Download - Gorporate Government on Malaysia Company
ISSUES IN CORPORATE GOVERNANCE
1. Introduction
Malaysia Airlines, the national carrier of Malaysia, is recognised as one of Asia's largest,
flying more than 14 million passengers last year to over 100 destinations across 6 continents.
It is the pride of all Malaysians. It has come a long way, since the financial crisis which
threatened its existence since 2002. The adoption of GLC Transformation Manual introduced
by the Putrajaya Committee had provided the new management of Malaysia Airlines with the
strategies to overcome the uncertainties associated with a very competitive industry.
2. Corporate Background
Malaysia Airlines is listed on the stock exchange of Bursa Malaysia under the name
Malaysian Airline System Berhad (MYX: 3786). The airline suffered high losses over the
years due to poor management and fuel price increases. As a result of financial restructuring
(Widespread Asset Unbundling) in 2002, led by BinaFikir, Penerbangan Malaysia Berhad
became its parent company, incorporated in 2002, in exchange for assuming the airline's long-
term liabilities.
The Government of Malaysia appointed Dato Idris Jala as the new CEO effective 1st
December 2005, to execute changes in operations and corporate culture. Under his leadership,
Malaysia Airlines unveiled its Business Turnaround Plan (BTP1) in February, 2006, which
highlighted low yield, an inefficient network and low productivity (overstaffing). The airline
headquarters building in downtown Kuala Lumpur was sold. The new corporate headquarters
is currently at Sultan Abdul Aziz Shah Airport in Subang, Selangor.
While BTP1 started with 3 phases, ie. financial survival in 2006, profit generation in 2007 and
profitable growth in 2008 and beyond, Business Transformation Plan 2 (BTP2) was
1MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
introduced to enhance further the efficiency of the administration and achieve profitable
growth within the next three to five years. Thus, the implementation of BTP1 and BTP2
would further improve the effectiveness and efficiency of its corporate governance in a very
competitive industry. The MAS management aimed to transform the organisation into a
“Five-Star Value Carrier”. Consequently, Malaysia Airlines has to look into the current
issues, which may impact its operations and profitability in the short and medium term.
3. Current Issues Identified
i. Competition From Budget Carriers and Full-Fare Carriers
Now, the new MAS management team has to continue to face the challenges provided by the
competitors, specifically the budget and full-fare carriers, regionally and domestically.Its
main full-fare competitor would be Singapore Airlines, while no-frills airline Air Asia
provides competition domestically.
ii. Technological Advancements
Technological advancement had propagated ticketless travel, whereby consumers can
purchase tickets online and fly without having to collect the boarding passes at the airline
offices. However, Malaysia Airlines has just begun to migrate to ticketless travel while its
competitor, budget carrier Air Asia had started implementing it a few years ago.
iii. Volatile Fuel Prices
Volatile fuel prices due to shortages and irregular supply had caused a drastic increase in
operational costs, due to uncertainty in fuel supply. However the hedging of fuel prices had
helped MAS in providing certain price stability in the short term. Price increase may be
unavoidable in the mid to long term and will affect the operational costs incurred.
iv. Customer Service Expectations
Consumers have always looked to MAS for the “Malaysian Hospitality”, a branding that aims
to provide service excellence to its customers. Consumers’ needs and demands have changed
2MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
during the last decade, for example, availability of multimedia entertainment in the cabin, fast
check-in and no-delays or even healthy meals on-board.
However, it must be noted that Malaysia Airlines’ core competencies, if further maintained
and developed, would provide a competitive advantage over its competitors in the industry.
The following have been identified as the core competencies of Malaysia Airlines.
C4. Core Competencies of Malaysia Airlines
Global Brand
Its focus on service quality has earned the company the status of a top-tier global brand. In
2004, SkyTrax, the preeminent airline quality monitor, awarded MAS ‘Five-Star’ status, one
of only four airlines in the world to achieve the rating. Other recognition include being the
best cabin crew for four years consecutively, while TTG designated MAS as the ‘Best Airline
to Asia’ in 2005, and also in January 2006 by Travel Weekly, a UK-based travel periodical.
