Why Bursa / KLSE is not a 5-star stock exchange

MANY have wondered why Bursa Malaysia is not a five-star stock exchange (unlike Singapore’s). In fact, our authorities seem very proud every time the FTSE Bursa Malaysia Kuala Lumpur Composite Index experience marginal drops or even rise when the regional or global markets takes a dive.

Two recent episodes should shed some light as to why Bursa is not a five-star stock exchange. The first is the Sime Darby Bhd fiasco, the second is the confusion at Kenmark Industrial Co (M) Bhd. There were many more prior to these.

Our stock exchange is supposed to protect investors by ensuring the following:

● Corporate governance;

● External auditing;

● Internal auditing and

● Independent directors,


With the above four areas properly in place, there should be enough protection. Why have all four areas failed? Corporate governance can be suppressed by the board of directors. External auditors always worry about losing their clients. Independent directors are not really independent; they may have business deals in other companies within the group. They are worried about being replaced. The internal audit committee may also be headed by the not-so-independent directors. There are myriad of reasons for weaknesses within these four areas.

To improve transparency, I would like to suggest that external auditors be given three-year contracts only. This will ensure that existing auditors’ standard of audit will be checked by the incoming group on the expiry of the first group of auditors.

Independent directors must have minimum financial links with the company.

Last but not least, do the right thing. Conduct a post mortem to determine whether the respective parties have failed in their duties – internal and external auditors, independent directors and executive director.

The external auditors for both Sime Darby and Kenmark should be replaced immediately. Fine and blacklist them if they have been found to be negligent.

The Singapore Exchange has built its reputation over the years because the Singapore government would not have accepted the nonsense which happened here.



John KH Lim
thestar.com.my