AN ANALYSIS ON TAN SRI DATUK AMAR LEO MOGGIE: CAN CORPORATE GOVERNANCE BE THE ACCELERATOR?

INTRODUCTION

Tenaga Nasional Berhad (TNB) is the largest electricity utility in Malaysia and a leading utility company in Asia. Listed on the Main Board of Bursa Malaysia with almost RM87 billion in assets, the Company’s more than 33,500 employees serve an estimated 8.3 million customers in Peninsular Malaysia, Sabah and Labuan. TNB has been Keeping the Lights On in Malaysia ever since it was set up as the Central Electricity Board in 1949, powering national development via the provision of reliable and efficient electricity.

TNB’s core businesses are in the generation, transmission and distribution of electricity. In Peninsular Malaysia, the Company supplies households and industry with electricity generated from six thermal stations and three major hydroelectric schemes. It also manages and operates the National Grid which links TNB power stations and IPPs to the distribution network. The grid is connected to Thailand’s transmission system in the north and Singapore’s transmission system in the south. In East Malaysia, TNB has an 80% equity in Sabah Electricity Sdn. Bhd. (SESB), which manages the Sabah Grid.

Other than its core business, TNB has diversified into the manufacture of transformers, high voltage switchgears and cables; the provision of professional consultancy services; and architectural, civil, electrical engineering works and services, repair and maintenance. The Company also engages in research and development, property development and management services. Tapping into opportunities available overseas, TNB is making inroads into emerging markets, focusing on the Asia-Pacific, Middle East and North Africa regions. Tenaga also offered higher education through its Universiti Tenaga Nasional or UNITEN.

THE CHALLENGE AHEAD

The Group was profitable in its operation in accounting terms, but far from returning its cost of capital: The typical risk-weighted average cost of capital in the electricity industry was approximately 7.5%. Considering Tenaga’s dominance in the distribution sector, the risk-weighted average cost of capital would actually be less. Taking this into account, the operating profit would need to have been in the range of RM 5 billion, instead of only RM 3.3 billion in FY 2004.

One of the reasons for the performance gap was the complex web of regulation and Government ministries and agencies confronting Tenaga. As in every emerging country of the world, as long as electricity is regarded as a public service, it is a highly politically sensitive issue. In Malaysia, there was no single central body regulating the electricity industry – there were many: The Energy Commission reported to the Ministry of Energy, Water & Communications; the Ministry of International Trade and Industry and also the Economic Planning Unit in the Prime Minister’s Office both had a say when it came to investment; the Ministry of Trade, Domestic and Consumer Affairs had a say when it came to pricing and the Ministry of Finance on issues pertaining to procurement processes and policies. Often there had been conflicting goals and interests in the past, and the results were energy prices that reflected neither the cost nor the necessary investment to fulfill the rapidly growing demand for electricity. The consequences were that the quality of the services met neither the industry’s nor consumers’ demands, and there were also technical problems, e.g. more than 30,000 blackouts of varying severity in one year.

Another reason for the performance gap at Tenaga was that most of the investments had been financed by debt. As some of this debt was denominated in US dollars, the Asian financial crisis in 1997/98 hit Tenaga especially hard and the debt exploded to more than RM 20 billion. Consolidating and repaying the debt was a top priority for Tenaga, and in 2004 it paid around RM 1.5 billion in interest, RM 3.5 billion in repayment of long-term borrowings and RM 5.1 billion in repayment of short-term borrowings.

CORPORATE GOVERNANCE

Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed (Shailer, Greg, 2004). Datuk Amar Leo had taken over the Chairmanship of Tenaga on 12 April 2004 after a long and successful career in the Malaysian Government, especially as Minister of Energy. Since his Chairmanship began, he had seen an almost complete renewal of the Board: Six Directors had resigned and more resignations were to come. The streamlined Board reflected a diversity of experiences and consisted of eight Directors (including the CEO) plus one alternate Director. One of the Board members was the Managing Director of Khazanah and another the Deputy Secretary-General of the Ministry of Finance. Due to their prior experiences and services, the Board members had a strong network in the Malaysian business and political community, which helped them to argue favourably for certain strategic matters in favour of Tenaga. In addition, the composition of experienced and professional Directors assisted in ensuring professionalism and comprehensiveness in decision making.

LEADERSHIP BEHAVIOUR

Tan Sri Datuk Amar Leo Moggie was seen to be a person that focused on the improving the relationship between the parties within TNB. He had established a couple of ground rules in close operation with the Chief Executive Officer (CEO) Dato’ Sri Che Khalib. First, the communication distribution channel and second, openness brought by Datuk Amar Leo Moggie in conducting the meeting. According the Ohio State Leadership Studies, leaders exhibit two types of behaviors, people-oriented (consideration) and task oriented (initiating structure), to facilitate goal accomplishment.

Datuk Amar Leo Moggie had showed the people-oriented leadership style when he being friendly and approachable to ensure a free wheeling discussion during the meeting. He also established of ground rules asking the group members to follow when decided all information to and from the Board and Board Members to be channelled through the CEO. On the other hand, he also showed initiating structure behaviours when he as a leader can defines his roles and group member roles, initiates actions (to meet on a regular basis), organizes group activities (conduct informal meeting with various stakeholders) and defines how tasks are to be accomplished by the group (need to push relentlessly).

LEADERSHIP TRAITS AND SKILLS

CONCLUSION

Bibliography

Shailer, Greg. An Introduction to Corporate Governance in Australia, Pearson Education Australia, Sydney, 2004

Farahbakhsh, S. "Leadership in Educational Administration: Concepts, Theories and Perspectives." Academic Leadership. 4(22).
(http://www.academicleadership.org/volume4/issue1/articles/22/index.html)

Malaysia. Tenaga Nasional Berhad Annual Report 2004

Malaysia. Malaysia Government Putrajaya Committee of GLC High Performance (2006). The Green Book, Enhancing Board Effectiveness.