Therefore its personnel has continued to provide service excellence to its customers while
improving its standards.
Customer Loyalty
Due to its frequent flyer loyalty program and various benefits that come with the program,
MAS had successfully created customer loyalty amongst its consumers. With the emphasis on
providing personal satisfaction to each and every of its customers, Malaysia Airlines had
successfully maintained its customer base while attracting more customers to its services.
Highly-Skilled and Experienced Staff Force.
MAS' maintenance staff, flight operations staff and ground crew are all very well trained and
are experienced. This had resulted in an excellent safety record, both at workplace and flight
3MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
safety records. This in return had allowed a very positive perception among its customers,
which subsequently translates into profitability.
5. Financial Analysis of Malaysia Airlines
For the financial period 2005,Malaysia Airlines reported a loss of over RM1.3 billion. It was
the biggest loss in the company’s history and it had expected a further loss of RM1.7 billion
for the full year 2006. Financial liquidity had become a major concern for the organisation.
Due to MAS’ financial crisis, the Business Turnaround Plan (BTP1) was introduced in
February 2006. The BTP 1 was developed using the Government-Linked Companies
Transformation (GLCT) manual as a guide to good corporate governance, and targeted its
losses from RM1.7 billion to RM620 million in 2006, while aiming to achieve a profit of
RM50 million in 2007 and RM500 million in 2008. However, beyond their expectations,for
the financial year ending 31st December 2007, MAS’ profit after tax stood at RM852million,
compared to the previous year’s loss of RM133million.
4MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
Figure 4.1- After Tax Profit/(Loss) For Financial Year 2007/2006(RM)
Year
(Source- Retrieved from Malaysia Airlines Annual Report 2007)
ISSUES IN CORPORATE GOVERNANCE
6. Board of Directors
The following figure 5.1 shows the current composition of MAS’ Board of Directors. The
board executives include Tan Sri Dr Mohd Munir who is the Chairman, while Dato Sadasivan
is his deputy.The Chief Financial Officer is Tengku Dato Azmil while Dato Sri Idris Jala is
the Managing Director and Chief Executive Officer.There are currently five independent non-
executive directors, three non-independent and non-executive directors and three alternate
directors. Nomination to the Board of MAS is made either by the Special Shareholder in
accordance with Article 5(2) or by the Board pursuant to Article 136 of the Company’s
Articles of Association.
5MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
Tan Sri Dr. Mohd. Munir Bin Abdul MajidNon-Independent Non-Executive Chairman
Dato' N. Sadasivan a/l N. N. Pillay
Deputy Chairman
Tengku Dato' Azmil Zahruddin bin Raja Abdul Aziz
Exec Director and Chief Financial Officer
Dato' Sri Idris Jala
Managing Director and Chief Executive Officer
Tuan Haji Abdul Rahman Bin Abdul Ghani
Alternate Director to Datuk Haji Yusoff
Martin Gilbert Barrow
Independent and Non-Executive Director
Dato' Mohamed Azman Bin Yahya
Non-Independent and Non-Executive Director
Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kassim
Independent and Non-Executive Director
Dato' Zaharaah Binti Shaari
Non-Independent and Non-Executive Director
Datuk Seri Panglima Mohd. Annuar bin Zaini
Independent and Non-Executive Director
Dato' Sri Dr. Wan Abdul Aziz bin Wan Abdullah
Non-Independent and Non-Executive
Director
Datuk Amar Wilson Baya Dandot
Independent and Non-Executive Director
Datuk Haji Mohamad Morshidi bin Abdul Ghani
Alternate Director to Datuk Amar Wilson Baya Dandot
Keong Choon Keat
Independent and Non-Executive Director
Dato' Puteh Rukiah binti Abd Majid
Alternate Director to Dato' Dr. Wan Abdul Aziz bin Wan Abdullah
Figure 5.1- Malaysia Airlines Board of Directors
(Source- retrieved from Malaysia Airlines website)
(Source- Retrieved from Malaysia Airlines website)
ISSUES IN CORPORATE GOVERNANCE
7. Shareholders
Following the Widespread Asset Unbundling (WAU) restructuring of Malaysia Airlines,
Malaysian Government investment arm and holding company, Khazanah Nasional's
subsidiary, Penerbangan Malaysia Berhad is the majority shareholder with a 52.0% stake.
