Big fry, small fry ...
Everyone’s accountable at some point
WHEN it rains, it pours.
Over the week, another three directors of a public listed company dropped the ball - or so it was alleged. The directors from INIX Technologies Bhd were charged by the Securities Commission for making false statements in four quarterly reports as well as their prospectus to Bursa Malaysia .
Haven’t we seen loads where that comes from in the past year or so? In fact, as far as alleged transgressions or corporate malfeasance go, this may appear meek compared to certain blue chips that have fallen off their high horse.
Nevertheless, this case presents an interesting trait. The directors were not the only ones charged.
The company’s senior finance executive and ex-accounts clerk were also charged for “failure to provide evidence to the SC as required under the law”.
Under Section 134 (5) of the Securities Commission Act 1993 on the Power to Call for examination, the SC can throw the book at anyone who fails to appear before an investigating officer; refuses to answer any question put to him by the officer or neglects to give any information which may reasonably be required which he has in his power to give; or knowingly furnishes information or statement that is false or misleading in any material.
The penalty, if found guilty - a fine of RM1mil and above and a maximum prison time of five years.
Indeed, adequately intimidating (as intended) for any rank and file staff in the bottom half of a company’s food chain.
Frankly, for just about anyone, really.
But the equilibrium in such instances is wobbly. Think about it - while corporate bigwigs may have the means to hire savvy (euphemism for crafty) attorneys to find some loopholes to wiggle themselves out of these charges, clerical staff, for example, can generally ill afford such highly-priced legal guidance.
So, ultimately, who is really paying a bigger price for the actual offence?
It does however drive home one big point - combating fraud or corporate misdeeds is EVERYONE’s responsibility.
Separately, a governance hawk with a yee-sang fetish recently wrote to me about an issue he holds very close to his heart, entitled “Corporate Governance in Malaysia - a travesty of good intention”.
As he is a long-time industry participant and critic (arm-chair and otherwise, as he also holds key positions in certain high level “talkshops” for change and reforms), he presents some thoughts on the countless moves by our securities regulators to restore trust by strengthening the quality of governance in the system.
More specifically, he refers to the setting up of the AOB (Audit Oversight Board) and the SC’s plan to set up an International Corporate Governance Consultative Committee, tasked to advise, challenge and establish a new set of policy recommendations.
Another committee is also in the process of being set up by the Institute of Internal Auditors (Malaysia) to relook at the Corporate Governance Code and review the “Guidance Note to Directors of Public Listed Companies: Statement on Internal Controls.”
He writes:
“To many of us, all of that sounds very good and promising. At last we are not merely paying lip service but are doing something about it. But will things change?
Recall in early 2000, when we introduced the Malaysian Code of Corporate Governance, the Guidance Note to Directors of Public Listed Companies: Statement on Internal Controls and revamped the Listing Rules, we believed at that stage that we had a sound framework to improve the governance and reporting framework in Malaysia. We thought we had all the necessary prerequisites to make it work.
As time progressed, we moved from governance based on conformance to a performance paradigm. The country was doing well and everybody was pleased with that. But in the early part of the second half of the decade, we were rudely awaken by our own Enrons - Transmile Group Bhd, Megan Media Holdings Bhd and a slew of other financial reporting fraud cases.
To address the situation, amendments were made to the Malaysian Code of Corporate Governance and Practice Notes issued by Bursa and Companies Act (2007) were introduced. Still, corporate malfeasance persisted.
So, what makes us think that it would work this time? The sad reality is that corporate misdeeds will continue to occur. There is enough historical data globally to support this point. Regulators in many more developed jurisdictions have come out with stricter rules and regulation but after a few honeymoon years that had lulled us into “everything seems okay” mode, the bad news comes trickling back in again.
Was it not at the start of the previous decade that the New York Stock Exchange required all its companies to spend vast sums of money to identify financial and reporting risks and put in place appropriate controls (thanks to Senator Sarbane and Congressman Oxley) and yet, less than ten years later, we had the global financial meltdown emanating from the very companies that adopted these frameworks? This same country instituted the formation of the PCAOB (Public Company Accounting Oversight Board), to regulate the auditors (and we have adopted the AOB) but corporate failures have in fact heightened.
So, where does the solution lie? A more capitalist open market where the fittest survive and failures are accepted as the norm, where investors must be prepared for real risks and rewards? More revamp of the regulatory framework? Or does it rest in something more basic and fundamental?
Are company directors the only guilty parties? While they are responsible and accountable for the stewardship of the company, they do place a fair amount of reliance on expert advisors who earn tidy sums for their services. But as advisors, they seemed to have escaped the risk reward paradigm - they can earn huge amounts of money but not be held accountable. How is that? To cut a long story short, I don’t think we need more committees or more revamp of frameworks, rules and regulations. Really, it’s about making what we already have work for us.”
I think he’s right. We do have the necessary deterrences - and some.
We don’t need to throw more money, plump up the fat rule book, have more elaborate codes or set up countless committees. As the saying goes - crooks bent on stealing from a company will take their chances and find some way to do it anyway.
● Business editor Anita Gabriel wonders if it’s possible to legislate a sense of morality. If I know of a wrong doing, could I possibly be committing an offence if I don’t squeal on the wrong-doer?