This article first appeared in The Edge Malaysia Weekly on July 29, 2024 - August 4, 2024

THE Human Resource Development Corporation Bhd (HRD Corp) has come out looking to make a stand against the Public Accounts Committee’s (PAC) findings that highlighted and questioned the lack of checks and balances and governance standards at HRD Corp.

Here is an excerpt of what HRD Corp shared via email with The Edge. [Note: PAC’s findings are marked in bold followed by HRD Corp’s response.]

In light of HRD Corp’s growth since its establishment, the Ministry of Human Resources (MoHR) should review the need for it to be a statutory body to ensure better governance, in consultation with the Attorney-General’s Chambers (AGC), the Public Service Department and the Ministry of Finance Malaysia (MoF).

HRD Corp is not a statutory body but rather a company limited by guarantee. It reports to neither the MoF nor the AGC but to the MoHR.

Section 50 of the Pembangunan Sumber Manusia Berhad Act 2001 (PSMB Act) empowers the minister to administer HRD Corp in accordance with the PSMB Act. HRD Corp does not receive any funding from the government. Converting HRD Corp into a statutory body would increase the financial burden of the government.

HRD Corp’s board of directors should review the mechanism for transferring levy to the unutilised levy fund to ensure that the interests of small and medium enterprises (SMEs) are protected. HRD Corp should take proactive steps to find alternatives for SMEs to utilise their contribution funds before they are categorised as unutilised levy. 

The unutilised levy mechanism is established under Section 25 of the PSMB Act. It is not intended as a penalty for employers but rather as an incentive to encourage them to utilise their levy contributions for the benefit of their workers. Without Section 25, there would be no enforcement measures to ensure that employers use the levy effectively.

The unutilised levy is channelled back into the training fund for the benefit of the industry, particularly vulnerable groups.

The MoHR should review and amend the PSMB Act to remove the requirement for a Bank Negara Malaysia representative to be appointed as an investment panel member. This is in line with Bank Negara’s position that such an appointment conflicts with its role as a regulator. 

HRD Corp acknowledges the need to amend the Act to remove the Bank Negara representative from the investment panel. Bank Negara issued a letter on July 12, 2010, to withdraw its representative from the investment panel.

HRD Corp should focus proactively on the disbursement of training funds to ensure the development of human capital and a highly skilled workforce through more comprehensive, focused and non-generic training programmes. 

The utilisation of training levy funds should be at the discretion of employers. HRD Corp does not have the authority to influence or direct employers to use their levy in any particular manner or for any specific purpose.

For government-funded training, the type of training is determined by the government itself based on the findings of sectoral training committees. This training is then presented to the board for approval.

For training using HRD Corp funds, the type of training is decided by the board of directors, which has the expertise and knowledge to determine the type of training to be targeted. This is the practice currently being implemented in HRD Corp.

HRD Corp must ensure that all investment activities are monitored by the investment panel and HRD Corp’s board of directors in a more transparent and orderly manner. The investment panel is obligated to report investment activities to the board of directors upon request, as stipulated in the PSMB Act, and not just to the chairman of the board of directors. 

The investment panel is established under Section 26 of the PSMB Act, where the chairperson of the investment panel is appointed as the chairperson of the board of directors. Therefore, the investment panel does not report to the board of directors but will update the board of directors when requested.

The same requirement is provided for in the Employees’ Social Security Act 1969, Section 75A; the Employees Provident Fund (EPF) Act 1991, Section 18; and the Retirement Fund Act 2007, Section 7.

For the information of the board of directors, the HRD Corp management team presented investment activities during the board of directors’ special meeting held on April 12, 2023, as requested.

The management team regularly updates the board of directors on investment activities and performance during the annual presentation of the audited financial statements. For instance, this was done during the board of directors’ meeting on May 28, 2024.

HRD Corp should establish comprehensive guidelines for asset acquisition, encompassing but not limited to limits of authority and standard operating procedures. This will ensure a consistent and standardised process and guarantee full compliance with established guidelines. 

