KINIBIZ As the core issues surrounding the 1MDB controversy came to the fore over the past months, a fundamental point became extremely clear. Inadequate reforms following previous controversies of a similar nature have contributed to the 1MDB crisis. One example was the Asian currency crisis of 1997 which drew attention to a key matter - the mode of corporate governance.

Following this crisis, a slew of reforms were introduced to enhance corporate governance, primarily to determine how members of the boards of directors of public-listed companies – and government-linked companies (GLCs) - implemented their duties. These remedies, we then suspected but now know for certain from the 1MDB controversy, were ineffective, demanding major political reforms.

Corporate governance - responsible directors?

The outbreak of the 1997 crisis necessitated bailouts of some well-connected public-listed companies that were heavily burdened with loans, including from foreign financial institutions. The listed companies that were then taken over by GLCs included the Renong group, under the majority ownership of Halim Saad, and Malaysia Airlines, similarly owned by Tajudin Ramli.

Both men would later allege that the reason why their companies were mired in trouble was because they did not have full control of these firms. They had to take instructions from their political masters while running these companies.

In response to the 1997 crisis, among the major corporate governance reforms the government instituted included training programmes for company directors aimed at ensuring that they were fully informed of their fiduciary duties to their shareholders.

However, although it was obvious that one major reason why these companies were in a financial mess was because of political interference, no measures were introduced to deal with this problem, a factor that left the door open for a controversy such as 1MDB to emerge.

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TERENCE GOMEZ is based at Universiti Malaya. He is the author of ‘Politics in Business: Umno’s Corporate Investments and Malaysia’s Political Economy: Politics, Patronage and Profits’.

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