Never-ending Problem of Malaysian Government Agencies and GLCs: Beyond “Sakau”

 

Malaysia has experienced a long succession of controversies involving government agencies, statutory bodies and government-linked companies (GLCs). Tabung Haji, FELDA, FGV, Khazanah Nasional, MAS, LTAT, MARA and, most dramatically, 1MDB have at various times been associated with financial losses, questionable investments, governance failures or allegations of misconduct.

The political response is often predictable. The latest scandal becomes evidence that the previous government “sakau” — plundered — public institutions. There may indeed be cases involving corruption, abuse of power, fraud or criminal misconduct, and such cases must be investigated and prosecuted. But reducing every financial loss or failed investment to “sakau” is neither accurate nor useful.

The deeper problem is more serious. Malaysia appears to have a recurring institutional failure in the governance, management and oversight of government agencies and GLCs. The country has had numerous audits, investigations, parliamentary inquiries and restructuring exercises, yet similar problems continue to reappear.

The question therefore should not merely be, “Who stole the money?” It should also be, “Why was the system unable to prevent the loss, detect the problem early and ensure that the same mistake would not happen again?”

Losses are not automatically criminal offences

One of the fundamental problems in the public debate is the failure to distinguish between criminal misconduct, governance failure and commercial failure. If money was stolen, documents falsified, bribes paid, assets deliberately diverted or public office abused for personal gain, criminal investigation and prosecution are clearly warranted.

But an investment that loses RM1 billion does not, by itself, prove that RM1 billion was stolen. A government institution can lose money because of poor due diligence, excessive risk-taking, political interference, bad investment strategy, weak management or an inability to respond to changing market conditions. These failures can be extremely serious without necessarily constituting a criminal offence.

Conversely, the absence of a criminal conviction does not mean that the decision-making process was satisfactory.

This distinction is important because the word “sakau” has become a politically convenient explanation for almost every major institutional loss. It simplifies a complicated governance problem into a morality tale of villains and victims. That may be effective politics, but it does not produce better institutions.

FELDA illustrates the broader problem

FELDA provides an instructive example. Its expansion into increasingly complex commercial and investment activities resulted in substantial financial difficulties. The problem cannot simply be described as money being stolen. Investment decisions, debt, corporate structures, management weaknesses and governance failures all contributed.

The important question is why an institution established primarily for land development and socioeconomic advancement was allowed to evolve into a complex corporate investment organisation without governance and investment capabilities commensurate with that transformation. That is a much more important question than identifying a convenient political villain.

If an organisation's mandate changes, its governance structure, board expertise, risk management and accountability mechanisms must change with it. Otherwise, an institution can become financially exposed while still operating with structures designed for a completely different purpose.

Khazanah shows that even sophisticated institutions can fail

Khazanah Nasional provides another useful lesson. A major investment institution can have professional managers, investment committees, external auditors and sophisticated governance mechanisms and still make major mistakes.

Investment losses do not necessarily demonstrate corruption. They may instead expose excessive concentration, poor strategic judgement, inadequate diversification or a mismatch between investment objectives and risk tolerance.

The lesson is not that government investment institutions should never take risks. Investment necessarily involves risk. The question is whether the risk was reasonable, properly assessed, independently challenged and consistent with the institution's mandate at the time the decision was made.

This is a much more meaningful test of accountability.

The real failure is institutional learning

Perhaps the most troubling feature of Malaysian public-sector scandals is the failure to learn systematically from them.

The familiar cycle is:

Audit → scandal → inquiry → political controversy → investigation → announcement of reforms → restructuring → public attention moves elsewhere.

Then, several years later, another institution experiences remarkably similar problems.

An audit finding should therefore not simply result in an investigation of the institution concerned. If an agency is found to have inadequate procurement controls, the government should ask whether the same weakness exists throughout other agencies.

If a GLC has poor investment governance, the same governance framework should be reviewed across the entire GLC sector.