After Penerbangan Malaysia Berhad, the second-largest shareholder is Khazanah Nasional,
which holds 17.33% of the shares. Minority shareholders include Employees Provident Fund
Board (10.72%), Amanah Raya Nominees (Tempatan) Sdn Bhd (5.69%), State Financial
Secretary Sarawak (2.71%), foreign shareholders (5.13%) and Warisan Harta Sabah (2.4%). It
has 19,546 employees (as of March, 2007).
The following figure (Figure 7.1) shows the shareholders, as at March 2007 in percentage(%)
8. Analysis of Committees in Compliance with the MCCG and Listing
Requirements
Establishment and Composition of Board Audit Committee (BAC)
6MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
Figure 7.1- Malaysia Airlines Shareholders, as at March 2007
(Source- Retrieved from Malaysia Airlines Annual Report 2007)
ISSUES IN CORPORATE GOVERNANCE
The Board Audit Committee was formed in accordance to the Malaysian Code of Corporate
Governance (MCCG) and para 15.10 of Bursa Malaysia Securities Berhad (BMSB) Listing
Requirements (LR). The BAC was appointed amongst MAS Board of Directors (Board) and
fulfi lls the following Listing Requirements and the MCCG, as follow:
• Comprise not fewer than three members
• Majority are independent directors
• All members are non-executive directors
• At least one should be a member of an accounting association
• No alternate director appointed as a member of audit committee.
The following are the members of the Board Audit Committee:
In
compliance with the Malaysian Code on Corporate Governance (Revision 2007), the
appointment of members of the Board Audit Committee(BAC) is referred to the Nomination
Committee, which would ensure that the members meets the independence and experience
required. The term of office is three years, and subsequently can be re-nominated and
appointed by the Board of Directors, which will also oversee the effectiveness of the BAC at
least once every three years. The Board Audit Committee had held eight meetings during
financial year 2007.
7MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
Figure 8.1- Board Audit Committee
Keong Choon Keat,ChairmanIndependent Non-Executive Director
Dato' N. Sadasivan a/l N. N. Pillay
Independent Non-Executive Director
Datuk Haji Yusoff @ Hunter bin Datuk Haji Mohamed Kassim
Independent Non-Executive Director
Dato' Zaharaah Binti Shaari
Non-Independent and Non-Executive Director
(Source- Retrieved from Malaysia Airlines Annual Report 2007)
ISSUES IN CORPORATE GOVERNANCE
Its primary objective is to assist the board in discharging its statutory duties and
responsibilities relating to accounting and reporting practices of the organization. In addition,
it is to evaluate the quality of the audits performed by the internal and external auditors, while
providing assurance that the financial information presented by the management is relevant,
reliable and timely. The BAC also needs to ensure that its governance is compliant with the
Companies Act, and other regulations set. The group’s system of internal control should be
reviewed for its quality and effectiveness on an annual basis.
Risks and Controls
The Board Audit Committee has the task of reviewing the progress of the risk management
functions and its on-going activities for identifying, evaluating, monitoring and managing
risks. It also reviews the adequacy and effectiveness of the system of internal controls through
the evaluation of results of work performed by internal and external auditors, committees as
well as through discussion with Management.
Internal Audit Function
The internal audit function is performed by the Audit and Business Advisory Department
(ABA) which reports to the Board Audit Committee. The function has an approved Charter
that provides for its independence in evaluating and report on the adequacy, integrity and
effectiveness of the overall internal control system, risk management and corporate
governance in the MAS Group using a systematic and disciplined approach.
