This article first appeared in Forum, The Edge Malaysia Weekly on February 15, 2021 - February 21, 2021

The Federal Land Development Authority’s (FELDA) current efforts to reverse its fortunes follows years of financial misadventures, which resulted in accumulated losses of RM10.2 billion during the 2015-2018 period alone. Its experience is, sadly, not unique as other statutory bodies too are wrestling with the results of past mismanagement and failure in oversight.

Lembaga Tabung Haji’s previous net liability position, the Port Klang Free Zone (PKFZ) debacle, National Higher Education Fund Corp’s (PTPTN) management of defaulting borrowers, the cancellation of PR1MA housing projects, Tourism Malaysia’s procurement issues, Civil Aviation Authority of Malaysia’s (CAAM) downgrade by the US Federal Aviation Administration, Majlis Amanah Rakyat’s (MARA) failed investments, and National Water Services Commission’s (SPAN) effectiveness as a regulator following constant water disruptions are just a handful of examples, each one years in the making.

Statutory bodies are different beasts from government-linked companies (GLCs) in terms of objectives and legal framework, and many were established during the first 25 years of nation-building following independence. Given the noble objectives they were set up for, the quantum of public funds they manage and the recent troubled history of some of them, an examination of how statutory bodies are governed is merited.

As the name implies, they are created and delegated powers by acts of parliament to perform specific functions deemed more appropriate to reside outside of a government ministry or department. Statutory bodies may serve as more suitable platforms to execute certain administrative functions or house specific expertise. They also protect the government from direct legal exposure arising from, say, a stakeholder challenge.

Based on a November 2018 listing made publicly available by the Ministry of Finance (MoF), there are 113 statutory bodies at federal level in Malaysia, excluding the 19 public universities.

The roles played by these statutory bodies are varied — they include investment management (for example, Tabung Haji, the Employees Provident Fund, Kumpulan Wang Persaraan Diperbadankan or KWAP), sector regulation (Bank Negara Malaysia, Securities Commission Malaysia, Malaysian Communication and Multimedia Commission, SPAN), industry and socioeconomic development (MARA, FELDA, Malaysian Palm Oil Board), professional bodies (Malaysian Institute of Accountants, Board of Engineers Malaysia) and media (Bernama). There are also, in fact, eight regional development authorities (like the Iskandar Regional Development Authority, the East Coast Economic Region Development Council and Lembaga Kemajuan Terengganu Tengah) and nine port authorities, one for every port in Malaysia.

They can also be sizeable. Assets of statutory bodies as at end-2018, even after excluding EPF and Bank Negara, aggregated almost RM600 billion, a sum approximating a third of Bursa Malaysia’s market capitalisation. They are generally expected by their respective statutes to at least break even, yet in 2018, 36 were loss-making and 47 recorded net cash outflows — usually resulting either from negative operating cash flow or procurement of capital goods. This is despite many being recipients of government grants, as statutory bodies accrued approximately RM18.1 billion in grants in 2018. In addition, government guarantees totalled RM59.5 billion in their favour, as at 2017.

Each statutory body is governed by its equivalent board of directors who act according to their respective acts and prevailing government policy as reflected in the objects of those statutes. Every statutory body also falls under the administrative oversight of a ministry — for instance, Bank Negara is overseen by MoF, and MARA, the Ministry of Rural Development. After the MoF with 17 statutory bodies, the Ministry of Transport (MoT) has the most under its umbrella with 13 while the Prime Minister’s Department has eight, with the remainder spread across 21 other ministries.

Herein the delineation of responsibilities becomes less clear. While boards of statutory bodies are ultimately accountable for their organisations’ actions and performance, it is debatable whether they are also the final decision-maker in every instance. This is because ministers and ministries have avenues to participate in the workings of statutory bodies.

The statutory body’s act can, for instance, be explicit that a minister may provide direction to the statutory body in question. These statutes usually also empower the minister to appoint chairmen and board members. Such appointments are in addition to those who find themselves on the board on an ex officio basis — for instance, the secretary-general of the overseeing ministry — as demanded by the said statute.