Malaysia needs to move from institution-specific correction to system-wide learning.

The government response can also make things worse

There is another dimension that is rarely examined. What happens after a problem is discovered. A new government may suspend projects, replace boards, remove senior management, freeze investments, launch investigations and restructure an organisation. Some of these actions may be necessary.

But poorly managed intervention can itself create additional losses. Institutional paralysis, uncertainty and abrupt changes in strategy can damage a functioning organisation. A government seeking to correct previous mismanagement must therefore be held accountable for the quality of its own intervention.

The relevant question is not only:

“What did the previous government do?”

It must also be:

“Did the succeeding government handle the problem competently?”

Accountability should apply equally to every administration.

Four types of accountability must be separated

Malaysia would benefit from clearly distinguishing four forms of accountability.

• Criminal accountability: Did somebody commit an offence?
• Financial accountability: Did the government suffer a loss, and can it recover the money?
• Managerial accountability: Did management or the board fail in their responsibilities?
• Political accountability: Did ministers or governments establish policies, structures or appointments that created the conditions for failure?

These are different questions.

A minister can be politically responsible without having committed a criminal offence. A CEO can be incompetent without being corrupt. A director can make a bad investment decision without committing a crime. Conversely, an individual can commit a crime even where the institution generally has good governance.

Confusing these categories produces both injustice and ineffective policymaking.

The structural problem of political control without sufficient accountability

At the heart of the problem is the contradictory nature of many Malaysian government-linked institutions. They are simultaneously expected to be commercial organisations, development agencies, policy instruments, investment vehicles, socioeconomic institutions and sometimes instruments of government policy.

A commercial company seeks financial returns. A development agency seeks social outcomes. A minister seeks policy objectives. A politician seeks political outcomes. A professional manager seeks commercial performance.

If all these objectives are imposed on one institution without clearly defined priorities and accountability, governance becomes extremely difficult.

Political ownership does not necessarily mean political management.

Government should determine broad policy objectives and appoint competent boards. But day-to-day commercial decisions should be insulated from political interference, while boards and management must remain accountable for performance.

Malaysia needs a new institutional failure review

Every major failure involving public funds should trigger more than an audit or forensic investigation.

Malaysia should establish an Institutional Failure Review examining five questions:

• What happened?
• Why did it happen?
• Who was responsible, and in what capacity?
• Was the government's subsequent response appropriate?
• What has changed to ensure that it cannot happen again?

The review should distinguish criminal responsibility from managerial, financial, political and systemic responsibility.

More importantly, recommendations should not disappear after the political controversy ends. Parliament, particularly the Public Accounts Committee, should monitor implementation for one, two and three years.

A report should not be considered “closed” merely because a ministry says that corrective action has been taken. The corrective action should be independently verified.

Beyond “sakau”

Malaysia does not suffer from a shortage of audits, inquiries, investigations or committees. What it lacks is a sufficiently strong mechanism for converting the findings of those exercises into permanent institutional change.

That is why the debate over Tabung Haji, FELDA, Khazanah and other GLCs should move beyond the simplistic question of who “sakau” the institution.

Where criminal misconduct occurred, prosecute. Where money can be recovered, recover it. Where directors or managers failed, hold them accountable. Where ministers interfered improperly, expose the political responsibility. Where investment decisions were simply wrong, learn from them.

But above all, fix the system.

The real scandal is not merely that one government agency loses billions of ringgit. The greater scandal is that Malaysia repeatedly creates institutions with enormous public responsibilities, allows governance weaknesses to accumulate, discovers the problems only after losses become enormous, politicises the discovery, conducts years of investigations—and then fails to prevent the next institution from suffering a similar fate.

The Malaysian problem is therefore beyond “sakau”.

It is a problem of governance, accountability, institutional design, political interference, management quality and, above all, the failure to learn. Until Malaysia addresses that deeper problem, the names of the institutions may change, governments may change and political slogans may change—but the scandals will keep coming.