Nomination Committee
8MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
Dato Dr Mohd Munir b Abdul Majid is the Chairman of the Nomination Committee. The
Nomination Committee scrutinises the sourcing and nomination of suitable candidates to
ensure the selection of Board members with the right skill set, expertise and industry
knowledge thus strengthening the composition of the Board and contributing significantly to
the effectiveness of the Board.
Principles and Best Practices on Structures & Processes Compliant?
Malaysian Code Corporate Governance
Principle Responsibilities of the Board:
• Reviewing and adopting a strategic plan YES
• Overseeing the conduct of the business YES
• Identify Principle Risks, Strategic Implementation YES
• Succession Planning YES
• Implementation of investor relations/shareholder communications policy YES
• Review the adequacy & integrity of internal control systems for compliance YES
Board Effectiveness
• Division of responsibilities between Chairman of the board and Managing Director YES
• One third of the board comprise independent non-executive Directors YES
• Identification of a senior independent non-executive director in annual report YES
Nominating Committee:
• Process implementation for assessing the effectiveness of the board YES
Directors’ Training YES
9MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
Table 8.1- Summary of Compliance towards Malaysian Code on Corporate Governance (Amendment 2007)
ISSUES IN CORPORATE GOVERNANCE
Accountability & Audit:
• Audit Committee- Comprise at least 3 members, majority independent, fully non-
executive directors Yes
• All audit committee members should be financially literate to discharge their functions YES
Frequency of meetings between non-executive directors and external auditors at least twice a
year YES
Internal Audit Function
• Head of internal audit function who reports to the audit committee YES
Relationship between the board and shareholders :
• Is there an effective communications policy between the board and management, with
its shareholders, stakeholders and the public? Interpretation of operations and
feedback from shareholders?
YES
The summary above shows that the Malaysia Airlines Group had been in compliance and had
adhered to the set guidelines by the Malaysian Code on Corporate Governance (2007). The
following section would analyse Malaysia Airlines’ application of Putrajaya Committee’s
GLC High Performance (PCG) guidelines towards it transformation processes.
9. Putrajaya Committee’s Code on Corporate Governance on GLCs
The guidelines to Putrajaya Committee’s Code for GLCs were initiated by the government
and private sector as a result of the Asian Financial Crisis of 1997-1998, as many of the
government-linked corporations were affected. Malaysian Airline System Berhad has, apart
from adhering to the principles and best practices of the Malaysian Code on Corporate
10MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
(Source- Retrieved from MCCG (Amendment 2007)
ISSUES IN CORPORATE GOVERNANCE
Governance (revised 2007) also abided by the Guidelines to Enhance Board Effectiveness set
by the Putrajaya Committee on GLC High Performance (PCG).
Characteristics to Enhance Performance of GLCs
The following table shows the characteristics which can enhance the effectiveness of MAS’s
governance, based on the PCG.
11MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
Table 9.1- Characteristics to Enhance Performance of Malaysia Airlines
(Source- Retrieved from Putrajaya Committee’s Guidelines on Transformation)
ISSUES IN CORPORATE GOVERNANCE
10. GLC Transformation Benefits
High performing GLCs will benefit the stakeholders and contribute to Malaysia’s economic
resilience towards future economic downturns. The benefits to stakeholders are as follow:
11. Analysis of Malaysia Airlines’ BTP1 and PCG’s Policy Thrusts
The transformation of Government-Linked Companies (GLCs) into high-performing entities
is important for Malaysia to move forward. To facilitate this transformation, the Putrajaya
Committee for GLC High Performance (PCG) has undertaken two sets of actions. First, it has
codified the policy guidelines with the objective of creating an environment for GLCs to
perform. Second, the translation of the Policy Guidelines into specific initiatives that are
targeted to driving and enhancing GLC performance.
There are altogether five thrusts, as shown in the following figure.
12MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
CUSTOMERS
LABOUR FORCE
PRIVATE SECTOR
SUPPLIERS
BUMIPUTERAS
Higher service and quality levels Better value for money propositions from more productive and efficient
GLCs.
