From Asian Wall Street Journal
11th October 2000

Malaysia Finance Minister Moves Ahead With Revamp of Management Structure

By LESLIE LOPEZ Staff Reporter of THE WALL STREET JOURNAL

KUALA LUMPUR, Malaysia -- Malaysian Finance Minister Daim Zainuddin is pressing ahead with a controversial revamping of the management structure of state-owned corporations, a plan that is stirring resentment among Malaysia's top bureaucrats.

Senior government officials say the Finance Ministry issued a directive two weeks ago that will remove some of the country's most experienced government executives from the boards of many state agencies, state-controlled public companies and joint ventures with local and foreign investors.

Under the plan, senior managers of government enterprises and agencies can sit on the boards of no more than five wholly owned subsidiaries of their parent organizations. They must immediately relinquish positions on the boards of other units and associate companies.

The plan will affect several high-profile corporations, such as publicly listed Telekom Malaysia Bhd. and power utility Tenaga Nasional Bhd., as well as state oil giant Petroliam Nasional Bhd., or Petronas. So far, only one company, Malaysia Airports Bhd., appears to have complied with the directive. Early last week, Basir Ismail, executive chairman of Malaysia Airports and a confidant of Prime Minister Mahathir Mohamad, relinquished his executive powers. The company announced that Tan Sri Basir will remain as chairman.

Political Implications

The Finance Ministry, whose latest directive hasn't been publicly disclosed, had issued an order in May that banned senior managers of government enterprises and agencies from serving as directors of any subsidiary or associate company. That initiative was derailed after senior civil servants complained to Dr. Mahathir.

While Tun Daim's new order offers a slight concession by allowing senior managers to sit on the boards of five subsidiaries, few government officials believe it will appease the chiefs of large state-controlled companies.

Officials from Tun Daim's office declined to comment on the latest directive. But several senior government officials, who declined to be named, say senior civil servants plan to again appeal to Dr. Mahathir. They contend that the plan would create a management vacuum in key state enterprises and agencies.

Dr. Mahathir is currently traveling overseas.

Malaysian political analysts say Dr. Mahathir's reaction could provide clues to the state of his relationship with Tun Daim. The once close ties between the two men have been strained in recent months over policy differences.

More importantly, businessmen and government officials say Dr. Mahathir's handling of the matter will have an impact on the relationship between Malaysia's political elite and its civil service. Many Malaysian bureaucrats are alienated from Dr. Mahathir and his ruling United Malays National Organization, or UMNO, after the premier's sacking of his former protege and deputy, Anwar Ibrahim, in September 1998.

"The new ruling has brought some of the top chiefs [in government-controlled companies] together in their opposition to the Finance Ministry," says a Malaysian businessman who enjoys close relations with Dr. Mahathir. He says that unless the issue is resolved amicably, antagonism between the civil servants and their political masters could stymie government policy-making and management.

Patronage Opportunity Detected

Several analysts and government officials also see a strong political dimension to the Finance Ministry's plan. They say the new policy could become a tool for Tun Daim to dispense patronage, noting the minister will be able to fill the newly vacated positions in the state agencies and companies with his own appointees. That could shore up Tun Daim's support within UMNO -- where he serves as treasurer -- and within the government. The Finance Ministry's move may be in reaction to growing pressure from UMNO members who want to be rewarded for their support with government appointments, some analysts suggest.

Proponents of Tun Daim's plan say the new policy will prevent state agency chiefs from dominating their subsidiaries and will help promote transparency by separating the powers of directors and managers.

But critics contend that the removal of chief executives from the boards of subsidiaries and associated companies doesn't necessarily ensure better management. What's more, some government officials opposed to the plan say such a move isn't likely to go down well with foreign joint-venture partners of Malaysian state agencies, who expect to work with top-drawer government executives.

Write to Leslie Lopez at leslie.lopez@awsj.com

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