

“When I left this organisation 10 years ago, I left behind RM450 million in reserves. Today, PKA is on the verge of insolvency. Those responsible must pay for it,” thundered M Rajasingam, a career port man who had served the port for 33 years, retiring as its general manager.

He then moved a motion to institute legal action against the 29 directors who sat on the board in the preceding years for failing to exercise and fulfil their fiduciary duties.

They included two former ministers, an MP, senior government officials and representatives from three political parties. Understandably, only two other hands went up in support – those of PKA chairperson Lee Hwa Beng and independent director Ng Mann Chong.

Only Ng remained when the cull took place. Rajasingam’s term was not extended when it expired two months later. This was despite the board recommending his re-appointment as it felt his experience would be useful. Lee too, was shown the door after his two-year term expired in April 2011.

These events reveal the “I scratch your back, you scratch mine” mentality which was prevalent in the past. Both were removed because it was perceived that the duo was “going after the minister’s friends”.

Nineteen months later, the role of directors came under the spotlight again when the National Feedlot Corporation (NFCorp) made the headlines. It bought luxury condominiums without the approval of the board of directors. Three government representatives who sat on the board were not consulted or told about the purchase.

Alias Mohd Yassin and Manaf Hussein represented the Agriculture and Finance Ministries respectively while Mat Ali Hassan was appointed by virtue of him being the Negri Sembilan state secretary. They pleaded ignorant of meetings where the decisions were taken.

The appointments of directors in statutory boards and government companies are made to “safeguard the interests of the shareholders and stakeholders”. However, it has not turned out to be so in many instances.

Exercise care, skill and diligence

The Companies Act is specific, with no room for any kind of dispensation. Section 132 states that a director shall at all times exercise his powers for a proper purpose and act in good faith in the best interest of the company. He or she is expected to exercise reasonable care, skill and diligence with the knowledge, skill and experience which may reasonably be expected of him.

Directors are supposed to have expertise in a specific area which can help the company or corporation. Many include a lawyer and an accountant on their boards. Some boards look for leadership and management experience, especially in related businesses. For example, if the business is housing development, the director must have some knowledge of construction, infrastructure and even marketing. He must also have a standing within the industry.

Above all, directors must have a commitment to the business and have the time and energy to devote to board duties. Directors will be expected to spend time preparing for and attending board meetings and to serve on additional committees.

To put it in a nutshell, a director is expected to act as an “ordinary man of business” and is expected to weigh the options before him and conduct the business as if it is his own.

However, as experience has told us, in many instances, such roles were abdicated for obvious reasons. As the government unravels more about government-linked companies (GLCs) and government bodies, the waste, abuse and the overindulgence of their directors have been laid bare.

From fat salaries and huge chauffeured limousines to luxury first-class overseas travel (even skiing holidays) and five-star hotels, they have enjoyed them all with a small bonus too – a generous allowance as spending money.

A handful of civil servants have been sitting in as many as 20 boards. Forget the amount they receive as directors’ fees. Look at the time – even if each company has one meeting a month, they would be spending more time at board meetings than at the office.

Now that a major revamp of the GLCs is being undertaken, let not the boards continue to become a refuge for retiring civil servants. Let not such appointments become an avenue to reward loyalty to any individual or party.

The system has to change and it must be fast as it is for the better. If it means a massive purge, let it be. This is because we must cleanse the system of cronyism and nepotism which have pervaded our society for a long, long time. They have destroyed the basic fabric of good governance – honesty and integrity – in our day-to-day affairs. We can do without these officious fat cats whose large emoluments come from the stakeholders.

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R. NADESWARAN says that many GLCs need rejuvenation and this can only be achieved by injecting fresh blood. Comments: citizen.nades@gmail.com - Mkini