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7
LEARNING OBJECTIVES:
At the end of this chapter, students should be able to understand and discover:
Participatory
• Participation could be either direct or through legitimate intermediate institutions or representatives, and it needs to be
informed and organized.
Consensus Oriented
• Good governance requires mediation of the different interests in society to reach a broad consensus in society on what is in
the best interest of the whole community and how this can be achieved.
• It also requires a broad and long-term perspective on what is needed for sustainable human development and how to
achieve the goals of such development.
• This can only result from an understanding of the historical, cultural and social contexts of a given society or community
Accountable
• Not only governmental institutions but also the private sector and civil society organizations must be accountable to the
public and to their institutional stakeholders.
• Who is accountable to whom varies depending on whether decisions or actions taken are internal or external to an
organization or institution.
• In general an organization or an institution is accountable to those who will be affected by its decisions or actions.
• Accountability cannot be enforced without transparency and the rule of law.
Transparent
• Transparency means that decisions taken and their enforcement are done in a manner that follows rules and regulations.
• It also means that information is freely available and directly accessible to those who will be affected by such decisions
and their enforcement.
Responsive Effective & Efficient Equitable & Inclusive Follows the Rule of
Law
• Good governance • Good governance • A society’s well • Good governance
requires that means that being depends on requires fair legal
institutions and processes and ensuring that all its frameworks that
processes try to institutions produce members feel that are enforced
serve all results that meet they have a stake impartially
stakeholders within the needs of in it and do not
a reasonable society while feel excluded from
timeframe. making the best the mainstream of
use of resources at society.
their disposal. • This requires all
groups, but
particularly the
most vulnerable,
have opportunities
to improve or
maintain their well
being.
CORPORATE GOVERNANCE
DEFINITION
1. Fairness -
protection of shareholder rights (i.e. rights of minority and
foreign shareholders). Rights can be strengthened by
ensuring the enforceability of contracts made by the
providers of capital
CORE COMPONENTS OF CG
2. Transparency -
by the timely disclosure of adequate, clear and comparable
information concerning corporate performance, governance and
ownership
3. Accountability -
by clarifying governance roles and responsibilities and by means of
voluntary efforts to ensure the meeting of managerial and shareholder
interests as monitored by the board of directors
4. Responsibility -
by ensuring corporate compliance with other laws and regulations
reflecting the existing society’s values
3 BROAD APPROACHES
A Prescriptive A Non-Prescriptive The Hybrid
Approach Approach Approach
Despite the fact that the general public seldom link the governance of the
private sector with the public sector, governance in both sectors has been
moving closer (Armstrong et al, 2008). As acknowledged by the Uhrig Review
(Uhrig, 2003, p. 26):
“There are benefits in looking to developments and lessons learnt in the private
sector when considering appropriate governance frameworks for the public
sector. The environment in which the private sector operates creates significant
challenges for companies. The consequences of failure and threat of takeover
provide incentives for the private sector to constantly strive to improve
governance practices. In dealing with the challenges of the market, the private
sector has gained considerable experience in applying the core elements of
governance. The experience of the private sector has provided the review with
valuable insights into the full spectrum of governance arrangements and the
corresponding impact on outcome”
There is an opposing view (for example, Wettenhall, 2004) that suggests that
governance experience in the public sector is long standing and that many of
the criteria applied in the private sector are unsuitable for the public sector
(Armstrong et al, 2008)
SOME DIFFERENCES IN GOVERNANCE BETWEEN THE PUBLIC AND PRIVATE SE CTORS
(ARMSTRONG ET AL, 2008)
The similarities are: in the private sector, managers acting as the agents for
shareholders oversee the day-to-day management of the listed company.
In parallel, in the public sector, the officials of the public sector (the public
servants) acting as the agent of tax payers manage the public organisation for
the purpose of serving the best interest of the general public
In terms of managing the interests of various stakeholders, in the case of the
private sector, there is an increasing consensus among controllers of publicly
listed companies that the company should not only serve the best interest of the
shareholders, it should also consider the interest of other stakeholders of the
company such as the interest of employees, customers, suppliers as well as the
interest of the local community where the corporation is operating.
In the case of the public sector, various levels of governments will have different
stakeholders but the ultimate aim is to serve the public interest and provide
services to the community on behalf of the government (Uhrig, 2003, p.30), and
at the same time to provide adequate solutions when market failure is likely to
happen (Uhrig, 2003, p.32).
