Riding the wave

THE final board meetings for the year for the two public listed companies I sit on took place in the second half of November. Being an independent director carries increasingly heavy fiduciary duties and the penalties for failing to uphold one’s responsibilities are always getting tougher, as exemplified by the latest version of the Companies Act. This means that one has to be assiduous in reading the hundreds of pages of reports submitted, and to not hesitate in asking management and fellow directors difficult questions ( and to ensure that such questions and their replies are correctly minuted).

For the shareholders and the public at large, better governance of companies is undoubtedly a good thing, but already there are concerns that it might become tougher to recruit suitable independent directors because of the onerous conditions attached: not just for the individuals themselves but the expectations on companies to take merit, morality and diversity (in terms of gender, ethnicity, age, experience and skills) into consideration. This may be exacerbated by a perception that some companies which may be very large (especially those with government or political links) are exempt from the same high standards, with errors of equal magnitude being treated with greater leniency.

Having a view from the board of different sectors in the Malaysian economy – general and life insurance, and the manufacturing of packaging products – provides a context to the many recent public discussions on our economic trajectory. When economists say that people are spending less, or switching to cheaper products, it is interesting to see shifts in the popularity of certain insurance offerings, or whether some types of packaging sell more because people are increasing consumption of a particular beverage.

The competitiveness of neighbouring countries is another area where the analyses of economists has boardroom ramifications: it affects decisions on whether aspects of the business should be centralised, and obviously it is helpful to know about the political stability and likely continuity of business-friendly policies in a particular country before deciding to build a factory there.

Earlier this week at an event at the National University of Malaysia ( UKM) supported by the Institute for Democracy and Economic Affairs ( Ideas), the World Bank issued their latest East Asia and Pacific Regional Report entitled ‘ Riding the Wave: An East Asian Miracle for the 21st Century’. Unlike many other reports of this ilk, this one is extremely readable.

It begins by reaffirming the story of economic growth my generation is familiar with: that “the East Asian experience has come to symbolise how growth that is both rapid and broadly shared can improve the lives of millions of people. Over the past two decades, a wave of rising prosperity lifted more than 40 per cent of the region’s population out of poverty.” The authors say this is due to “policies that aimed to promote labour-intensive growth and investments in human capital” and that “past success means that expectations are high that growth will continue to deliver unprecedented improvements in welfare”.

The report’s analytical framework is unique, firstly separating households into five economic classes from the extreme poor to the middle class; then grouping countries based on how their income distributions have evolved ( Malaysia is in the progressive prosperity category); and finally be adopting a specific definition of inclusive growth, meaning the reduction of poverty and the enhancement of economic mobility and security across all parts of the income distribution.

The collection of charts and graphs (especially the transition matrices of mobility) are all enlightening, but it is the final chapter, ‘A Policy Agenda for Inclusive Growth’, that offers the most food for thought. Identifying the three pillars of economic mobility, economic security and institutions for inclusive growth, it highlights several measures for Malaysian policymakers to consider, include satisfying “the middle class’ growing aspirations and demands for quality public services, including health and education, which will support continued upward mobility” and reforms to “narrow crossregional disparities in economic and social development”. In terms of urban governance, the report recommends decentralisation of management and decision- making so that transport services, draining and flood mitigation, waste management and emergency services can be enhanced at a local level. It also says systems for property assessment and fiscal transfers should be revised and more transparent, predictable and formula-based – which presumably means “less politically motivated”.

Naturally some quarters will reject any suggestion of outsiders telling Malaysians what to do regardless of the evidence, but many of these recommendations will see support from company boardrooms, even as politicians do their best to avoid the perception that they caused – or are causing – economic damage.

Tunku Zain Al-‘Abidin is founding president of Ideas, Royal Fellow at UKM and former consultant at the World Bank.