Governance to the forefront

CORPORATE governance among listed companies took a giant backward leap in the past week on multiple fronts, as three listed companies were involved in regulatory lapses, causing reputational damage not only to the companies but also potentially to the individual directors concerned.

First was the case of Sime Darby Bhd, where the former chief executive officer and four other executives were ordered to pay RM350mil jointly and severally to the company as restitution for wrongful payments made to consultants in Sime’s Qatar Petroleum Project.

Sime had taken legal action against the five individuals following losses on three projects, and the admission of the liability for payments made to the consultants reinforced Sime’s action against the five executives.

Second, in the case of Zetrix AI Bhd, formerly known as MyEG Services Bhd, Bursa Malaysia fined seven of its directors RM150,000 each over misleading announcements and non-compliance with a regulatory directive.

This was in relation to announcements made to Bursa Malaysia dated July 7, Sept 13, and Sept 14, 2023, and for failing to ensure that these announcements were factual, accurate, and not misleading.

It also breached Paragraph 2.23(1) by failing to comply with Bursa Malaysia’s directive to clarify its July 7 statement by the stipulated Aug 16 deadline.

Interestingly, Zetrix will be seeking a judicial review of the public reprimand, based on its filing to Bursa Malaysia on July 15.

The third case was the raid by the Malaysian Anti-Corruption Commission (MACC) on Nationgate Holdings Bhd’s premises in relation to allegations of scrap metal smuggling.

All three cases highlight issues related to governance within the respective companies and raise questions about the role of their boards – specifically, whether the boards were aware of these issues at the time and what measures, if any, were in place to prevent such incidents.

In Sime’s case, the situation underscores weaknesses in risk management and compliance.

The issue could have been avoided if proper procedures and authorisation limits had been in place to ensure the legitimacy of payments made.

As for Zetrix, since the matter is now subject to judicial review, it is prudent to withhold further comment.

However, based on the available chronology of events, it is likely that Bursa Malaysia conducted a thorough investigation before issuing the public reprimand.

That said, it remains critically important for board members of listed companies to ensure that all publicly disclosed information is factual, accurate, and not misleading.

Not involved?

As for Nationgate, there is still much to understand from the company’s perspective as to whether it was involved in the alleged activities, as its core business is related to networking and telecommunications, data computing, industrial instruments, consumer electronics, automotive and others.

These include the manufacturing of medical devices, Internet of Things products, household electronics, analytical instruments, and warehousing and storage services.

In its latest annual report, Nationgate also highlights its waste management strategy under its sustainability statement.

According to the company, it adopts the 3R approach – reduce, reuse and recycle – and reports that only 11% of its waste is disposed of.

There is no mention of involvement in the scrap metal business, which makes the allegation by the MACC appear rather peculiar, raising questions about how the company may have been involved, if at all, in such practices. Of course, investigations are ongoing, and the outcome will provide a clearer picture of any such activities.

A twist down south

While corporate Malaysia grappled with governance issues, as seen in the three cases above, the situation took a different twist for Goh Jin Hian, a director of Singapore-listed Inter-Pacific Petroleum Ltd (IPP).

Goh was initially found liable for losses suffered by IPP, the Appellate Division of the High Court overturned the decision last month.

The court ruled that although Goh had breached his duty of care as a director, his breach did not cause the losses incurred by IPP.

The learned judge remarked: “It cannot be part of a director’s duty of supervision and oversight to pick up fraud unless there are tell-tale or warning signs.

“A director may be a sentinel, but he is not a forensics investigator or a sleuth, unless there are signs that would put him on inquiry.”

Duty of care

The issue of directors’ duty of care and the extent to which they can be held liable for wrongdoing has long been debated.

Even in court, decisions really depend on the specific circumstances of each case.

Directors may face legal consequences if they do not carry out their duties with utmost care.

Hence, they are expected to perform their duties in accordance with statutory requirements and uphold their fiduciary duties.

It is therefore critical for directors and company officers to maintain the highest ethical standards and ensure that compliance processes and internal controls are clearly defined, regularly monitored, and promptly addressed in the event of any shortcomings.

A company’s affairs must be conducted transparently, with clear authority limits, defined responsibilities, and accountability.

This helps safeguard directors from breaching fiduciary duties, engaging in misappropriation of funds, or being implicated in fraudulent conduct.

When it comes to business judgment or matters beyond their expertise, directors must seek professional advice or opinions before making informed decisions.

Doing so helps protect both the individual director and the board from potential legal action, especially if the decision later results in losses to the company.

Given the legal implications, the duties of directors and key office bearers must be carried out with the utmost diligence and in good faith.

Board members must also take appropriate steps to ensure the affairs of the company are conducted within legal boundaries and in compliance with the relevant regulatory frameworks and guidelines.