Furthermore, statutory bodies that receive grants are generally subject to the practices, processes and remuneration scheme of the overseeing ministry. Those that generate adequate revenues, with little to no dependency on grants, need not be so subject. Closer imitation of practices in the former case, coupled with the reach of the ministers and ministries, render these statutory bodies in effect as another unit of the ministries, only garbed in name as a separate entity, defeating the very purpose of their form of existence. There are 86 statutory bodies, more than three quarters of the total 113, which the government has administratively grouped under this description.

Complicating this overlap is the fact that today, 29 statutory bodies are chaired by a member of parliament (MP) and a further 16 by a state assemblyman or a member of a political party. In other words, approximately 40% of federal statutory bodies are currently chaired by politicians. Bad optics aside, the consequence of legislators being chairmen or board members of statutory bodies is they become part of the very entities that they are meant to provide oversight over as parliamentarians.

Legislative reform — granting greater independence and less executive interference in statutory bodies, coupled, crucially, with greater empowerment of bipartisan parliamentary select committees who, among others, provide oversight and air cover for boards and management members of statutory bodies to do the right thing — has been mooted before. The proposal is sensible and should be seriously explored.

In a nutshell, greater decision-making independence — especially for statutory bodies that are financially self-sufficient and whose roles intrinsically require independence (such as regulators) — eliminates ambiguity over who in form and substance is the party accountable for the actions and decisions of the statutory body.

Furthermore, parliamentary select committees, operating as smaller groups of MPs, could scrutinise issues and bills more closely than a larger group at Dewan Rakyat would permit. Greater empowerment of such committees — for instance, by requiring statutory bodies to be answerable to them as opposed to a ministry — makes for more effective parliamentary oversight.

The role of committees in the legislative process is well-established elsewhere. The UK parliament, whose Westminster model Malaysia’s is broadly based upon, is supported by over 100 parliamentary committees — some existing only temporarily to discuss specific issues — covering a range of subjects including Covid-19, media, rural economy, transport and gambling.

The mechanics of the US Congress likewise place much reliance on committees, whereby the House of Representatives and Senate are underpinned by standing, special, select and joint committees, each specialising in an identified subject matter.

Much substantive work and debate by UK and US elected representatives therefore actually occur in these core smaller groups, separate from their main legislative houses.

In Malaysia, there already exists today 10 parliamentary special select committees (SSC), covering subjects such as budget, defence, gender equality, elections and human rights. Unfortunately, little is known of their scope, activities or the extent to which they have in the past made a difference to the legislative or oversight process in Malaysia.

It may nevertheless be of interest to our MPs and SSCs that as at this month, a mere 25, or less than a quarter of all statutory bodies, have tabled their 2019 annual reports to parliament and made them public, as required by law. In fact, even the likes of the Inland Revenue Board and CAAM have not done so for their 2018 annual reports. Surely such tardiness, for so basic a requirement, calls into question the seriousness which MPs and ministries place on the transparency and accountability of statutory bodies.

In addition, an SSC on finance & investments could have identified the financial issues at Tabung Haji, FELDA and MARA early, and an SSC on public utilities could understand and provide the Energy Commission constructive feedback on the formulation of electricity tariffs or look into SPAN’s effectiveness in the light of the Klang Valley’s series of water disruptions.

An SSC on transport could objectively question why Malaysia today continues to have nine port authorities as opposed to a single coordinated and independent port regulator, or ensure there are no conflicts of interest in the membership of the CAAM board. These SSCs could even seek feedback from the statutory bodies on external interferences. None of the aforementioned SSCs exists today, but it is conceivable our MPs can play their roles more effectively by probing issues such as these at committee level.

Statutory bodies, after all, owe their existence, functions and powers to the legislature, and the latter should oversee them meaningfully. Of course, in the final summation, parliamentary committees only make sense if our MPs are truly committed to good governance, rule of law and playing a more substantive role as legislators.

Short of that, committees become another layer of superfluous bureaucracy. Or worse, the Emergency notwithstanding, Malaysia would possess a parliament more accustomed to public exhibition than actual legislating.

Azmir Zain is a chartered accountant and currently a director of a family investment vehicle. He was formerly with the Malaysian Aviation Commission and Khazanah Nasional Bhd.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.