International Journal of Academic Research in Business and Social Sciences Vol. 8 , No. 12, Dec, 2018, E-ISSN: 2222 -6990 © 2018 HRMARS 1MDB: Corporate Governance Going Berserk? Part I Azham Md. Ali To Link this Article: http://dx.doi.org/10.6007/IJARBSS/v8-i12/5361 DOI: 10.6007/IJARBSS/v8-i12/5361 Received: 02 Nov 2018, Revised: 13 Dec 2018, Accepted: 21 Dec 2018 Published Online: 28 Dec 2018 In-Text Citation: (Ali, 2018) To Cite this Article: Ali, A. M. (2018). 1MDB: Corporate Governance Going Berserk? Part I. International Journal of Academic Research in Business and Social Sciences, 8(12), 1861–1946. Copyright: © 2018 The Author(s) Published by Human Resource Management Academic Research Society (www.hrmars.com) This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode Vol. 8, No. 12, 2018, Pg. 1861 - 1946 http://hrmars.com/index.php/pages/detail/IJARBSS JOURNAL HOMEPAGE Full Terms & Conditions of access and use can be found at http://hrmars.com/index.php/pages/detail/publication-ethics 1861 International Journal of Academic Research in Business and Social Sciences Vol. 8 , No. 12, Dec, 2018, E-ISSN: 2222 -6990 © 2018 HRMARS 1MDB: CORPORATE GOVERNANCE GOING BERSERK? PART I Azham Md. Ali Department of Accounting and Finance, Faculty of Management and Economics Universiti Pendidikan Sultan Idris, 35900 Tanjong Malim Perak Malaysia Email: [email protected] Abstract The Part I of two parts of a case study on 1MDB’s corporate governance going berserk? dwells on three areas: the definition and purposes of corporate governance; the questions various local parties have raised on 1MDB’s operations and related matters; and, the answers handed down by the 1MDB and other related parties. For the last one the answers come in three ways: in the form of words, efforts in obstructing justice and various tactics in intimidating parties from inside and outside the country. All this in Part 1 are in contrast to Part II which is concerned with only two areas: first, weak corporate governance and the like or fraud to describe the goings on in and around 1MDB; and, second, questions looking for answers which readers of both Part I and Part II of the case study may want to answer. Keywords: 1MDB, Corporate Governance, Questions, Answers Introduction Whereas the 20th century might be viewed as the age of management, the early 21st century is predicted to be more focused on governance. Both terms address control of corporations but governance has always required an examination of underlying purpose and legitimacy (McRitchie, 2019). Corporate governance is the system of rules, practices and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community (Chen, 2018). The fundamental objective of corporate governance is to enhance shareholders' value and protect the interests of other stakeholders by improving the corporate performance and accountability… The overall endeavour of the board should be to take the organisation forward so as to maximize long term value and shareholders' wealth (Business Portal of India, 2019). The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company…. Corporate governance is therefore about what the board of a company does and how it sets the values of the company, and it is to be distinguished from the day to day 1862 International Journal of Academic Research in Business and Social Sciences Vol. 8 , No. 12, Dec, 2018, E-ISSN: 2222 -6990 © 2018 HRMARS operational management of the company by full-time executives (Financial Reporting Council, 2016). There are varying definitions of corporate governance, many of which touch on aspects of the concept but fall short of the mark. With that said, to define corporate governance in a nutshell is not easy but, put very simply, "good governance is good business". More specifically, corporate governance is the framework that allows for a company to be directed and controlled, and ensures that those who direct and control the company do so accountably. This framework of policies, procedures and practices (and related systems) allows a business to operate effectively, responsively, ethically and compliantly, while controlling risk. In many respects, it is about positioning the business to be sustainable. This framework is "shaped" by informed, objective and aware people (typically directors and officers) who are in a position to develop effective strategies and to have real influence over the business, and who act with care and diligence…. To have policies and procedures in place to ensure accuracy, consistency and responsiveness to key stakeholders (for example, customers, shareholders, regulators), to facilitate productive and efficient work practices, to guide, develop and monitor people's performance, to