The Sime Darby Fiasco is back in the News
March 19, 2011
Sime Darby Fiasco is back in the news
Former Sime Darby chief executive Datuk Seri Ahmad Zubir Murshid is looking to take along ex-deputy prime minister Tun Musa Hitam and PNB chief Tun Ahmad Sarji Abdul Hamid among others if he is found guilty of breach of trust by his ex-employers.
In court papers obtained by The Malaysian Insider, Zubir alleged that former chairman Musa, Ahmad Sarji and 20 other former and current directors, were also liable for claims made by Sime Darby in an ongoing RM92.2 million lawsuit to recover losses incurred during the construction of the Bakun Dam, as they were members of the conglomerate’s highest decision making body.
The third party notice issued by Zubir’s lawyers said that if Sime Darby is successful in 
establishing its claims against Zubir, the latter will claim from the chairman and the directors “an indemnity and/or a contribution” against the claims and costs.
The move to name the directors in third party notice has sent shivers down spine of many of those on the board, who now caught between the rock and hard place over the decisions they made before and after the conglomerate merged with two other companies.
The local stock market will not accept that all these eminent individuals including two former chief secretaries to government, accountants and others had no knowledge of the cost overruns in the Bakun Dam and oil and gas projects in Qatar, especially since some of them chaired supervisory committees, risk and audit committees.
The notice also stated that the grounds for its claims “are that at all times material to this action you were a member of one of more of the Board of Directors of the Plaintiffs herein representing the highest decision making bodies of the Plaintiffs and as such you owed a duty to exercise due skill, care and diligence in the exercise of your duties”. Sime Darby officials confirmed the suit when contacted by The Malaysian Insider.
Zubir’s statement of defence to a separate RM338 million lawsuit filed by Sime Darby which was also read by The Malaysian Insider sheds light on the inner workings of the group, and answers some questions posed by the market and Malaysians who wondered why no board member has been held to account for the RM2.1 billion worth of losses incurred in the last financial year.
The former Sime Darby chief accused the group of selective prosecution, pointing out in the statement of defence that the main board of directors “retained control over the management and ultimate decision-making process of the Sime Group”.
He further claimed that the supervisory committee — comprising the president, group chief executive and main board members — was always chaired by a board member other than the president and group chief executive.
The legal battle could affect sentiment toward Sime Darby as investors are looking for positive 
news flow from the group following the installation of new management after Zubir’s departure.
Sime Darby’s wholly owned subsidiary Sime Darby Engineering was also slapped with a USD178 million (RM543 million) lawsuit this past week by Abu Dhabi based Emirates International Energy Services (EMAS) for alleged non-participation in projects that EMAS had identified.
Besides Musa and Ahmad Sarji, other directors names in the third party notice include National Economic Advisory Council member Datuk Seri Panglima Andrew Sheng Leng Tao and Khazanah director Raja Tan Sri Datuk Seri Arshad Raja Tun Uda. Top former and current public officials are also expected to be involved in a major exercise of washing dirty linen during the court case.
Sources told The Malaysian Insider that among other matters to be disclosed in the suit is the extent of involvement by government leaders, the Cabinet and senior politicians in the running of the public-listed company.
The suit over RM2.1 billion losses incurred by Sime Darby had named Zubir and four others, Datuk Mohamad Shukri Baharom, the former executive vice-president of the energy and utilities division; the division’s chief financial officer Abdul Rahim Ismail; the division’s oil and gas unit chief Abdul Kadir Alias; and Mohd Zaki Othman, from Sime Engineering.
The defendants are expected to claim that the conglomerate’s loss-making ventures in Bakun and Qatar were public knowledge to even top government leaders.In its statement of claim, Sime Darby had alleged that the five accused acted as a “decision-making unit” in the energy and utilities division and were responsible for the division’s actions and omissions.
Sime Darby further claimed that the defendants had been grossly negligent for allowing Sime Engineering to pursue engineering, procurement, construction, installation and commissioning (EPCIC) projects in which it had no prior experience.
The five men were also accused of awarding EPCIC jobs to similarly inexperienced subcontractors and for failing to pursue claims for work not done.
Sime Darby had also filed a RM92.2 million suit against Ahmad Zubir, Shukri and Abdul Rahim for breach of trust and duty over the Bakun Dam project.
The second civil suit, which identified Sime Darby and three of its subsidiaries as plaintiffs, was filed at the Commercial Court register here through law firm Zaid Ibrahim & Co last December 24.
Sime Darby’s two suits follow its announcement in September, 2010 that forensic audit into the energy and utilities division had established a prima facie case of foul play and a failure to carry out its duties and obligations.
The conglomerate’s woes first came to light in May when then-chief executive Zubir was asked to take a leave of absence prior to the expiry of his contract following the discovery of RM964 million in cost overruns from the four energy and utilities projects.
The massive cost overruns bled the division and led to the announcement of Sime Darby’s first ever quarterly loss of RM308.6 million that same month.
In the previous corresponding quarter, Sime Darby had posted a profit of RM150.6 million.The losses were the first since its formation in 2007, when it was merged with two other government-controlled plantation groups.
