Tuesday, June 30, 2009

Ku Li : on Petronas governance,

Petronas governance, oil and talent .

JUNE 29,2009 — There are reports of a supposed tussle of wills between the prime minister and the board of Petronas over his choice of a non-executive, independent director for the board. I find the way this discussion is being framed in the press and on the blogs a little puzzling.

To begin with, the question of a tussle of wills, so to speak, between the board of Petronas and the prime minister does not arise. The Articles of Association governing Petronas give the prime minister the absolute power to appoint and remove every single member of the board and management. The prime minister has the right to appoint or remove anyone, from the president and chief executive officer down to the company drivers. In particular, every member of the board is an appointee of the prime minister, and represents him on the board.

Therefore it is puzzling that appeals are being made for the prime minister not to interfere in the composition of the board of Petronas, when it is in fact his duty and sole prerogative to appoint members of the board who will help him in his function of overseeing the running of this wholly state-owned enterprise and seeing to the disposal of the wealth that it generates. Let us not suddenly forget the extent to which previous prime ministers directed the decisions of Petronas in service of their conceptions of the national interest.

Many discussions which raise the issue of corporate governance refer to Petronas as a GLC, and refer to governance practices proper to GLCs. But these GLCs have multiple shareholders and indeed publicly traded stock. Petronas is unlike any other GLC. It has only one shareholder: the state. Almost unique among national oil companies the world over, the entire oil and gas wealth of Malaysia is vested in Petronas. It has supervisory power over the major oil companies operating in our territory. It was not formed to privatise our oil and gas reserves but to safeguard our national sovereignty over them and to manage them more effectively as the common inheritance of all Malaysians. It is charged with ensuring our energy security.

Petronas’ sole owner is ultimately the Malaysian people. The person charged with stewardship of the people’s ownership is the prime minister, and he is accountable to the people through a democratic political process. Every member of the board is appointed by him to help him discharge this stewardship. In that situation if, as reported, any member of the board disagrees on principle with the prime minister’s decision to appoint someone, he should resign. This is the proper way for board members all appointed by a sole shareholder to express strong objection to an appointment.

Those calls being made in the name of good governance for the prime minister “not to interfere” unwittingly advocate bad governance because they are framed on a misunderstanding about the nature of Petronas and therefore about who it is accountable to, and how it should be governed.

Because Petronas is charged with the stewardship of public assets we need to understand the governance of Petronas in terms of a public process; that is to say, the political process. The Petroleum Development Act that I had the privilege to help design did not envisage Petronas becoming a mega-corporation accountable only to privileged insiders. The real framework for understanding governance in Petronas is its accountability to the people of Malaysia through the prime minister of their elected government. This could hardly be otherwise for an organisation vested with such awesome resources and responsibilities.

On scholarships and talent

When we started Petronas we could not find enough local talent. The late Tun Abdul Razak said to me: “Let’s use foreign talent only as consultants. Let’s staff Petronas with Malaysians.” I started the Petronas scholarship programme in my first year as chairman. We set aside 3,000 scholarships a year. In that first year we only managed to give out 1,000. Our intention was to flood Malaysia with returning talent, for whatever industry or sector. The scholars were not bonded, except where they had skills essential to Petronas such as geophysics or petroleum engineering. Understanding our role as custodians of the greatest single source of the people’s wealth, we deliberately pursued a broad rather than narrow scholarship programme to serve the national interest by building its human capital. So we gave out scholarships in fields of study as far from Petronas’ direct interests as architecture and medicine. We did not bond these scholars. I wonder if people understand the spirit of the Petronas scholarships when they are so quick to stigmatise a young person of ability with the title “scholarship defaulter.”

We should try to raise our level of public debate above the gutter of name-calling, racial slurs and the assumption of guilt by association. We should stop looking under our beds for ghosts and shadowy conspiracies. I’m disappointed to find such mean-spirited resentment of talent and of youth precisely when we desperately need those two ingredients in and around government. In our focus on the excesses of certain young people, we may have forgotten the excesses of the old and the decrepit.

I started by talking about the reported tussle between the PM and the board of Petronas. But this is a more real and consequential tussle involving a resource more valuable even than our oil and gas reserves: our people. There is now a generational struggle, in every political party, throughout the civil service, and wherever politics rather than merit governs promotions and appointments, between the young of this demographically very young country and self-interested incumbents blocking their rise with the Catch-22 argument that they are too inexperienced. How else will they gain that experience than by taking up those responsibilities?

We face a generational loss that will destroy our future if we continue to discourage talented and highly educated Malaysians in their thirties and forties from taking up key roles in our society.

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