capture, interpret and report accurate and relevant data, and to manage the risks inherent to the company's operations, and for these to be aligned with the strategic direction set for the business, are all aspects of "good governance". In essence, it is through good governance that sustained returns and ultimately, increased value can be delivered to the shareholders or owners of a business and which can help to attract investment if required (Douglas, 2010). Corporate governance is the way a corporation polices itself. In short, it is a method of governing the company like a sovereign state, instating its own customs, policies and laws to its employees from the highest to the lowest levels. Corporate governance is intended to increase the accountability of your company and to avoid massive disasters before they occur. Failed energy giant Enron, and its bankrupt employees and shareholders, is a prime argument for the importance of solid corporate governance (Sun, 2019). The basic purpose of corporate governance is to monitor those parties within a company which control the resources owned by investors. The primary objective of sound corporate governance is to contribute to improved corporate performance and accountability in creating long-term shareholder value (Kaplan Financial, 2013). For each of the quotations above coming from different sources is concerned with either one or both aspects of corporate governance: the definition and the purposes. The sources from which the quotations come from are easily found through the google search of the internet. And easily too one can find so many other sources saying this and that on both items. What is not easy however is to find these definitions and purposes of corporate governance translated into real world practices considering the presence of numerous nasty examples around the world that show that corporate governance is nowhere to be found when one is very much in need of it! 1863 International Journal of Academic Research in Business and Social Sciences Vol. 8 , No. 12, Dec, 2018, E-ISSN: 2222 -6990 © 2018 HRMARS 1MDB appears to be such an example – or perhaps nothing could be further from the truth since 1MDB is much, much more sinister than the case of corporate governance going berserk? In attempting to get the full advantage of what is presented in the present case study on 1MDB’s corporate governance, readers are advised to read beforehand the background piece plus three case studies on 1MDB’s specific topics written by the same author. Two of these including the background piece were published in late 2015 while the other two in early 2016. All are available online and can be easily accessed through the author’s google scholar account or even google search engine. In addition to the author’s prior works on 1MDB, there are of course other materials which readers for the present case study may want to peruse. In particular over what happened in the 1MDB’s early years, the notable sources include: • T’ganu Investment Authority to raise RM5b from capital markets (May 18, 2009) • Cover Story: Terengganu’s right royal achievement (May 24, 2009) • Cover Story: ‘TIA’s role complementary to Khazanah’s’ (May 24, 2009) • Cover Story: TIA setting a precedent (May 24, 2009) • Cover Story: ‘We will forge strategic global partnerships to spur FDIs’ (December 13, 2009) • Cover Story: Time of reckoning for 1MDB (December 13, 2009) • Shahrol: Government did not inject cash into 1MDB (October 12, 2010) • 1MDB: Giant ponzi scheme or strategic investment fund? (March 26, 2013) • Khazanah Nasional vs 1MDB (April 3, 2013) • Najib: Govt will repay 1MDB unit’s US$3b debt if it can’t (March 17, 2015) • Terengganu Investment Authority's RM500m start-up capital 'untrue' - PM Najib (May 28, 2015) • Start-up capital for TIA was RM1m, not RM500m, says Najib (May 29, 2015) • Dr M says Jho Low persuaded Najib to form 1MDB (June 12, 2015) • Cover Story: He did no wrong? (April 28, 2016) Note that with the exception of the material that came out in early April 2013 that come from www.kinibiz.com, the rest come from www.theedgemarkets.com with the first five listed have the byline The Editor with the name TheEdge mentioned below it. As for the detailed background materials on various aspects of 1MDB’s business operations over the years, these may be found in numerous materials found on line. Such materials include the following that come from www.theedgemarkets.com with the exception of the first three that come from www.kinibiz.com and the one in April 2015 that come from www.theedgereview.com: • 1MDB: Giant ponzi scheme or strategic investment fund? (March 26, 2013) 1864 International Journal of Academic Research in Business and Social Sciences Vol.