Slaughtering the Sime

Yesterday afternoon, Sime Darby Bhd. Chairman Tun Musa Hitam called for a media conference to announce  Group CEO Dato’ Seri Ahmad Zubir Mursyid’s “leave of absence”, which took affect immediately. This was a decisive move, especially after a lot of Sime Darby’s scandals were being highlighted here in bloggosphere more that 15 months ago.

BizStar reports:

Friday May 14, 2010

Sime President and CEO Zubir removed


The high-profile removal is linked to Qatar and Bakun projects’ cost overruns

PETALING JAYA: In what is seen as the first high-profile removal of the head of a government-linked company, Sime Darby Bhd’s board of directors has asked its president and group chief executive Datuk Ahmad Zubir Murshid to take a leave of absence prior to the expiry of his contract on Nov 26, 2010.

Sime Darby chairman Tun Musa Hitam said at a press conference yesterday afternoon that Zubir’s leaving was in connection with the cost overruns that the group’s energy and utilities division had suffered in carrying out projects in Qatar and the Bakun hydro-electric dam.

Datuk Azhar Abdul Hamid, currently head of Sime Darby Plantations, has been appointed as acting group chief executive.

Sime Darby also said it would take a hit of RM964mil in its second half earnings from losses from its energy division.

From left: Datuk Seri Panglima Andrew Sheng, Tun Musa Hitam and Datuk Azhar Abdul Hamid at the press conference on Thursday

Musa said the problems in this division first surfaced when the board was performing its functions in the last six to seven months. “We discovered that there were a few questionable positions in relation to the financial status of the company and the application of corporate governance. We then decided to look further and realised that there was cause for curiosity in the energy and utility division,” he said.

Musa added that the board then formed a working group in October 2009 to look into the matter. The work group, which is still looking into the issues, consists of Datuk Seri Panglima Andrew Sheng, as chairman, Tan Sri Wan Zahid Noordin and Datin Zaitoon Othman.

It is advised by external lawyers Ashurst, Rajah and Tann and Zaid Ibrahim & Co as well as the accounting firms of Deloitte and KPMG

The work group then found that one particular project needed more attention.

Subsequently, a comprehensive investigation was conducted and it was discovered that the problems involved two or three other projects, Musa said.

“The group worked with seriousness, determination and thoroughness that was demanded of them. They did a tremendous job,” Musa said.

Musa said the board had assessed the “damages” caused by this division and, in the interest of good corporate governance, identified the individuals that were responsible and accountable for these losses. “It is not appropriate for us to list out everyone concerned and the whys and hows of what went on. But this is the basis of our decisions,” he said.

When asked if this meant Sime Darby was firing Zubir, Musa said: “The fact is, he has left as of today. It is up to you how you want to interpret that.”

Sime Darby was also asked if there was a breakdown of risk management within the group. Musa said the same question had been raised in the working group as the Bakun project had stated in 2002, while the Qatar projects first began in 2005. “But note that these are very long and complex technical projects. But we do acknowledge that there should have been better controls in place.”

Sheng, who is also a Sime Darby board member, said there were valuable lessons to be learnt from this episode. “We have given instructions to the management to strengthen controls and manage all operations in the most prudent and efficient manner.”

Musa added that the board was looking at making changes to the management structure of the group to ensure that better corporate governance was adhered to.

On whether any fraud has been detected or criminal charges filed against any Sime Darby employees, Musa said that would depend on the findings of the working group and their special consultants, which is still “work in progress.”

Azhar added that Sime Darby would be obliged to follow up on the appropriate course of action based on the findings of its investigations.

The RM964mil provisioning that will take place, is made up of losses of RM200mil from the Qatar Petroleum project, RM159mil from the Maersk Oil Qatar project, RM155mil from a project to construct vessels for use in the latter project and RM450mil from cost overruns in the Bakun project.

Kenanga Research, in a note yesterday evening, reversed its rating on Sime Darby from a hold to a sell, noting that the announcement was “extremely negative” as the provisioning was “much larger than what the investment community had been forcasting.”

“The lack of controls in such a large GLC is nothing less than shocking,” the report stated.

