The Sime Darby Fiasco - who else should be held responsible.

In my last posting, I promised to name the senior management executives who should be held accountable for the losses incurred by Sime Darby Berhad.

My argument that the management had contravened the Company's Act and failed to comply to the principles of Corporate Governance is supported by Sime Darby Chairman Tun Musa Hitam in an interview which appeared in Mingguan Malaysia today.

This is what he said, and I quote:

"Semua laporan yang sepatutnya (sampai), tidak sampai kepada pihak Lembaga Pengarah. Kalau ada pun, ia tidak memberi gambaran sebenar. Kami tidak mempunyai laluan untuk maklumat sebenar."

In other words, Tun Musa is admitting that the management had misled the Board of Directors. Besides the President and Group Chief Executive of Sime Darby Datuk Ahmad Zubir Murshid, why were the rest of the management executives in the same chain of command spared? To me, this is mind-boggling.

Let me try and put in perspective what had happened earlier when Golden Hope Plantations Berhad incurred trading losses amounting to RM40 million due to overzealous trading activities by a rogue trader. The matter came to light between 2006 and 2007 and was accounted for in several financial statements. In other words, Golden Hope made it transparent.

Unfortunately due to the high palm oil prices, the amount was inflated to about RM60 million.

But when Golden Hope and Kumpulan Guthrie Berhad were merged with Sime Darby in 2007,the Sime Darby management led by Datuk Seri Ahmad Zubir Mushid insisted on the resignations of the former Group Chief Executive of Golden Hope Datuk Sabri Ahmad (who was absorbed into Sime Darby as Advisor, Plantations Division), the director of Oils and Fats Dr Anhar Suki, the Director of Finance Razidan Ghazalli (who was absorbed into Sime Darby as Group Chief Financial Officer), the General Manager of Trading Azmir Yahya and the General Manager of Golden Jomalina Sdn Bhd Muhammad Mohan Abdullah.

Datuk Sabri, Dr Anhar and Azmir chose to resign, but Razidan and Muhammad Mohan stood their ground and refused to do so. As a result, both Razidan and Muhammad Mohan were sacked on the same day. The two then took their case to the Labour Court. Months later, in an apparent admission of guilt, Sime Darby chose to settle the matter out of court and compensated both of them.

The fact is, Golden Hope did not keep the matter under wraps. The loss was reported in all its financial statements, and yet Datuk Sabri, Dr Anhar and Azmir were forced to resign while Razidan and Muhammad Mohan were given the sack. The decision to take action against the five was a Board decision headed by Tun Musa. He has to be consistent, but from what I have observed so far, he is not so.

In contrast to what Golden Hope did, the Sime Darby management tried to hide the losses incurred in Qatar and Bakun. Only one provision was made in the second quarter results of the 2009/2010 Financial Year - to a tune of RM210 million for cost over-runs in the Qatar Maersk Oil project. In actual fact, the amount was much higher.

It also made no mention of the losses incurred in the Bulhanine and Maydan Mahzam project with Qatar Petroleum as well as the cost over-run in the Bakun project.

In other words, not only did Sime Darby go against the principles of good governance but also breached the various laws.

So who among the management should be held responsible:


1. Sekhar Krishnan - The Group Financial Officer when Sime Darby ventured into Qatar and when the whole fiasco began.


2. Hisham Hamdan - The former Head of Group Stategy and Business - he vets through all investments. If he says no go, papers do not go to Board. All projects, including the Qatar projects and Bakun were okayed by him. He did not see the fact that Sime Darby was not ready for the projects in Qatar. It is strange that he is now tasked to lead Energy and Utilities Division.


3. Madam Tong Poh Keow who was appointed the Group Chief Financial Officer of Sime Darby Berhad on June 24, 2008 - She was Group CFO for year end June 2008 and June 2009 accounts - why did she failed to insist on provisions? Why did she sign the Statutory Declaration in the annual report saying that the accounts were correct?
In an Annual Report, the directors sign the Statement of Directors (s169(15)Companies Act). The CFO signs Statutory Declaration (s169(16) Companies Act) in accordance with Statutory Declaration Act 1960. So what is the CFO's legal position in making incorrect statutory declarations? In an Annual Report, the key sections are:
1) Corporate Governance Statement
2) Chairman's Statement - Nothing was mentioned in Tun Musa's statement in June 2008 and June 2009 in relation to E&U Division
3) Audit Committee Report
4) Statement of Internal Control - contains Board responsibility, risk management framework, etc
5) Directors' Report

Were the representations in the above sections accurate or misleading?

Since Annual Reports are tabled at the Annual General Meeting for shareholders, the Sime Darby shareholders, public at large, the Securities Commission, Bursa Malaysia, Minority Shareholders' Watchdog Group, etc were obviously misled. This is an obvious breach of the Companies Act.


4. Nik Muhammad Hanafi Nik Abdullah who was then Sime Darby's Head of Internal Audit. He failed to question the Finance and Accounts Department when it did not make provisions for the losses.

5. Abdul Rahim Ismail, who was then the Chief Financial Officer of the Energy and Utilities Division. He should have known all along the extent of the damage.

Sime Darby must act against those responsible, even if it means instituting legal action. Transferring them to another division like what it did in the case of Nik Muhammad Hanafi and Abdul Rahim, would not solve the problem. The problem will be merely shifted to another division.