Better job prospects and human capital development at more dynamic and rapidly growing GLCs
Likely to be preceded by phase of reduced employment to drive out inefficiencies
Increased pressure for private sector to maintain competitivenessand skills levels, thereby increasing overall industry standards
Increased transparency with merit-based procedures favouring the highest value-for-money suppliers
Reduce leakages, inefficiencies and corruption
Uplift in GLC performance will support the continued development of a more competitive Bumiputera community, through better-skilled bumiputera employees and more capable bumiputera suppliers.
Figure 10.1- GLC Transformation Benefits to Stakeholders
(Source: Retrieved from Putrajaya’s Code on Corporate Governance for GLCs)
ISSUES IN CORPORATE GOVERNANCE
Malaysia Airlines had incorporated these thrusts into its BTP1 transformation plan, as shown
below.
13MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
(Source: Retrieved from Business Turnaround Plan(BTP1) Malaysia Airlines)
THRUST 1Clarify the GLC Mandate in relation to
National Development
THRUST 2Upgrade the effectiveness of the board
and Reinforce Corporate Governance of GLCs
THRUST 3Enhance GLIC capabilities as
Professional Shareholders
THRUST 4Adopt Corporate Best Practices within
GLCs
THRUST 5Implementing the GLC Transformation
Program
Figure 11.1- The 5 Thrusts of Putrajaya Committee’s GLC Transformation
Figure 11.2- Malaysia Airlines Transformation Plan-BTP1
Define th underlying principles for GLC Transformation Define GLCs and the applicability of the guidelines and initiatives Clarify the objectives & roles of Government,GLICs & GLCs. Promotion of the bumiputera community
Re-focus the role & Mandate of GLC boards Strengthen GLC Board composition Intensify GLC Board performance management Upgrade Board structure and processes
Clarify & prioritize the mandates & strategies of GLICs Build best-in-class functions in line with individual mandates*
*Shareholder capabilities, align with private sector benchmarks,nominee directors with necessary skills,program monitoring capabilities.
Improve regulatory environment CSR & clarifying social obligations & investments Review & revamp procurement practices Optimise capital management Manage & develop leaders / Human capital Enhance operational improvements- focus on core business
Clear implementation applicability,responsibility & timeline for GLCs & GLICs
Task & equip PCG to implement & monitor Establish a program management approach to implementation PCG & PMU within the Prime Minister’s Office as a channel to ensure
compliance
ISSUES IN CORPORATE GOVERNANCE
1. Flying to Win Customers
Route Profitability Project- “Labs” are used to turnaround unprofitable routes. By having
these “labs” decision making processes are quicker and cross-functional conflicts can be
minimized. The participation of country managers, revenue management analysts and
sales leaders communicate closely and work to reverse the unprofitability of these key
routes. It strategically emphasise on improvements in cost, traffic and yield.
Revenue Enhancement Project- Yield on flights are raised through surcharges and
administrative fees, taking into consideration other competitors’ within the industry. This
had helped increase its Net Income After Tax by RM310million.
2. Mastering Operational Excellence
The management of Malaysia Airlines had taken the initiative to be regularly informed
and reported to on departures and arrivals through a process of track and report. This is to
ensure delays are minimized, as these issues may affect its profitability and operational
efficiency. In addition, due to the volatility of fuel prices, a Fuel Efficiency Task Force
was formed to implement measures to reduce fuel consumption.
3. Financing and Aligning the Business on P&L
Program Management Office(PMO)- The PMO is intended to create transparency in
governance, while implementing appropriate actions. It oversees an initiative,tracks
actions, measures impact, intervenes with corrective actions and manage
communications. It assist the Finance department in producing daily cash reports, weekly
financial reports and monthly reports to the Board of Directors.
14MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
4. Unleashing Talents and Capabilities
Actions had been taken in unleashing talents and capabilities. Some of these involved
governance issues. New and revised people policies, processes and agreements had been
established. These include launching clear Whistle Blower policy, to bring immediate
transparency to fraud.It allows the MAS personnel to raise concerns about malpractices,
irregularities and negligence affecting the organization. It also ensured that clear
succession plans for all key positions. It had launched “rough and ready” performance
management of top leadership and frontline, with meaningful rewards for success and
consequences for failures.
