Meritocracy & Judicial Independence in doing business

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Mar 23 2008
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Just what are the factors foreign investors are looking at before they pour in millions or billions of dollars of investment money into a country? There’re many but certain mandatory or fundamental foundations must be in place before these foreign hot monies would find their new parking lots. Suffice to say some of these factors are, in no particular orders – political stability, transparency, investment protection, cost of doing business, good governance, financial rules & regulations and others.

I’ve wrote about one of the reasons why you should stay sideline since the political stability has changed with the recent 12th general election result which saw the government lost two-third majority and five developed states as well as the possibility of a new Prime Minister in not very far future. Although the states won by opposition parties would see a swing of transparency for the better, it’s still too early to jump into the local stock market because a desperate Federal government could resort to silly actions to rock the boat.

Penang, the state now controlled by DAP government (opposition), has trumpeted open tenders to start the ball-rolling to attract foreign investors in the name of transparency. This was lauded by businessmen because the “entity of corruption” and “abuse of power” would essentially be eliminated and hence the cost of doing business would be lower. But one of the most important issues that hindered foreign investors from pumping in their money was the lack of investment protection. Who could blame them if the country’s judiciary pillar was and still tainted since the 1988 judicial crisis?

I read with great interest today’s news that the newly-appointed de facto Law Minister Datuk Zaid Ibrahim declared that the Malaysia Federal Government must make an open apology to those victimised by the judicial crisis in 1988 that led to the inappropriate sacking of the then Lord President Tun Mohd Salleh Abbas. Zaid’s next step to strengthen judicial independence and the delivery of justice by revamping the appointment and promotion process of the country’s judges and magistrates is something which everyone has been waiting for decades.

Zaid try to reform JudicialZaid recognized that capable judges of integrity were important to help lure foreign investors although I doubt he would have smooth sailing since stakeholders such as the Judges, Attorney-General, the Bar Council and law enforcers such as the police are “perceived” to be tainted from head to toe. Judiciary independence aside, from the micro point of view investors are likely to favor companies that can grow and survive on its own – without the intervention of government.

Thus, if the government has really repented of its past mistakes, it should, for example, let the national automaker Proton Holdings Bhd (KLSE: PROTON, stock-code 5304) runs its business Carlos Ghosn on Protonindependently. The legendary Carlos Ghosn, a Brazilian who gained the respect from the proud Japanese when he turnaround the once ailing Nissan Motor Co Ltd. has given an invaluable advice to Proton during a dinner lecture organized by Khazanah Nasional Bhd. Carlos mentioned, to the consolation of Proton, that small car manufacturer such as Proton could survive if they know the market and manage their business well but government intervention should be avoided at all cost or else the entity (Proton) would not know how to “fight” – precisely what the Proton’s situation is right now.

An excellent tip indeed but it would be of no use if the government still consider meritocracy as a stone-age beast that should be killed at first sight. In actual fact the whole government system in doing business is flawed. Take for example the pampered Proton dealers who were offered one-off VSS (voluntary separation scheme) fee of RM150,000 per dealer to close down their dealership in a downsize plan in the middle of 2007. Surprisingly only 36 out of 102 dealers accepted the offer while the rest of the dealers were asking as much as RM500,000 instead justifying that they have invested RM200,000 to setup their operations. Should there be VSS in such a scenario in the first place?

Proton downsize compensationThis is amazing nevertheless! First you ventured into the highly lucrative protected dealership business (Proton was protected as if it’s endangered species) and made lots of money initially. Things changed a little and somehow automobile business took a slump. And amazingly you found yourself surrounded by parasites dealers who were asking for compensation to recoup their initial investment. This is probably one of the most lucrative, no matter how silly, dealership you can ever have – almost risk-free, no? First of all there’s no business in this world that can guarantee 100 percent profitability, let alone compensation of up to RM500,000 which is more than double the investment cost.

If these dealers could not even face the reality of business risk, one could only pray when the full globalization takes effect. And if you weren’t aware, the “compensation” came from the RM500 million “Automotive Development Fund” allocated in the Ninth Malaysia Plan – that’s your (taxpayers) money dude.

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