Differences between the public sector and the private sector
governance are also obvious: they serves different interest groups and
the public sector is subject to much greater scrutiny. (Armstrong et al,
2008)
The independence is a major difference. All public sector entities are
subject to Ministerial control and auditing by an Auditor-General; they
must meet performance targets and they are constrained by political
reality. (Armstrong et al, 2008)
In addition, usually the appointment and removal of chair and CEO is at
the discretion of the Minister.
Another related difference is that should an enterprise fail, it goes out
of business and the owners lose their investment. (Armstrong et al,
2008)
Government enterprises are more likely to be rescued and losses
absorbed even if the enterprise is closed down (Armstrong et al, 2008)
Issues of ethics and governance in Malaysia
There is widespread view that the privatization policy in Malaysia
has favoured the vested interests and many beneficiaries were
chosen based on political and personal connections and incurring
losses and liabilities on many occasions.
Audit reports reveal high incidence of failures on part of the
federal, state, and local governments to comply with relevant rules
and regulations, loss and misuse of public funds, improper monitoring
and supervision.
Privatization programmes and Government procurement in Malaysia
are conducted through non-transparent processes.
Only notifications of tenders are made public. There is also avenue
for negotiation.
A greater cause of concern is the fact that concessions agreements
are considered official secrets. Due to a non-transparent selection
process, the concession agreements and Government procurement
lead to sub-optimal outcomes.
This has also led to allegations of corruption. The Public Works
Department is under siege for the multi-billion Ringgit fiascos
involving the MRR2, the Matrade Building and the Navy Recruit
Training Centre.
A recent issue of corporate governance is that of air cargo firm
Transmile that revealed net losses of RM126 million for 2006
instead of a profit of RM156 million.
It also booked losses of RM370 million for 2005 instead of a profit
of RM86 million.
In May 2007, the firm announced it was unable to finalise its 2006
financial accounts after its external auditor Deloitte & Touche said it
was dissatisfied with the fairness and validity of some transactions.
Overstated revenues were among false financial statements that the
company had been filing.
It is very clear that at both Megan Media Holdings Bhd and
Transmile Group Bhd in Malaysia, there have been serious
transgressions with accounts being falsified and profits overstated
by hundreds of millions of Ringgit.
And there are perhaps another half a dozen companies at least
where similar things have happened and there is serious doubt
whether their accounting records can be relied upon by investors to
give the correct information.
The important factor is that when such corporate crimes are
committed, especially when it involves listed companies, it is
imperative to get the persons responsible under the law, otherwise
there is no disincentive to corporate crime.
Every nation with no exception needs to establish a government of
integrity by restraining bureaucratic corruption and to curb unethical
bureaucratic behaviour.
Malaysian economic and political landscape has too many vested
interests seeking involvement and control.
For instance, the fallout of a deal between Jebel Ali Free Zone
(Dubai) and Port Klang Free Zone was because of red tape, political
meddling, inaccurate minutes and attempted tax avoidance.
The situation is completed by the lack of enforcement from every
single government body, from the town councils, to the ministries, to
the law enforcement agencies.
Examples include illegally clearing forests, forging official
documents, destroying public property, illegally operating gaming
machines, ignoring traffic regulations, stealing metal installations,
pirating CDs and software, giving and taking bribes, misusing public
office, illegally occupying government land, under-declaring income,
dumping rubbish and toxic waste, poaching protected animals, and
etc.
Another most recent notable case in Malaysia is that of an assemblyman, Zakaria
Mat Deros who was acquitted of charges.
The Companies Commission of Malaysia (CCM) withdrew all the charges against
Zakaria and six other directors of Titi Steel Sdn Bhd and Harvest Court Industries
Sdn Bhd in the Klang magistrate’s court for, among others, not holdings AGMs, not
submitting financial statements and not submitting profit-and-loss accounts.
No reasons were given to the court but CCM officials and lawyers for Zakaria
had said the charges dropped after “representations were made” to the CCM.
This can lead to the questions of reliability and fairness of the governance
Beh, L. S (2007). ‘The Politics of Administrative Reform: Malaysia and China in
Perspective’.
4. IMPORTANCE OF GOOD GOVERNANCE