5. Winning Coalitions
Winning coalitions involved working and establishing relationships with partners like
Khazanah to manage social obligations, working with the governmrnt to redefine
domestic aviation policies and leveraging GLC relationships for new joint-venture
business opportunities. It had also identified positive engagement in active management of
the regional regulatory agenda.
The transformation plan had also identified the importance of the stakeholders in turning
around Malaysia Airlines. Here, it had specifically identified the roles of its employees,
and their productivity levels which would assist the organization in its profitability.
Managers are encouraged to perform highly and be more accountable, while delivering the
results expected. Rewards would commensurate with their successes.
The participation of Government and Investors, including GLICs, would help the
management in creating and establishing new policies and procedures while receiving
sufficient funds for its transformation.
15MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
12. GLC Transformation Initiatives
The PCG policy guidelines have identified ten initiatives to drive and enhance the GLC’s
performance.These initiatives cover key areas of governance and operations.
a. Enhance Board Effectiveness
A review of the governance of GLCs, including that of better-performing Boards, revealed
several weaknesses, including inter alia, (i) insufficient individual and collective Board
performance accountability; (ii) not enough time spent on critical issues like strategy, talent
review and risk management; and (iii) focus on ‘letter’ rather than ‘spirit’ of rules and
procedures, resulting in inconsistent Board processes, including Board meeting logistics and
focus. The review would assist the Board in identifying specific areas for improvement and
provide practical potential solutions, that once adopted could raise the overall level of Board
effectiveness.
b. Strengthen Directors’ capabilities
The Malaysian Directors Academy (MINDA) aims to address Board performance by
equipping Directors of GLCs with world class knowledge, skills and mindset to perform to a
consistently high standard. To be an effective Director, performance is critical. This includes
understanding the boundaries between Board and management, actively problem solving with
both the Board and key management on strategic issues, while leveraging networks and
managing multiple stakeholders in a proactive manner.
According to the PCG terms of reference, an “effective”director is one that possess 3
requirements , which are relevant knowledge, skills and mindsets. Some of the practical skills
most admired of a director would be :
the ability to actively and constructively solve problems with the Board and key
management.
16MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
Decisively challenges, then supports management for an effective decision-making
process.
Possesses business acumen from prior experiences to identify key issues and propose
solutions to the issues.
Proactively uses networks and manages multiple stakeholders for the benefit of the
organization.
c. Enhance GLIC Monitoring and Management Framework
GLICs are the key conduit for Government to support and influence GLCs. The primary
objective of the M&M function is to increase shareholder value. It is to reinforce the role and
enhance the organisational structure, processes and capabilities of the departments within
GLICs which monitor and manage the GLICs’ investee companies. This includes establishing
‘nominee director term sheets’ in order to clarify the nominee directors’ roles and interaction
mode with the GLICs.
d. Improve Regulatory Environment
The objective in improving the regulatory environment is to enhance the regulatory
environment through engagement with GLCs, policymakers, regulators and other key
stakeholders. It is intended to create awareness in establishing an effective regulatory strategy
and organization. The participation of the GLC and regulatory bodies would be encouraged
through trainings, in the development of a suitable regulatory agenda for the respective
industry the GLC is in. This would provide a platform for the policymakers and regulators in
developing an enhanced National Regulatory Framework.
17MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
e. Clarify Social Obligations (the Silver Book)
GLCs need to align the expectations of the Government, private investors, employees and
consumers around the nature and extent of their contributions to society. It is critical that the
GLCs clarify and manage these expectations to demonstrate the value they are creating from
their contributions to society. Therefore, the Silver Book’s objectives are to:
• Clarify expectations on the GLCs’ contributions to society
• Guide the GLCs in evaluating their starting position in contributing to society
• Provide the GLCs with a comprehensive set of tools, methodologies and processes
to proactively contribute to society in a responsible manner while still creating value
for their shareholders
Malaysia Airlines’ Corporate Social Responsibility
Dato Captain Mohd Nawawi leads the airline’s commitment towards Project PINTAR, a
GLC-concerted effort in nurturing human capital, to reduce the economic inbalance in
Malaysia, which is part of the airline’s Corporate Social Responsibility initiatives. PINTAR
is an acronym for ‘Promoting Intelligence,Nurturing Talents and Advocating Responsibility’.
