Friday 29 Mar 2024
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KUALA LUMPUR (June 18): The Institute of Corporate Directors Malaysia (ICDM) said the board of companies must not sidestep the external auditor when queries are raised.

In response to a question on the recent debacle at Serba Dinamik Holdings Bhd, ICDM chairman Tan Sri Zarinah Anwar commented that it is external statutory auditors' duty to raise red flags. Therefore board members must be professional in responding to these queries.

Zarinah, who is former chairman of the Securities Commission Malaysia, added that it is crucial for independent directors, who sit on the audit committee, to communicate and quickly ensure that trust is built with their shareholders on the issues raised, instead of only addressing it once the adverse impact has occurred.

When asked about the appointments of three new independent directors to Serba Dinamik's board after its external auditor raised issues pertaining to statutory audit, she said it is dependent upon the board to decide whether they need additional expertise or skills to enable them to operate effectively.

"If there is a gap in certain skills or background experience that a board needs to be able to discharge its stewardship responsibilities effectively, then it's up to them to make that judgement call and add the skills needed to the bench," Zarinah explained.

"We have seen that when the board does not do this, the shareholders vote with their feet, and overnight, there is a collapse of share prices and a diminishing of market capitalisation. And that is value destruction for shareholders and stakeholders involved.

"It is very important that boards exercise this professionalism in responding to legitimate queries that have been raised by their auditors," she said during a press conference following ICDM's fourth annual general meeting today.

Meanwhile, she said directors need to pre-empt these kinds of crises which can impact the company and to be prepared to respond in an appropriate manner when something unexpected happens.

ICDM president and chief executive officer Michele Kythe Lim, who was also at the media briefing, said this is where board diversity comes in as more perspectives would have been considered and a situation like what Serba Dinamik went through could have been avoided when commenting on Serba Dinamik's appointments of new independent directors.

She said this would be one of the pre-emptive measures that the board could have taken to ensure the proper board composition.

"They could do a gap analysis of their board composition, do a good board evaluation every year, or an independent board evaluation, so they can see how the board performed.

"Perhaps after this debacle has passed — I mean they would have suffered the damage — but at least they can try and pick up the pieces, assess their board performance, see how much better things could have been done," said Lim.

On Monday (June 14), Serba Dinamik appointed three new independent directors to its board, namely Datuk Mohamed Ilyas Pakeer Mohamed, Masleena Zaid and Johan Mohamed Ishak, after it announced that it had hired Ernst & Young Advisory Services Sdn Bhd as an independent reviewer to assess the accuracy of matters highlighted by KPMG.

The issues flagged by KPMG were related to several sales transactions, receivables and payables, including its IT contract abroad. The total sum involved was more than RM4 billion.

Mohamed Ilyas was redesignated as chairman of the board on the following day, while former chairman Datuk Mohamed Nor Abu Bakar was redesignated as independent director.

Prior to the new appointments, Serba Dinamik had four existing independent directors, namely KPMG Malaysia's former partner Hasman Yusri Yusoff, Nationwide Express Holdings Bhd's former managing director Rozilawati Basir, as well as accountant Sharifah Irina Syed Ahmad Razi and lawyer Tengku Datuk Seri Hasmuddin Tengku Othman.

Datuk Abdul Kadier Sahib, a 16.17% shareholder and a non-independent non-executive director of Serba Dinamik, put forward a request to convene an extraordinary general meeting to remove KPMG and appoint BDO in its place shortly after the company announced that it wanted to conduct an independent review on KPMG's findings on its accounts for the financial year ended Dec 31, 2020.

However, Abdul Kadier withdrew the request later.

Edited ByKathy Fong
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