Spotlight trained on M'sia's corporate governance

The new year normally begins with resolutions, promises of better times, and thoughts of transformation often in a positive light. However, as the year begins, I regret to find myself blogging about something negative, which has hit the telco scene in Malaysia over the last week of 2010.

The new year normally begins with resolutions, promises of better times, and thoughts of transformation often in a positive light. However, as the year begins, I regret to find myself blogging about something negative, which has hit the telco scene in Malaysia over the last week of 2010.

News broke last week that French-American telecom giant, Alcatel Lucent SA, was accused of making payments to government officials in countries including Costa Rica, Honduras, Taiwan and Malaysia for the purpose of winning or keeping contracts worth tens of millions of dollars.

A Reuters report stated that according to the U.S. Securities and Exchange Commission and the U.S. Justice Department, the Paris-based telecommunication gear maker had used consultants who funneled more than US$8 million in bribes to various country officials.

Alcatel was said to have also improperly hired third-party agents in countries like Nigeria to help win deals between December 2001 and June 2006. As a result, Alcatel has agreed to pay more than US$137 million to settle charges against them.

With regard to activities in Malaysia, a local online news portal reported that Alcatel was involved in a bribery scandal that was linked to the country's largest telco and incumbent player, Telekom Malaysia (TM).

The portal noted that two Malaysian consultants were said to have been paid a total of US$700,000 for "non-public information" related to competitors' pricing and bids, believed to be for its then subsidiary Celcom Malaysia's new 3G mobile services, first launched in 2005.

The portal also added that "from October 2004 to February 2006, Alcatel bribed government officials in Malaysia to obtain confidential information relating to a public tender that Alcatel ultimately won, the result of which yielded a telecommunications contract valued at approximately US$85 million."

Celcom and its parent Telekom Malaysia International (TMI) were hived off from Telekom Malaysia as separate entities in a corporate reorganization back in 2008. TMI today is known as Axiata Bhd and is listed locally on the Malaysian Stock Exchange, while its subsidiary Celcom is now known as Celcom Axiata.

While this is definitely not the first time the practice of providing kickbacks has taken place in the telco industry, and probably will not be the last time, the revelation is significant in that it's probably the first time Malaysia has been named in a high-profile probe conducted by the U.S. authorities with regard to bribery by a telco gear equipment maker.

To make matters worst, government officials were said to be involved and notably, TM is a state-linked company, owned by the country's sovereign wealth fund Khazanah Nasional.

From a macro perspective, this international bribery scandal couldn't have come at a worse time for Malaysia as the nation is struggling with falling foreign direct investments (FDIs).

According to the United Nations' World Investment Report 2010, FDI for Malaysia has plunged 81 percent from US$7.32 billion (RM23.47 billion) in 2008 to just US$1.38 billion (RM4.43 billion) last year.

On its part, stakeholders in TM vowed to thoroughly investigate the scandal saying that it takes these allegations seriously and "will further conduct thorough internal investigations to safeguard the integrity of its procurement process and ensure adherence to our Code of Business Ethics".

"TM has a zero tolerance policy on improper and irregular practices and will take appropriate action in the event that any of our employees were indeed involved," the company said in a statement.

Likewise, Axiata in a separate statement said: "Although there was no specific mention of any contract relating to Axiata or its subsidiaries, there may be a potential indirect link as this matter allegedly occurred between October 2004 and February 2006 prior to the demerger of TM Group."

Well and good. These swift statements bode well for those who pledge to investigate the issue without fear or favor.

But what is more important than just saying that these investigations will be conducted thoroughly and with zero tolerance for improper practices is that they must yield results and answer the most basic questions.

These include what really happened, how it happened, who were involved, why it happened, and how this will not be repeated in the future, among other questions. This process must be done transparently and information should be revealed as publicly as possible.

Authorities such as the police and anti-graft body the Malaysian Anti-Corruption Commission must also investigate and determine where the criminality lies, instead of just treating this whole debacle as mere allegations of corruption.

Following closely behind that will be the need to bring to book those who are accountable for those fraudulent practices in the first place.

However, if nothing comes out of the investigations, these statements will just remain that--statements of moot points and PR spin doctoring to deflect the issues.

Which is something this country can ill-afford to experience given the fact that it is trying to aspire to become a developed nation in 10 years’ time through agendas such as the Economic Transformation Programme while trying to woo more FDIs into the country.

Foreign investors need to know that corrupt and fraudulent practices will not be tolerated, that corporate governance is not a sham in this country and that the rule of law reigns in Malaysia.

Put simply, Malaysia Incorporated now has a chance to show that it can stand up and be counted.

The question is, will it?


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