It is time that this major fiasco is put to rest and if this trial can do it–hopefully quickly– then shareholders are at least clear about what had actually happened. Those found guilty must face the consequences. Surely the entire Board as much as the management must take responsibility for this massive financial loss.
It is unbelievable that with proper system of internal controls backed by risk management and audit committees in place, both the Board and Management cannot take action to cut losses. The public knows that Bakun Dam project is a non starter but why did the Board decide to take over the project. Sime Darby seems not to have learned the lessons of the Sime Bank debacle. Do we know why Sime Bank failed. There is too much politics in corporate decision making.
As a former senior Sime executive when Tunku Tan Sri Ahmad Yahaya was the Group Chief Executive and Tun Tan Siew Sin and Tun Ismail Mohamed Ali were chairpersons in the 1970s-1990s, I am saddened to see that this respected first Malaysian MNC,now >100 years (established in 1910), is in the news for the wrong reasons.–Din Merican
dinobeano - March 19, 2011 at 10:35 am
Sime Darby is courageous enough to charge the officers but it should has initiated earlier to prevent the cancer from spreading further.
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Ben, isn’t the entire Board accountable for this?–Din Merican
ben - March 19, 2011 at 11:06 am
Well, selective prosecution is a way of life in Bolehland. Power and money buy influence here. The real culprits will go scot-free while the minnows are trapped and walloped.
It’s about time that people like Ahmad Sarji face the wrap. He has been hogging the limelight far too long. Isn’t there any other capable people other than this idiot?
Tok Cik - March 19, 2011 at 11:49 am
“Isn’t there any other capable people other than this idiot?” Tok
Ada.., but that’s the culture of mediocrity. Where else to plant these fellas, who have slaved with distinction for their masters? Whether kangkung or not, they still have their uses. Furthermore it’s ‘racial’ and the stated need to project the Orang Utan capabilities.
The SDB board of directors seem to be directing all over the place, and they have no idea what should be their strengths and core values. Imagine from plantations to power generation to oil-gas exploration to automobiles to defense to aviation to biotechnology.. None of the S.Korean chaebol nor Japanese keiretsu can compare lah.. The way of Octo and tentacles! None of which really work!
I say kick out the whole bunch of unfocused self-interested fellas and put in a professional team with holistic ideas of Strategy, not mere Tactics..
C.L. Familiaris - March 19, 2011 at 12:46 pm
Sime Darby’s decision to charge the 5 for the Sime Darby Fiasco is a blatant act of selective persecution. For all intentions and purposes, the whole Board of Directors are equally responsible and accountable for ommission or commission of any act and/or decision made. It is the established and accepted convention.
man-on-the-street - March 19, 2011 at 12:47 pm
Perhaps it is the ‘your obedient servant’ mentality that is the problem.
If so requested, especially by the then PM where Bakun was concerned, whom am i to say no especially if it will only do me harm if i said no.
Guess the moral of the story is that there does not exist among our leaders the likes of the two Tuns. Unfortunately we are paying billions for their absence.
jay - March 19, 2011 at 2:21 pm
Jay, in life we must always make a stand. Nobody will protect you if you do not perform your fiduciary responsibility as a director. The first people to abandon you at the first sign of trouble are the politicians. That is why you must do what is right–Din Merican
dinobeano - March 19, 2011 at 2:39 pm
Ahmad Zubir is definately doing the right thing – in bringing all these parasites down . They should all be flushed to any one of the indah water ponds to stir shit like al kutty .
sunshine - March 19, 2011 at 7:25 pm
This is what happens when Public Funds are used in the Private sector. Firms become too big to fail, like government, instead of becoming too good to fail. We have not learnt. The private sector want to feed itself on public funds because then the bottom line will become irrelevant to its operation. The state will always be ther to bail them out no matter who controls the state. Ruling party or the opposition. It is for the private sector a win -win situation.
Anonymous - March 19, 2011 at 8:00 pm
This is not just about Sime Darby. The problem is larger than Sime Darby. This is about a government that rather than remain in the business of governing, wants also to do business.
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The Government is there to protect Bumiputras under the NEP! Harapkan Pagar. Pagar makan padi.–Din Merican
Mr Bean - March 19, 2011 at 8:22 pm
This is about a government that rather than remains in the business of governing, wants also to do business.
Mr Bean
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It’s also about a political party trying to reward retired politicians and retired government servants who are greedy and not satisfied with their pensions. GLC’s are used as pasture for these greedy people. The ex DPM and ex KSN can live comfortably on their pensions but no they want a lifestyle of the rich and famous.
semper fi - March 19, 2011 at 8:49 pm
As much as Ahmad Zubir has been made the scapegoat and could actually be guilty as charged, the entire Board especially those in the Management and the Audit Committees must take responsibility and be punished according to the law. I am going to bring this up in the next AGM although I am just a small-fry shareholder.
__________
Good for you, sentinel. It is time for shareholders, big and small, to speak up and demand accountability from the Board and management. I do not understand why PNB, EPF and other big institutional investors gave the Chairman, Musang Hitam, their proxy votes for him to vote as he deemed fit. That is nonsense. Their representatives should have been there to speak on behalf of unit holders and EPF contributors. What kind of shareholder democracy is that. Thus those shareholders present could not vote Musang out of his chairmanship of Sime Darby Berhad.