HRD Corp has established its own investment guidelines and policies since the inception of the investment panel. These policies have been refined over the years with the guidance and advice of its experts, and it has a strong investment governance framework that has resulted in investment income growth in the past two years.

The MoHR should engage independent consultants to conduct a forensic audit of the effectiveness of the training programmes implemented under HRD Corp’s purview. This audit should encompass all training programmes, including those funded by government grants. The audit should also consider any complaints received regarding the implementation of these programmes. The findings of the forensic audit should be presented to the PAC. 

According to a survey conducted by the National Audit Department, nearly 90% of registered employers agree that the training programmes offered are aligned with the requirements of their industries. These programmes also enhance employee knowledge, skills and company productivity, as illustrated in the accompanying chart.

HRD Corp has also introduced the National Training Index (NTI) to report on annual training trends across various industries in Malaysia. The NTI encompasses five key sectors: services, manufacturing, construction, mining and quarrying, and agriculture. It is measured based on three main components: (i) employer/industry readiness to train employees; (ii) employee skills development; and (iii) training provider effectiveness.

Consequently, the NTI reading solely reports on industry training trends for the current year and does not reflect the overall achievement of HRD Corp’s establishment goals.

The MoHR, the governing body of HRD Corp, should assume a more active role in monitoring and scrutinising agreements entered into by HRD Corp with third parties, as well as evaluating the effectiveness of implemented programmes. This enhanced oversight should involve seeking legal counsel from the MoHR’s legal adviser whenever necessary. 

The MoHR monitors and provides advice on HRD Corp’s agreements, particularly those involving other ministries or having legal implications or obligations for the MoHR or the Malaysian government. Additionally, the secretary-general (of the MoHR) serves as a member of the HRD Corp board of directors and thus has access to and oversight of all significant HRD Corp agreements.

The MoHR and HRD Corp should enhance corporate governance practices in line with the recommendations outlined in the ‘Governance Framework Review’ report of 2018, conducted by Ernst & Young. 

HRD Corp’s governance framework encompasses a comprehensive set of existing policies, including board charter, constitution, limits of authority, terms of reference for the board committees and management committee, organisational anti-corruption plan, anti-bribery management system policy, enterprise risk management framework, code of conduct and business ethics compliance policy, disaster recovery policy and so on. This has caused the Malaysian Anti-Corruption Commission to downgrade HRD Corp’s risk rating from high risk to moderate risk. This positive development is a testament to the effectiveness of HRD Corp’s governance framework.

In the specific case of HRD Corp, the roles of legal officer and company secretary should be held by separate individuals to ensure that the associated responsibilities can be effectively discharged. 

The Companies Act 2016 recognises advocates and solicitors as qualified individuals to serve as company secretaries under Section 235 of the Fourth Schedule. It is common practice in various industries to have a single officer to handle both roles. Examples of other government-linked companies with this practice are MISC Bhd, Khazanah Nasional Bhd and Lembaga Tabung Haji. These professionals are recognised not only by the Malaysian Bar and the Companies Commission of Malaysia but also by the Malaysian Association of Company Secretaries. These individuals fulfil the requirements of the Companies Act as both lawyers and company secretaries, ensuring corporate governance within the corporation and distinguishing the powers of the board from management.

The MoHR should undertake a comprehensive review of the powers vested in the HRD Corp executive committee (KE HRD Corp), with particular focus on the KE’s role in the board of directors and investment panel. If deemed necessary, amendments to the PSMB Act should be considered to reflect the outcomes of this review. 

The appointment of the CEO as a member of the board of directors is a common practice in various industries. This practice is also prevalent in organisations like Lembaga Tabung Haji, the EPF, UEM Edgenta Bhd, Petroliam Nasional Bhd (Petronas), Perkeso and the Federal Land Development Authority and its unit FGV Holdings Bhd. 

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