This project aims to provide assistance to schools specifically targeted towards under-
priviledged students. Malaysia Airlines had committed itself for a duration of three years to
promote the following initiatives, under this project:
• Motivational talks
• Tuition packages
• Leadership courses
• Provision of school uniforms for needy students
• Provision of reference books for school libraries
• Provision of computers to schools’ resource centre.
18MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
f. Review and Revamp Procurement (the Red Book)
This particular GLC procurement manual (“Red Book”) is targeted at Board members and
CEOs of GLCs. There are four objectives, as follow:
• Provide a reference manual for procurement best practices
• Provide clarity on government policies affecting procurement
• Define/clarify role of GLCs in developing local and Bumiputera suppliers
• Act as a guide in establishing procurement best practices.
The success of review and revamp would rely on endorsement from various stakeholders,
especially the government and the Malaysian Airlines’ Board.
g. Optimise Capital Management Practices
Its objective is to establish guidelines for GLCs to optimise their capital structure, taking into
account any existing dividend policy Guidelines established by the Ministry of Finance. These
Guidelines (“The Purple Book on Capital Management”) will provide GLCs direction on
improving their capital management, in particular to optimise capital expenditure, working
capital and balance sheet design. This is due to the fact that some GLCs are over-capitalised
with significant levels of excess cash on their balance sheet.
h. Manage and Develop Leaders and other Human Capital(‘Orange Book’)
Its objective is to develop guidelines that contain best practices on how to attract high
potential individuals. In a knowledge-driven world, a company’s talent is a key competitive
advantage. Attracting, developing and retaining a talented team of staff is critical for any
organisation. Therefore, these Guidelines (“Orange Book”) will be developed in order to
address the issues of GLCs’value proposition to attract and retain the best talent, and ensure
19MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
their development. GLCs would be expected to improve its human capital management and
be on par with the private sector companies in Malaysia, and internationally, too.
Malaysia Airlines had identified this area, and in its BTP1, under “People Thrust”, it had
made four fundamental changes in its working environment to utilize the strengths of its
workforce. These include creating leaders in their midst, creation of accountability and
performance culture, cross-functional teamwork and transparency.
i. Intensify Performance Management Practices
The objective is to illustrate these principles through best practices and case examples, in
order to facilitate the successful implementation of a performance management scheme by
GLCs. There are five parts to the structure, which include the following:
• Establishing performance indicators and setting targets linked to strategy: It further
explains why performance indicators and targets are critical elements of a successful
performance management scheme, and provides some best practices and case
examples to help with implementation.
• Establishing KPIs and setting targets for senior management: It addresses how such
indicators can be used to provide incentives to management.
• Reviewing business performance: It demonstrates the monitoring process at company,
business unit and department levels.
• Reviewing individual performance of senior management: It illustrates different
options of performance management schemes that can be developed at GLCs.
• Establishing appropriate compensation framework for senior management:
It outlines common principles that can be applied when linking performance to
compensation and career paths.
20MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
j. Enhance Operational Improvements (the Yellow Book)
The main goal of this initiative is to enhance value creation of GLCs through more efficient
capital usage by freeing up cash from non-core assets and increasing focus on core businesses.
Its focus is on potential divesture or re-allocation of property assets of a non-real estate GLC.
It is to be complemented with other initiatives that focus the company on value creation.
