Several Proton board members had allegedly threatened to resign following the appointment of Dr Mahathir Mohamad as the company's adviser, forcing Prime Minister Abdullah Ahmad Badawi to call for an emergency meeting on Saturday.

According to an Asian Wall Street Journal report today, the meeting between the directors and Mahathir was held to clarify his role in the problem-plagued company he founded in the 1980s.

"The concern among some board members was that Mahathir would interfere too much," a government official close to the situation told the daily.

"But it's been settled, he can give advice, but ultimately the board will have the final say," he added.

Several government officials said they were concerned that Mahathir's close association with the publicly listed Proton could impair efforts to revamp the long-protected national car maker to face foreign rivals as trade barriers come down in Southeast Asia.

"The whole thing sends a very bad message to the investing public," said a banker who regularly advises the Malaysian government on corporate matters.

"The only good sign is that some members of the [Proton] board stood up against this," the banker was quoted as saying.

Proton, which was the country's top selling car maker, is now facing stiff competition with Hyundai Motor and Nissan Motor eating into its market share.

Things took a turn for the worse when Mitsubishi Corp announced it was ending its 20-year partnership with the Malaysian company.

Management shake-up

Shortly after this, Proton's board, led by appointees from the government's strategic investment arm, and Proton's biggest shareholder, Khazanah Nasional Bhd, decided to shake up the management.

Among other moves, Proton's chief executive Tengku Mahaleel Ariff ( photo ) was slated to be axed and he turned to Mahathir for help.

The report said the former premier then suggested to Abdullah's close aides that he be appointed as adviser to drive the company out of the rut.

Abdullah agreed and approved the appointment early this month but the matter became public only last week after Mahathir himself disclosed this in an interview with Reuters news agency.

An obstacle

Meanwhile, several board members, including chairperson Abu Hassan Kendut, expressed reservations about Mahathir's appointment to senior government officials, including Second Finance Minister Nor Mohamed Yakcop.

According to Wall Street Journal , officials familiar with the situation said the upset board members felt the former premier could prove to be an obstacle in Proton's efforts to reform, in particular, to bring in a new foreign partner .

The daily added that the dispute escalated last Thursday, when several board members informed Abdullah's administration of their intention to quit.

Rumours of a boardroom revolt led to company's shares plummeting when they began trading again the next day after a three-week suspension for a corporate reorganization. Shares fell 7.1 percent to RM9.15 ringgit, a drop of 70 sen.

A senior aide was quoted as saying that Abdullah believes that since Proton is closely identified with his predecessor "some of the decisions that the company needs to make should be done with Mahathir on board."