Kenanga estimates Sime Darby’s full year FY2010 net profit to come down to RM1.74bil versus its previous projection of RM2.5bil.

Ivy Ng, senior regional analyst at CIMB Investment Bank shared the same view that Sime Darby’s provisions are bigger than what CIMB had expected. “So that is negative. Furthermore, the change of management is only marginally positive as they have not named who will be their permanent CEO,” she said.

A glimpse of Sime Darby’s cost overruns in its energy and utilities division:

  • Qatar Petroleum project – delays and cost overruns which resulted in losses on the project exceeding RM500mil, which have already been accounted for. The board has decided to reverse the revenue of RM200mil previously recognised in FY2009.
  • Maersk Oil Qatar project – delays and cost overruns have resulted in foreseeable losses of RM526mil for FY2010. Of this, RM367mil has already been recognised in the first half FY2010 and the board has decided to recognise the remaining RM159mil.
  • Contruction of vessels for use in the Maersk Oil Qatar project – the board estimates the project may result in losses of about RM155mil.
  • The Bakun hydroelectric dam project, in which Sime Engineering Sdn Bhd holds a 35.7% effective interest – management estimates that there could be a potential additional cost attributable to the group in the FY2010 results of RM450mil.
  • *****************

    The board of directors (BOD) met for a marathon of 13 hours on Wednesday, going through a barrage of audit reports to understand the real situation and the true extend of the damages that all these scandals have dragged Sime Darby financially, morally and even trying to minimally guess the erosion of the general public opinion. The conglomerate which was formed with merger of three separate conglomerates in 2007 now boast to be the largest oil palm and rubber plantation in the world.

    Personalities that sit in the BOD are non other but high acclaimed individuals, with an impeccable mixture of vast of experiences in public service, corporate world and professional services. The Chair is occupied by Fifth Deputy Prime Minister Tun Musa Hitam and other members are PNB Chairman and former Chief Secretary to the Government Tun Ahmad Sarji Abdul Hamid, former Chief Secretary to the Government Tan Sri Shamsuddin Osman, Former Director General of Education Department Tan Sri Wan Mohd Zahid Wan Noordin, former TNB Chairman Tan Sri Ahmad Tajuddin Ali, shipping tycoon Tan Sri Dato’ Panglima Andrew Sheng, former Price Waterhouse Coopers Executive Chairman Raja Tan Sri Arshad Raja Tun Uda, Former CEO of Bank Islam Bhd. Dato’ Dr. Abdul Halim Ismail, former Sime UEP CEO Dato’ Sri Mohamad Sulaiman and renowned lawyer Datin Paduka Zaitoon Dato’ Othman. British national Dato’ Henry S. Barlow and former Indonesian Central Bank Governor Dr .Ariffin Mohamad Siregar are the two non Malaysian in the BOD. Of course Zubir sits in the BOD also.

    It was said that the BOD was “Misled about the Qatar project” and “Kept from the true information”. It was also said that the BOD was told that “The Qatar project failed because of ‘variation order'”. The truth is that, people in the industry had been talking about the ‘mismanagement and fraud’ in the near-billion-Ringgit scandal.

    It is clear that the reporting system and the independent audit committee within the Sime Darby BOD is not effective. The nation can no longer have large corporations like this be marred by scandals and loss making ventures. It must not be good for PM Dato’ Seri Mohd. Najib Tun Razak’s agenda of the ‘New Economic Model’ for the Malaysian economy per capita to expand by double in 10 years time and lure in human capital and FDIs, to complement this growth and objective set.

    Probably it is time the Sime Darby BOD look into the recent acquisitions of Sime Darby Group, such as Sapura Auto, Auto Europecar and Asia Pacific Institute Information Technology (APIIT) . Sime Darby can’t possibly dwell into any more scandals and financial quangos. People on the street still talked about how Sime Darby went into banking in the 1990s when they took over Sime Bank from UMBC and that turned out to be a very bad experience, even for regular unit trust holders of ASB.

