What is a Learning Organization?

Recently Accounting Research Institute, the umbrella entity of Government Linked Companies Research Centre, organised a training in Islamic Finance. The two day training was conducted by IBFIM, a renowned training centre of Islamic Financing. The training was attended by 21 lecturers of the Faculty Of Accountancy, UiTM. It is part of our ongoing training to equip our lecturers in the skills of Islamic Finance.


Other than universities, , a corporation or companies also needs training. It has been shown in many research findings that a learning organizaton is able to perform well in their annual financial results. A learning organization starts from the top. If board of directors and senior management are serious in implementing learning and knowledge management in their corporations, middle and lower management including the lowest level of employees, would be more than ready to participate. A learning organization requires the board to commit to and act upon four conditions:

1. That each member of the organization is encouraged to learn regularly and rigorously from their daily work, and to ensure time is budgeted from this.

2. That there are systems in place to capture that learning, celebrate and reward it, and move it to where it is needed.

3. That the organization is encouraged by its owners and directors to transform itself continouslythrough its internal and external learning processes.

4. That such learning is valued in the appraisal and reward systems and in the asset base of the organization.

WHO SHOULD RUN GLCs?

During the UMNO Convention at PWTC, Kuala Lumpur, a Perak delegate proposed that UMNO stalwarts should head GLCs to ensure that qualified Malay entrepreneurs and companies receive projects from GLCs. I doubt whether this is a good proposal.
Firstly, appointing politicians as directors could hamper firm performance. This is due to the fact that most of them do not possess appropriate expertise and skills in strategic goals, firm’s operations and products. Since they know very little about the nature of business of a corporation, what can they contribute to the board decision making? Running a political party is not the same as running a corporation. A corporation must be headed by a person who has the vision to enhance the shareholders’ value of the company. The company must be run with proper corporate governance mechanisms, with accountability, transparency and high integrity.
Since politicians were typically appointed as non-executive directors, they would have limited access to management except during board meetings. As such, their contribution to firm performance raises reservations. I would prefer GLCs be run by professionals who can deliver.
On top of that, tenders and contracts from GLCs cannot be distributed freely to all because only capable, and experienced companies, whether it is a bumi or non-bumi are allowed to make bidding.

HOW CORPORATE GOVERNANCE AFFECTS THE CAPITAL MARKET?

Although Corporate Governance Codes that were released by many countries towards the end of the twentieth century and into the 21 st century was only a mechanism to check on the boards of directors and top management in running corporations, just imagine, what would be the situation of the corporate world without all these Codes? As I mentioned in my earlier posting, Enron, the largest corporation that collapsed at the beginning of this century, took into consideration all the best practices of good corporate governance. Yet, corporate governance best practices could not dig up and traced the corporate scandal until it was too late.

Nonetheless, just imagine if there were no governance codes at all. I am optimistic that a lot more corporate scandals and wrongdoings might have incurred in all these years. In Malaysia, the Asian Financial Crisis was a wake-up call for the country to study and eventually released its Corporate Governance Codes in year 2000. Even when the code was already in place, many corporations in Malaysia involved in activities that are contrary to the spirit of good governance practices.

Good ethical behaviors of corporate players are the main factor for corporate governance to have good impact on firm performance. These ethical behaviors would eventually reflect itself in their Annual Reports and Financial Statements. In turn, companies that performed well and provide good returns to shareholders are able to attract potential shareholders to invest in listed companies. This will eventually create a better capital marketplace for investors be they retail players, institutional investors or foreign investors to enter the capital market.

There are many advantages of good practices of corporate governance.
First, there will be an increased access to external financing by firms. This in turn can lead to larger investment, higher growth, and greater employment creation.

Secondly, good corporate governance is able to lower the cost of capital and associated higher firm valuation. This makes more investments attractive to investors, also leading to growth and more employment.

Third, there will be better operational performance through better allocation of resources and better management. This creates wealth more generally.

Fourth, good corporate governance can be associated with a reduced risk of financial crises. This is particularly important, as financial crises can have large economic and social costs.

Fifth, good corporate governance can mean generally better relationships with all stakeholders. This helps improve social and labor relationships and aspects such as environmental protection.
All these advantages matter for growth, employment, poverty, and well-being of corporations and countries.

CORPORATE GOVERNANCE AND INVESTORS' CONFIDENCE IN THE CAPITAL MARKET

Malaysia’s capital market is expected to grow more than double to RM4.5 trillion by 2020 under current forecasts and could hit RM5.8 if internationalization efforts succeed. The Malaysian capital market is now worth more than RM2 trillion and is home to more public listed companies than any other Asean country and its bond market is the third largest in Asia as a ratio of GDP as at March 17, 2011. The capital market had achieved an annual compounded growth of 11% from RM717.5 billion in 2000 to RM2,033.9 billion in 2010 due to rapid industry expansion and investors’ confidence in the Malaysian capital market. Out of total capital market capitalization RM2,033.9 billion in 2010, 61% or RM1,246.7 billion comes from the stock market, the balance of 39% or RM758.7 billion is from the bond market.


Equity market capitalisation grew by 27% from RM979 billion in 2009 to RM1.2 trillion in 2010 as the market sentiment improved on the back of the launch of new economic programmes. The FBMKLCI also closed at an all-time high of 1,528.01 points on 10 November and has consistently outperformed emerging and advanced market indices

The 2nd Capital Market Masterplan emphasized on good corporate governance practices in order to attract the domestic and foreign market. However, good practices of corporate governance is not enough to attract investors into the market. ENRON, the collapsed U.S company also practices good corporate governance. They even separated the role of CEO and Chairman, despite at that particular time, most American companies combined the two roles. ENRON also appointed independent outside directors to ensure no one individual director can control the board decision making process. Besides that, they also established various board committees such as audit, nomination and remuneration. Despite all the good practices of corporate governance were in place, yet ENRON collapsed?

What went wrong? Although Corporate governance good practices is important in ensuring excellent management, it doesn’t guarantee that a company can performed. What is important are the ethical behaviors of boards of directors, CEOs and senior managers in running a corporation. If the ethical values are embedded solidly in the mind and heart of corporate players, the financial rewards would surely come by easily.