In Malaysia, Government-Linked Companies (GLCs) and Government-Linked Investment Companies (GLICs) are pillars of the nation’s economy, contributing about 35% to the stock market’s capitalisation and employing 5% of the workforce. While their role in driving job creation, development, and public welfare is significant, these entities have faced criticisms for inefficiencies, financial mismanagement, and a lack of accountability. A stronger governance framework such as a dedicated GLC and GLIC Act centred on Key Performance Indicators (KPIs) could address these issues and align with Malaysia MADANI’s vision for sustainable, inclusive growth. An effective Act would improve transparency, enforce accountability, and promote resource efficiency, thus supporting a resilient and equitable economic ecosystem.
Although Malaysia’s Companies Act 2016 lays a foundation for governance, it has not been enough to prevent high-profile scandals like 1MDB, which led to RM42 billion in losses and severely impacted the nation’s reputation. Recent issues involving FashionValet further underscore the need for clearer regulations to protect public resources. A GLC and GLIC Act would enhance oversight, ensuring board members and management are fully accountable for their actions. Rather than relying on the Ministry of Finance, which risks politicisation, an independent oversight body would provide unbiased, transparent governance for these entities, thus ensuring their actions align with public interests.
Standardising KPI reporting would address many of the longstanding issues within government-linked entities. Specific KPIs could mitigate selective patronage, political interference, and power concentration, promoting greater transparency and fairness. Currently, the Ministry of Finance may establish new GLCs without a clear mandate for oversight. A GLC and GLIC Act would offer essential guidelines to ensure that these entities align with national goals, protect public investments, economic and social objectives.
A key challenge is addressing selective patronage and concentrated power within GLCs, which has historically undermined fair practices. Enforcing transparent reporting and objective assessments through the Act could reduce political interference and ensure resources are directed toward genuine developmental objectives. Limiting political appointments and setting merit-based criteria would further strengthen independence and fairness. An independent oversight body to monitor KPI compliance is crucial for building public trust and ensuring GLCs genuinely serve the nation’s interests.
Competitive neutrality is essential for a thriving Malaysian economy. Currently, GLCs benefit from competitive advantages that can stifle private sector growth. An Act that mandates KPIs promoting competitive neutrality would help level the playing field, encouraging innovation and fostering a dynamic business environment. Inclusivity-focused KPIs would also promote equitable economic opportunities without compromising productivity, benefitting all communities.
Supporting small and medium-sized enterprises (SMEs) is another critical priority for Malaysia’s economy, especially in post-pandemic recovery. SMEs represent over 98% of registered businesses, employing 7.3 million people and contributing nearly 40% of Malaysia’s GDP. KPIs focused on SME support could measure GLC contributions in areas like financial aid, technical resources, and market development, facilitating SME growth and reducing Malaysia’s reliance on large GLCs. Encouraging GLCs to focus on digitalisation and innovation would help Malaysia overcome the “middle-income trap” and remain competitive in the global economy.
While GLCs provide valuable support during crises, over-reliance on these entities can pose risks to economic stability. During the COVID-19 pandemic, GLCs played a significant role in recovery efforts, with Khazanah Nasional contributing RM6 billion through its Dana Impak and other GLCs offering RM10 billion in relief. However, dependence on GLCs can inhibit private sector development. KPIs that encourage partnerships with private companies could help diversify the economy, allowing GLCs to support growth without overshadowing private industry. The Act should mandate transparent reporting and regular audits to address the “shadow economy” effect that often surrounds GLC governance. A centralised digital platform for KPI tracking would enhance transparency, enabling stakeholders and the public to monitor GLC performance more effectively.
An independent oversight body is crucial to enforce the Act effectively. This body would handle KPI tracking, conduct audits, and reduce political interference, providing data-driven insights to stakeholders. Annual performance reports would empower citizens to evaluate GLC achievements and identify areas for improvement. Clear guidelines on competitive neutrality, resource allocation, and equitable development would ensure that GLCs contribute meaningfully to the national economy.
Last but least, the GLC and GLIC Act must incorporate clear measures to safeguard Bumiputera interests by defining quotas, sector participation, and ownership rights to ensure equitable access and prevent marginalisation. Given Malaysia’s socio-economic landscape, such protections are essential to avoid public concern and resistance, honouring historical commitments to Bumiputera inclusivity and supporting national stability. Explicit quotas for Bumiputera representation in boards, management, and ownership within key sectors would promote diversity, encourage Bumiputera leadership, and foster a more balanced economic landscape. Additionally, the Act could include Bumiputera-focused programs, such as procurement targets and supplier diversity initiatives, to enhance opportunities for Bumiputera SMEs, supporting long-term economic empowerment. Without these provisions, the Act risks backlash as a perceived shift from affirmative action, potentially undermining its goals.
In conclusion, implementing this Act requires careful planning to avoid creating excessive bureaucracy and high compliance costs that could hinder operations. A phased approach, beginning with basic transparency and reporting standards, could minimise the initial administrative burden on GLCs. Stakeholder engagement—including industry experts, economists, and civil society—would ensure that KPIs are practical, relevant, and tailored to each sector’s needs. A centralised digital platform could streamline tracking, while annual KPI reviews would allow for adjustments as market conditions evolve. Independent reviews by the oversight body would further build credibility and maintain public trust.
By Dr. Shahrul Azman Abd Razak, Researcher and Islamic Finance Consultant