    The ‘dismissal’ of Zubir alone is deemed inadequate, especially from the ‘accountability’ and ‘transparency’ perspective. If the BOD had been “misled and kept away from true information”, then Zubir could not possibly have acted alone. BOD should do a comprehensive investigations to ‘witch-hunt’ every single person who had the knowledge about all these but decided to keep ‘mum’ about it.  We expect to see more heads be chopped of, either at Sime Darby BOD, SDE BOD, SD Energy and Utilities and executives at all three companies.

    Again its spring time in the northern hemisphere. ‘Spring Cleaning’ is timely. Sime Darby Bhd. as a group would have to do a lot to recover the confidence which has been marred and grossly eroded.

    *Updated Friday 14 May 2010 0800hrs

    Published in: on May 14, 2010 at 00:00  Comments (20)  

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    20 CommentsLeave a comment

    1. It was said that the BOD was “Misled about the Qatar project” and “Kept from the true information”.

    2. Does this mean that there are some corruption that was made by the people responsible to feed the false information?

    3. If Sime Darby is a GLC and chaired by a former DPM, why Zaid Ibrahim & Co continues to be retained as an adviser? Isn’t that the PKR Zaid? What advice can they give that may be in the interest of the huge GLC? Since leaving the Government Zaid has been criticizing the Government like the former DPM Anwar Ibrahim.

      The huge losses were incurred over a long period of time. Surely the BOD could have detected or heard not all is well in the conglomerate and have done more than just wait for “studies”, “investigations” and “consultants’ reports” to stop such a huge bleeding.

      What happens to their internal audit? Is the BOD a “toothless watchdog”? Is having many ex-Government officials on the BOD serving the purpose? Do they know how to read balance sheets and financial statements?

      As some one said earlier, the BOD must take responsibility over this. The buck stops at them. Heads must roll to ensure such things are not repeated. Just the CEO rolling alone is not enough to drive home the point to all concerned. As a GLC, all Malaysians are interested to see that no hanky panky goes on within the organisation.

    4. BigDog

      Howsabout the “Great” Musa Hitam…

      He’s Neither a Businessman nor a Banker..

      No Politician or ExPolitician Should be allowed to Hold A Top Business position….
      As they only know how to Main Politik.
      ….Trying to Patch things up earlier by Acquiring IJN but Failed….Politicians will always look for Quick Fixes that will undoubtedly Fail!

      • Not entirely true.

        Malaysian corporate scene have seen ex-politicians made great corporate leaders. A good example is Dato’ Richard Ho. He was a former MCA Deputy President and Cabinet Minister but later became Vice Chairman of Maybank Bhd, for a very long time.

        Before that, First Dewan Rakyat Speaker Allahyarham Tan Sri Mohamed Noah Omar was a successful corporate man post political retirement.

        There was also Allahyarham Tan Sri S O K Ubaidullah, the Former Deputy President for Dewan Negara. He is also a respected businessman.

        Probably we should not allow Former Deputy Prime Minister like Anwar “Mat King Leather” Ibrahim to hold any corporate post. We don’t think he could be entrusted with anything, in a matter of fact, anyone!

        • Nice to see he is remembered : ) Ignatius Ho

    5. Practise meritocracy. Practise meritocracy. Is that too hard to understand?

      • That’s why we should abolish discriminatory pricing by Chinese suppliers favouring Chinese only.

        • And advertisements calling for “Mandarin speaking applicants” only.

          And APs to sugar king Robert Kuok

          And betting license to Vincent Tan

          And ….

          And ….

    6. You are right, in the Sime Security ‘problematic loans’ many years ago, the CEO was blamed. I am sure loans amounting to millions ringgit CANNOT be approved by the CEO and would require BOD approval.

      Yet, CEO was blamed and BOD are freed of any blame.

      A repeat here but now on SD CEO !!!

      What was the English saying about doing something on others that may happen to you ?

      For GLC, IMHO, the BOD should be made accountable for any loss and/or wrong decision.

