FGV: The Straw That Could Break PM Najib’s Back

The media – print and social – has been working overtime on the latest crisis affecting FGV and Felda. What is interesting is that there is extensive coverage both in the investor blogs as well as in the socio-political ones.

We have seen not just the fight between the suspended FGV President and CEO, Zakaria Arshad and FGV Chairman, Isa Samad. We have also seen UMNO-linked bloggers come out with details of how the GLC, which at the time of its listing in the share market in 2012, raised US$3.1 billion (about RM10 billion then) in Asia’s biggest initial public offering of the year, has been virtually made bankrupt by mismanagement, corruption and other forms of abuse and conflict of interest.

There is no need to repeat these allegations which center on Isa Samad’s leadership or lack of leadership of the world’s largest plantation operator. No need for long and convoluted analysis.

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In one simple line, FGV was screwed up by its very own Malay Bumiputra trustees who were supposed to be looking after the interest of the over 100,000 settlers and their families. Instead, these trustees and cronies were only looking after their own interests (and expensive tastes!)

The number of people suffering from what has taken place in FGV does not include the hundreds of thousands of investors including the EPF, which chased after the company’s shares when it was listed.

Today with its price at RM1.60 plus, this Malay ‘iconic’ corporation has dropped over 70% in the past 5 years, resulting in losses of billions of ringgit to FELDA settlers and investors. The several hundred ringgit duit raya promised by the Prime Minister to FELDA settlers is a pittance compared with their losses. It only adds insult to injury.

I was not one of those who applied for or chased after FGV shares. I still have no interest in FGV’s shares because I believe that what has been revealed of the problems is just the tip of the iceberg. Recovery of its share price is many years ahead, if it is to recover at all. This is also because it is likely that one new set of political trustees and cronies will replace the other one, should Isa Samad be made to go.

Although it is only a matter of time before “new blood” is brought into FGV, I am not so interested in it. What is more important is the political impact of this crisis.

Resolving the FGV Crisis

For now, former Minister in the PM’s Department, Idris Jala, has been appointed to resolve the FGV crisis during the Ramadan period. According to PM Najib, Idris will use 3 principles to conduct the investigation. He is to comply with the company’s laws; ensure that the investigation is in line with good governance; and goes through a fair process.

What is most puzzling – and it is an issue which Idris Jala should definitely address – is why it has taken so long for the PM to act on FGV. After all, the company is the crown jewel among Bumiputra owned corporate bodies. Why was it allowed to literally go down the drain especially since it was supposed to also be UMNO’s fixed deposit?

Very few – if any – analysts have asked these questions. The reason why these questions have not been asked is because the answer or answers to them may prove to be a political time bomb.

The alleged mismanagement and looting of FGV was permitted to go on for more than 5 years. If FGV is like any other company in anywhere in the world – and this includes Malaysia – the chairman and directors would have been axed a long time ago.

There are two plausible explanations why Najib and his UMNO Supreme Council colleagues allowed FGV to lose more than RM10 billion of its capital.

The first is that many members of UMNO’s Supreme Council have personally benefited from Isa Samad’s handling of the company’s operations and affairs and are indebted to him.

FGV is an example of what an academic friend of mine has described as a “Malay distributional coalition tied up with trusteeship of the NEP and other programs” which has abused public funds, trust and power. There are other UMNO-linked distributional coalitions but this one happens to be controlled by Isa. It consists of high ranking UMNO party leaders and members drawn from the professional, bureaucratic and even religious elite organized or linked to FGV’s leadership who have obtained rewards through collusion, transaction costs and other forms of non-competitive bargains.

This explains the longevity of Isa’s leadership of Felda and FGV.

But surely, any sensible observer would ask. Wouldn’t the party President and the Prime Minister of the country put his foot down and put pressure on Isa to step down when it was clear that Isa was unable to perform. The answer lies in the second reason why the rot in FGV has gone on so long

In 1995, when Najib was Defence Minister, rumours appeared of him being involved with a singer and actress. The story goes that Port Dickson was the location where the relationship was publicly found out. Like most scandals involving government ministers, this story was quickly hushed up.

At the time of this breaking news story, Isa was the Mentri Besar of Negri Sembilan. He had been MB in Negri since April 1982 and would have been privy to every secret in that state. Isa would probably have been in a strong position to lend credence to or refute the story. However, Isa’s lips have been sealed on that story so far as is publicly known.

In 2005, Isa’s UMNO membership was suspended for three years for his involvement in money politics. Since then he has been rehabilitated and has gone on to earn the plum positions of Felda chairman and later FGV chairman.

The key person in his rehabilitation was the Prime Minister, who, if the story of the Port Dickson episode proves correct, owes Isa an enormous debt of gratitude. This would also explain Isa’s untouchable position despite the monumental mess he has made of FGV.

Some observers have noted that the current crisis in FGV is a proxy war conducted by UMNO chieftains but they have failed to elaborate. Would these chieftains consist of UMNO Supreme Council members aligned to Prime Minister Najib Razak against those aligned to Deputy Prime Minister, Zahid Hamidi?

If so, surely the end is near for Isa’s position and with it also possibly the Prime Minister’s leadership of UMNO.

My advice to all controlling shareholders of public listed companies is to appoint only directors who have done business before. Remember never appoint politicians who have not done any business before. FGV is a good lesson for the BN Government.

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