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


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



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



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.


Figure 4.1- After Tax Profit/(Loss) For Financial Year 2007/2006(RM)

Year

(Source- Retrieved from Malaysia Airlines Annual Report 2007)


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.


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


Dato' Zaharaah Binti Shaari


Datuk Seri Panglima Mohd. Annuar bin Zaini


Dato' Sri Dr. Wan Abdul Aziz bin Wan Abdullah

Non-Independent and Non-Executive

Director

Datuk Amar Wilson Baya Dandot


Datuk Haji Mohamad Morshidi bin Abdul Ghani

Alternate Director to Datuk Amar Wilson Baya Dandot

Keong Choon Keat


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)


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)


Figure 7.1- Malaysia Airlines Shareholders, as at March 2007



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.


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




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



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


Table 8.1- Summary of Compliance towards Malaysian Code on Corporate Governance (Amendment 2007)


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


(Source- Retrieved from MCCG (Amendment 2007)


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.


Table 9.1- Characteristics to Enhance Performance of Malaysia Airlines

(Source- Retrieved from Putrajaya Committee’s Guidelines on Transformation)


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.


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)


Malaysia Airlines had incorporated these thrusts into its BTP1 transformation plan, as shown

below.


(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


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.



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.



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.



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.



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.



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



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.



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



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.



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.


http://www.malaysiaairlines.com/my/en/corp/corp/info/directors/our-board-of-directors.aspx


APPENDIX



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


Documents

Gorporate Government on Malaysia Company