The failure of corporate governance at Sime Darby Bhd’s energy and utilities (E&U) division shows that the need for integrity among corporate citizens has never been greater or more pressing even though much has been done to improve standards in Malaysia.

The mess in the world’s largest listed oil palm player has again called into question the most fundamental notion of trust in corporate Malaysia and the country’s economy.

Although not everyone sees poor corporate governance as the only culprit in Sime Darby’s case, many expect the regulators, namely the Securities Commissions and Bursa Malaysia to take strong action or even change rules to improve the management of public-listed firms.

It goes without saying that those who break the laws on drug possession and theft run the risk of ending up behind bars for much longer than their white collar counterparts.

Take the following cases as examples. Former directors of MEMS Technology, Bhd Ooi Boon Leong and Tan Yeow Teck, were fined RM300,000 each in default of two years imprisonment for authorising the furnishing of a misleading statement to Bursa Malaysia.

In April, Ashari Rahmat was jailed a day and fined RM35,000 in default of 15 days imprisonment while Fauzi Ibrahim was jailed a day and fined RM30,000 in default of 15 days imprisonment for cheating UPA Corp Bhd.

Compare the Malaysian cases with those in other countries. Just recently in Hong Kong, Michael Yip Kim-po, former chairman of Ocean Grand Holdings Ltd, and five co-defendants was sent to prison by the District Court for defrauding HK$180 million (RM72.7 million) from Ocean Grand Co.

Yip, 50, was sentenced to seven years in prison and barred from holding the directorship of any company for 10 years. His younger sister Yip Wan-fung, 42, was sentenced to six-year imprisonment and a six-year prohibition on holding directorships. The other four co-defendants received sentences of three to six years.

It was reported that Judge Kevin Browne went so far as to tell Yip directly that the former chairman’s sentence was actually too lenient to reflect the seriousness of his crime and that he was “lucky to be judged in District Court” which is barred from imposing sentences of greater than seven years.

Indeed, since the cases above involved high-ranking officers in listed companies, there has been concern over the possible loss of investor confidence in public companies and damage to Hong Kong’s reputation.

But in Malaysia, one question often asked is: What is stopping stronger custodial sentences from being imposed on white collar criminals?

As one of the largest entities on the local stock exchange and a bellweather of the FBM Kuala Lumpur Composite Index, how the Sime Darby fiasco unfolds may well be used as an indicator of how well the country can reform and revamp its government-linked companies.

The conglomerate’s cost overruns in the E&U unit for four projects have ballooned to RM2.1 billion for FY2010 ended June 30. Contrast this with the HK$180 million Ocean Grand fraud.

Let’s not forget, the government-linked behemoth is a corporate icon in Malaysia. It has key performance indicators (KPI) to measure actual performance against planned targets and these should be closely monitored on a continuous basis.

As such, the company’s management would have been alerted by their accountants to any adjustments in project costs. It is worth noting that some of the projects conducted by the E&U division commenced as far back as 2002, well before the Synergy Drive merger in 2007.

Thus, it is a wonder how such massive cost overruns, into billions of ringgit, could happen without any knowledge by the board of directors.

Granted, two senior Sime Darby executives were arrested by the Malaysian Anti-Corruption Commission (MACC) in July and August, and chairman Tun Musa Hitam informed shareholders during the AGM on Tuesday that it would pursue legal action in matters pertaining to the E&U losses.

However, much of what actually transpired at the E&U division remains unknown and whether the culprits will face the full extent of the law remains to be seen.

Musa said reports have been lodged with the SC and MACC. The matter now rests with the SC and the MACC since criminal action is not within the purview of the company, he added.

So, now the ball is in the authorities’ court. Can the investing public count on Bursa, the SC and MACC to punish those involved in perpetrating the losses in Sime Darby’s E&U unit?

Much will be expected from these bodies to restore confidence and prevent similar incidences from reoccurring.  

As the playwright and co-founder of the London School of Economics’ George Bernard Shaw put it, “If history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience.”

This article appeared in The Edge Financial Daily, November 18, 2010.