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Assignment 2

Submitted To
Prof. Dr. Syed Abdul Hamid Aljunid

Submitted By
Abdullah Mohsin Alsaqqaf
1300435

Q1. The board of Sime Darby includes very experienced and high
profile directors. How can such a board fail so spectacularly to
safeguard the interests of the company?
These high profile directors are very qualified and have enough experienced to be the
member of the board of directors. But still the groups faced losses. It was not because of
the shortage of quality or because of lack of experienced, but due to The board of the directors of Sime Darby was more loyal to Datuk Seri Ahmad Zubir
who was the CEO of the company instead of being more loyal to the organization and its
shareholders best interests. There was only one executive director in the board of Sime
Darby and the directors without scrutinizing executive directors, Datuk seri Ahmad Zubir
CEO, properly they believed whatever the CEO approved was the right thing and no one
can criticize.
Shareholders of Sime Darby have given power to the board of directors to take care of
shareholders interest and right. And the board of directors appointed the management
team to ensure the operational efficiency of the business. And CEO has been considered
as executive director of the Sime Darby.
Sime Darbys Energy & Utilities (E&U) division, which included Sime Engineering
after the merger, undertook a strategic decision to become a full service provider for
EPCIC. The first keystone in the plan was for Sime Marine, a subsidiary of Sime Energy
& Utilities, to construct or acquire several vessels to allow for T&I capabilities within the
division. Management proposed building the vessels as that would entail 27.5 per cent
lower cost compared to buying the vessels at market price. And the board approved the
decision of Management without considering the challenges and time will require
constructing the vessels. As a result the E&U division faced losses as the Sime marine
couldnt deliver the vessels on time.
The board of Sime Darby was late to exercise its power. When the internal auditors
reported the board about the loss due to cost overrun in the project and suggested to make
provision, board didnt make provision and said that the loss will be covered. CEO
convinced the board by explaining the reason of cost overrun. The board of Sime Darby

should go for immediate enquiry. They didnt go for immediate enquiry because they
were loyal to the CEO.
Sime Darby had no experience, proper skill and equipment to run these projects because
Sime Darby took this project first time in their business experience. And we can say it
was aggressive business strategy. For this reason Sime Darby has provided huge amount
of fee to the consulting firms. This consulting fee was one of the main reasons of cost
overrun. In this case we see most of the decision given by the management is accepted in
board level. May be management didnt provide the right information to the boards or the
board itself had problem to understand the management.
The call for forensic audit was far late, after all the huge losses were occurred which also
raise the issue on the efficiency and effectiveness of the audit committee. The call for
forensic audit should have occurred earlier when one or two continuous projects were
unsuccessful.
In summary the board reflected an approach in relation to the managements carelessness
pertaining to

Accountability - Denial of losses, even though informed by auditors

Transparency - Failure to disclose cost overruns

Responsibility - Poor business decision making

Fiduciary - Possible graft and abuse of power

Q2. What are the critical attributes of an effective board? To what extent
does the Sime Darby board possess such attributes?
There is no magic model for good governance. Boards have different characteristics and
needs. Boards develop a mixture of practices that uniquely suit them. Characteristics of
an effective board
1. An effective board is mission centred
Boards and staff knows exactly what services they offer and to whom because they
clearly understand the relationship between their mission and services provided. Sime
darby board is mission centered but mission of making the CEO happy.

2. An effective board approaches board work professionally


Board reaches clarity and agreement on its role so that it can focus on helping the
organisation envision a direction and shape a strategy for the future. They can see the
usefulness of some technologies from the business environment.
professional but as they are focus to self-interest.

Sime darby board is

3. An effective board focuses time and attention on strategic


Board is focused on the ends of the organisation its focus is long term and
future. Once a board is clear about the organisations priorities it then organises its
board work in the light of these priorities. Sime darby board is much less focus on time
& attention.
4. An effective board views board composition as strategic
Board must be competent in many areas and therefore needs a diversity of skills,
experience and opinions. Once a board recognises that it needs a diversity of skills,
experience and opinion, then it will link the type of decisions it will be called to make to
board recruitment.
5. An effective board uses evaluation to learn rather than to criticise
Effective boards seek out opportunities for board evaluation and development. It will,
therefore, take time for self-reflection so that the board can assess its own strengths and
limitations. Sime darby board members criticize each others.
.
6. An effective board knows its value to the organisation
Board members know they are of value to the organisation, they recognise that they have
a responsibility to develop healthy relationships among its major constituencies. They
know that the organisation would be less effective without the boards contribution. As
the board members are faithful to the CEO and not company therefore they dont focus
much in the values.

Q3. Should the board members also be held accountable and not just
Datuk Seri Ahmad Zubir Murshid?
My argument that the management had contravened the Company's Act and failed to
comply to the principles of Corporate Governance. 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 mindboggling.
The blame could be directly pegged on Datuk Seri Ahmad Zubir Murhsid who was CEO
and executive directors of the board. But the board members cannot run away from the
blame.
The members of the Board of Directors need to be held responsible for a direct failure of
their duty of Trust and Care Report from internal Auditors about the potential cost
overruns of over RM 150m. External auditor issued a report on the losses in the Oil &
Gas segment. The auditors as well as group CEO suggested to the boar to put high
provision for losses, management refuted concerns saying losses to be recoverable.
Board accepted this on the management explaining that this is a normal course of
business and client had agreed to reimburse some of the cost overruns.
Board also approved the Management decision for construction of vessels instead of
buying form the market without considering the challenges would face in course of action
and the time would be needed for construction. We saw Sime marine failed to deliver the
vessels on time.
The board consisted of a 46% representation by independent directors, which was more
than minimum requirement. The role of these independent directors is also questionable.
So the board members of Sime Darby are also responsible as they failed to ensure the
duty of trust and duty of care, also failed to supervise the executive duty.

Q4. On hindsight, if you were one of the directors on the main board of
Sime Darby, what would you have done back in 2005?
My argument that the management had contravened the Company's Act and failed to
comply with the principles of Corporate Governance. If I act as the director would have
emphasised on the executive supervision, keeping the management under check and let
them hire another subcontractor to carry out the project work effectively and finish it in
the given time frame.
On the given information as the director leniency would not be appreciated, as we can see
the board was very lenient. Much of an importance to critical matters relating to the
management would be given and consider things in due course. Managements statement
would be scrutinised and analysed. Avoid heavy negligence on the part of the board.
If I was one of the directors of Sime Darby I would have done the followings

Exercise my responsibilities and ensure my duty of cares, duty of trust.

Discourage to bid for the (EPCIC) without possessing relevant experience for
such a huge bid.

Demanding expert opinion before going to take aggressive business strategy.

Suggesting for doing a quick feasibility study before becoming a full service
provider for EPCIC projects in the future.

Supervise the Executive duties.

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