13. Business Transformation Plan 2 (BTP2) and Corporate Governance Initiatives
In BTP2, Malaysia Airlines had indicated that it would continue its efforts to improve
corporate governance practices by focusing on enhancement of policies and processes. MAS
will also inculcate a risk and control culture within the organisation as part of the Internal
Control Enhancement (ICE) programme launched in April 2007. Key initiatives indicated, as
follow:
• Enterprise Risk Management (ERM). MAS will intensify risk management activities at
strategic and operational level via ERM. The objective is to enhance the speed of detecting
critical risks and prompting management to take immediate action to mitigate the risks.
• Control Self-Assessment initiative. This initiative aims to instill accountability among MAS
managers and business heads to execute proper risk and control assessments that are linked to
their KPIs.
• Quality Assurance Collaboration initiative. Going forward, Audit & Business Advisory will
work closely with Quality Assurance functions to provide greater assurance to the Board and
the management using the Internal Control Enhancement (ICE) framework. The establishment
21MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
of the internal control scorecard and incident reporting will assist the Board and management
in monitoring the overall state of internal controls within the organisation.
• Enforcement of Commend and Reprimand Programme (CaRP). This program would be
followed through. Launched in 2007, exemplary behaviours are commended whilst the
opposite are reprimanded.
• Corporate Information Technology Policy (CITP). The CITP is formulated to ensure the
effective, efficient and responsible use of IT across MAS.
14. Conclusion
Malaysia Airlines’ successful transformation since 2006 had been attributed to the new
directorship of Dato Sri Idris Jala’s implementation and compliance to the Putrajaya
Committee’s Code on GLC Transformation. The success of BTP1, which achieved its target a
year earlier, had propelled BTP2 to the fore. It remains to be seen how the issues identified
would impact the operations of Malaysia Airlines, specifically the volatility in global fuel
prices. It is hoped that by complying to the Malaysian Code, the organization may find itself
to be structurally sound to face the full impact of an uncertain global economy in a very
competitive industry.
22MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
List of References:
Finance Committee on Corporate Governance (1999), Report on Corporate Governance, 1st
edn, Securities Commission, Malaysia.
Keasey, K.,Thompson,S., Wright, M.,Corporate Governance- Accountability, Enterprise and
International Comparisons, 2005, John Wiley & Sons, United Kingdom.
Legal Research Board, Companies Act 1965 (Act 125), Regulations, Rules and Order, ILBS
2008.
Malaysian Code on Corporate Governance (Revised 2007), Securities Commission,Malaysia.
Mallin, C., (2007), Corporate Governance, 2nd edn., Oxford University Press, United
Kingdom
Mintzberg, H.,Lampel, J., Quinn, J.,Ghoshal, S.,2003, The Strategy Process, Concepts,
Contexts Cases,4th edn,Prentice Hall, United States.
GLC Transformation Manual, 2005, Putrajaya Committee.
Website References:
http://www.malaysiaairlines.com/my/en/corp/corp/info/directors/our-board-of-directors.aspx
accessed on 20th Sept 2008.
23MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
APPENDIX
24MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN
ISSUES IN CORPORATE GOVERNANCE
APPENDIX 1-Business Transformation Plan 2-Key Business Activities
Key Business Activities
Making the Most (MTM) Step 1: Maintain 5-Star products and services
MH Campaign (Revitalising our customer value proposition)
• PSS Project
Step 2: Reduce structural and
operational costs
• Project Delta
• E & M Breakthrough Programme (part of Project Delta)
• Procurement Revamp Programme
• Reduction in Distribution Cost
Step 3: Offer competitive fares • Project Omega
Step 4: Get more passengers
and increase load factors
• Project Alpha
• Project MOSAIC
Step 5: Grow our network and
build our capacity
• 5-Year Network Plan
• 5-Year Fleet Plan
Gaining New Business (GNB) • Firefly
• MASwings
• Malaysian Aerospace Engineering (MAE)
• MASkargo
Breaking New Ground (BNG) • Forming Strategic Partnerships
Supporting KBAs• Finance Transformation Initiatives
• HR Transformation Initiatives
• Safety, Security, Health and Environment (SSHE) Action Plans
• Revitalisation of IT Services
• Corporate Governance Initiatives
25MALAYSIA AIRLINES- GLC TRANSFORMATION PLAN