    7. The who’s-who on the BOD are “jokers”… what are their functions/KPIs other than looking at the results of a mess? You put monkeys there pun no issue… with such high profile & supposedly vast corporate experience jokers the least they could do is to smell the rotting fish BEFORE it got really rotten! Ni dah meletup baru nak bising and started to remove people for accountability! Remove yourselves first la for not doing good job… kalau just to sit on board meetings and look at numbers after the facts… sapa pun boleh buat… no need for vast corporate experience la… jerk-heads semua nya… headed by none other than Musa “elegant silence”… poorah! The gomen should go for the head of asshole responsible for the “brilliant agglomeration strategy” of Sime Darby and the other plantation co’s for creating this mess in the 1st place… maybe Khazanah should answer this as well!?

      • The problem started from the very top. Like Petronas where DS Najib placed a not well proven retired man to replace a well proven retiring man, Tun Dol placed Tun Musa as Chairman of Sime Darby.

        It’s OK if he ran it well. Now that it’s in such a huge mess he and the BOD must take responsibility.

        Tun Musa was responsible for placing the other BOD members. Do the ex-Government people know how to read balance sheets properly and detect anomalies to bring up at the next BOD?

        I suspect that people want to be safe to ensure they remain on the BOD for as long as possible, having got Tan Sriship, Datoship etc. Wasn’t one of them, for example, an ex-Ministry of Education man? Wonder how useful he can be to a huge business conglomerate being on the BOD. What criteria was used in selecting BOD members? The same criteria used in selecting Omar Ong and the new Petronas CEO, whatever they may be?

        This kind of nonsense must stop. These organisations bukan bapak dia orang punya. The rakyat have a stake in the GLCs.

        Sorry for the big words, Big Dog. But this is damned important for us and for the country. Dia orang tak boleh buat sesuka hati, dengan sewenang wenangnya sahaja. Or be safe by keeping quiet at BOD meetings until a huge explosion created such a gaping hole in Sime Darby’s coffers.

        • Let’s see that they take responsibility. Let’s see whether they would resign. Let’s ask that they resign. Except 1-2 who can really be of value in sorting out the mess.

          If possible let’s have these views of ours sent to the BOD so that they know the sentiments of the average stakeholder. They must know that while we do not own shares, we the rakyat are in fact stakeholders of all GLCs.

        • Tuan Big Dog & concerned bloggers,
          Is it possible to organize for a group to do the following on this issue (citizens voices for the appointment of credible/capable members of BOD for GLCs):
          1. Petition/signatures collection on this blog and other participating blogs; or,
          2. Online simple survey (like the one on TDM’s blog on language issue for Science & Math)
          3. To forward the results, say after 3 months, to the relevant Minister/PM himself and copy to Khazanah?
          Or, any other actionable ideas on the issue.

          What say you guys?

        • Tuan Dhahran Sea,

          In response to our suggestion:

          Yes, group being formed. Malay NGOs such as PERKASA and Pertubuhan Alumni Kelab UMNO Antarabangsa already demanded a thorough investigations and en-bloc resignation of the BOD.

          Personally, I would like to wait what PWC says about the two scandals and their recommendations.

          It was said that Chairman Tun Musa would ask the BOD to relook into the issue/suggestions soon (the same way they had the 13 hour marathon BOD meeting on Wed 12 May 2010 which ask Zubir to go on “absence of leave”).

        • Salam Tuan,
          Terima kasih for the update!

    8. […] failures did not come as a surprise in May 2010, when Musa led a marathon meeting of 13 hours to decide on the sacking of Zubir based on the severity of the Bakun, QP and MOQ projects losses and all the ambiguities that loom […]

    9. […] year’s summarily sacking of Sime Darby CEO Dato’ Seri Ahmad Zubir Murshid and admission of the RM 1.7 billion losses aggregated due to mismanagement and fraud is still so […]

    10. […] change-over of several GLCs corporate personalities, namely Petronas CEO Tan Sri Hassan Merican, Sime Darby CEO Dato’ Seri Ahmad Zubir Murshid and the more recent, Malaysia Airlines CEO Tengku Dato’ Azmil […]

    11. […] Bakke has only been in the service of Sime Darby for a little over two years. Three months earlier, Sime Darby BOD painfully admitted the scandals which plagued the PLC, although these failed and scandalous projects have made Sime Darby as the […]

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