Friday 29 Mar 2024
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This article first appeared in Forum, The Edge Malaysia Weekly, on February 27 - March 5, 2017.

 

Amid the hoo-ha over the Employees Provident Fund’s announcement of a dividend of 5.7% for 2016, precious few column inches were given to one seemingly innocuous development. The EPF has finally and officially become a signatory to the Malaysian Code for Institutional Investors.

The (mild) surprise was not the EPF’s decision — it was surely only a matter of time, it being an early co-developer of the code launched in June 2014 by the Securities Commission Malaysia and Minority Shareholder Watchdog Group (MSWG) — but that it took this long to officially join the club.

Better late than never, I guess.

It now means that the EPF, which is among the world’s top 20 largest pension funds with 

US$164 billion in managed assets and therefore has considerable international influence and heft, now has to conduct itself in a manner becoming of a “responsible investor”.

Which means what, exactly?

According to SC’s Corporate Governance Blueprint 2011, such a code is intended to “strengthen the accountability of institutional investors to their own members and investors”.

“(It should also) require institutional investors to explain how corporate governance has been adopted as an investment criteria and the measures they have taken to influence, guide and monitor investee companies (and) to include governance analysis in their investment appraisal to help identify better governed companies.”

Suitably vague then, although there are six additional guiding principles within the code to further elucidate what being a signatory amounts to.

To wit: the necessity for large, liquid and wealthy institutional investors to use their influence as a force for good in the companies they invest in.

Corporate governance, itself a suitably vague catch-all term to describe good corporate behaviour, essentially mandates the principles of honesty, independence, transparency and merit-based decision-making for all public-listed companies in terms of how they conduct business.

But reality bites.

From fraudulent reporting and fiscal mismanagement to white-collar graft and lopsided related-party transactions (even in the bluest of blue chip and large-cap stocks), good corporate behaviour remains a twinkle in the regulators’ eyes.

Yes, in some areas — such as board independence, gender diversity and improved reporting — things seem to be looking up. But by and large, the local market remains a bit “cowboy” at times and dominated by legions of insiders and syndicates.

And with the raft of corporate shenanigans in the last decade, entire generations and even existing players have decided to bypass the equity markets in favour of other “safer” asset classes.

Heaven knows, the stock market needs a healthy dose of confidence-building right now, which healthy adherence (and a vocal and pushy bunch of signatories to the code) can provide — in theory, at least.

It is a bit like the little people finally having a team of rich, powerful Taikos to “take care” of them, to “protect” their interests.

But will they, these signatories? And who exactly, other than the EPF, have signed up to the responsibility?

Kumpulan Wang Persaraan (Diperbadankan) has, as has Aberdeen Asset Management. There are seven others, according to MSWG’s website — Hermes Fund Managers, Hermes Equity Ownership Services, Legal & General Investment Management, BNP Paribas Investment Partners Malaysia Sdn Bhd, BNP Paribas Investment Partners Najmah Malaysia Sdn Bhd, Valuecap Sdn Bhd and Khazanah Nasional Bhd.

And so, here are some questions for the said signatories:

  • Will 2017 be the year in which you intervene in those nasty related-party transactions that family-owned and major shareholder-dominated firms love to propose? And veto them to Venus, where they belong?
  • Will you finally step in to say that paying an executive chairman nearly RM100 million in director’s fees is too much, especially when profits are being threatened by capital expenditure and the said chairperson is drawing the same salary in other listed companies as well?
  • Will you withdraw from the controlling stakes you have in certain stocks because it does not seem right, for example, for a pension fund to be in the driving seat of a builder, bank or financial services firm?
  • Will you intervene in politically linked stocks and say, “Hey, you own too many ‘national assets’ and you need to restructure, because you are unable to focus on one thing at a time”?
  • And by the way, you are supposed to be a public company owned by thousands of public shareholders — why are you asking for government research and development grants?
  • And will you do right by your own unitholders — the workers, civil servants, pilgrims and students — to address conflicts within your portfolio to enforce the code’s principles on your investees, which comprise a good chunk of Bursa Malaysia?
  • And if you are a private fund, will you take a long, sober look at your ever-so-lucrative fee and bonus structure and admit that the retirement dreams you are selling in your pamphlets refer to your own staff and distributors, and not the subscribers of your funds?

So many questions. But so few answers.

Rome, as they say, was not built in a day. But the big dog has just joined the fray. Let us see if things will begin to change for the better.


Khoo Hsu Chuang is contributing editor at The Edge Malaysia

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