I was at the last AGM at the Sime Darby Convention Centre in Bukit Kiara, and heard Musang announcing at the start of the AGM that he had enough proxy votes, representing X numbers of shares, to vote on the resolutions presented at AGM as he deemed fit. He should have resigned voluntarily instead of clinging to his chairmanship. I suppose, he still needs the directors fees (a hefty sum I am told) and the perks. What a shame!!
I appreciated Dato Wahab, a sikh gentleman who spoke with conviction and a few others; one of them, from Ipoh, said, “Mr. Chairman, pardon me. I am a small shareholder who put his savings in Sime shares. I suffered a big loss when the share price fell sharply as a result of losses suffered in the last financial year ended June 30. I may not know much about management but at least I know what accountability means”, or words to that effect.Together they kept the AGM going for 6 hours, and that is a record in Malaysian corporate history.
Thick Janus-faced Musang Hitam should have felt humiliated. It never happened when Tun Tan Siew Sin and Tun Ismail bin Mohamed Ali were Chairmen. The AGMs during the Tan-Ismail era at Sime were smooth and pleasant.–Din Merican
Sentinel - March 19, 2011 at 8:57 pm
I can vividly recall Sime Darby as the Malaysian sole agent for “Cadbury Chocolates” which I liked very much when I was a kid. It was an in-thing those days to have a “Made in England” milk chocolate bar melting in your mouth. I also had a late cousin-in-law and a classmate’s father working for the company in Penang.
These days, the story is bitter. Looks like the company has done a lot financial gymnastics and dangerous spins, and when it lands, it would be hard landing, no doubt because the directors and senior management don’t seem to have the skills and motivation to land properly.
They would probably be asking for a nice cushion filled with public funds for them to land the company safely. Some of our Malaysian critics of American bailout policies for the 2008 financial crisis may be able to see the made-in-Malaysia bailout action on our home ground soon.
Everybody should be watching out for their landing, and make sure they don’t stand underneath because the amount involved is large enough to equal a GDP of a small country.
Malaysians should not forget about the BMF case in Hong Kong, and the Pan El case in Singapore. With this case added, it appears that Malaysia is a ‘Santa Claus’ country where money comes from our eternal spring well.
It looks as though history is repeating itself here this time, but under Malaysia’s internal jurisdiction.
This case msut be handled on par to how the other cases were handled by foriegn jurisdictions. There are serious implications on future investment (FDIs) prospects because the current government has laid down plans for influx for huge FDIs as part for Malaysia’s future economic growth.
This must be handled right so that the world has confidence in putting billion dollar investments in Malaysia. Something transparently right must be done fast to earn and secure the trust when there are many other alternative (outside Malaysia) destinations for the FDIs.
Tang Loon Kong - March 20, 2011 at 5:43 am
In many parts of the developing world, when there are big corporations especially government initiated ones, there is always inherent possibility to have directors or senior managers who are really proxys for third parties.
In other words, these directors are in a ‘matrix organization’ but one of the two parts of the ‘matrix’ extends beyond the corporations.
These people are there because usually they have been annoited, for their string loyalty to third parties. So, when their ‘handlers’
want some action (mostly due to contestations), these directors and senior managers proclive, and not all these actions can fit and get coordinated into the grand business plan of the corporation. It could just tear the corporation apart, and they people may not care because they know they have their invisible safety nets waiting for them.
I am sure many have heard about the stuoid farmer that killed the goose that laid the golden eggs.
As such, failures of these corporations are prime facie failures of managment – this as far as the best auditors and accountants can go. Look deeper, there could be signs of these third parties using public funds for non-public purposes.
This helps explain the irrational behaviors (money losing behavior) of directors as far as the real business of the corporations is concerned. If it is not rational, then it is very obvious what the other is. It is definitely not the ‘agency effect’ because the amount involved would usually huge – no banks would be daring enough to take on the risks linked to single or a few persons without substantial psychological collateral.
Finally, I am sure we all know about the story of the greedy famer that killed the goose that laid golden eggs instead of hatching the eggs and get more to lay more golden eggs.
Tang Loon Kong - March 20, 2011 at 6:41 am
The evidential losses in Sime Darby lies with the Managing Director who is supposed to be fully responsible on day to day running of the affairs of the company where the departmental heads are answering to him to ensure all projects are under control. Taking up the dam project in Sarawak without the necessary experience is just like going to the guilotine in such a mega project.
Waiyuen Leong - March 20, 2011 at 4:02 pm
This Case of Sime Darby ex.CEO of implicating the Chairman & Directors is very important as it is going to form the benchmark & precedent to bring our former ex.Prime Monsters to book re. the cases
01.Tun Linglongsick where Tun Madshit is implicated
02.Jatoh Changonechoy where Tun Sleepy is also implicated.
Only one small slight problem to resolve before these two MCA canaries can sing…KICK BE END out in the 13th.GE Elections !!!
Hidup Malaysia !
fairplay - March 20, 2011 at 9:05 pm