Why did the Board of Directors allow the 1MDB executives to conduct major transactions without prior board knowledge or approval?

The latest exposé by Sarawak report was the minutes of the 1MDB Board of Director Meeting held on 12 January 2015.  1MDB President Arul Kanda has confirmed the minutes as genuine although he denied that he has lied to the Board of Directors, he merely “miscommunicated”.

I have written yesterday that Arul Kanda clearly lied, and not just merely “miscommunicated” the issue of 1MDB’s redemption of the US$2.318 billion investment from Cayman Islands.

However, what was more revealing was the fact that the Board of Directors have completely failed to perform their fiduciary duties.

Over the years leading up to the full-blown 1MDB financial scandal, the Board of Directors who were composed of illustrious individuals allowed the 1MDB top executives to run circles around them.  The minutes revealed that key multi-billion ringgit decisions to be made without proper consultation with the Board of Directors.

In item 2.4, the Chairman, Tan Sri Lodin Wok Kamaruddin “commented that in the past, the Board has made decisions via DCR (Directors’ Circular Resolution) without the benefit of deliberation, including the decisions on the guarantee of loans, the pledge of the redemption of proceeds to Deutsche Bank.”

How can the Board of Directors be clueless when the entire proceeds to be received from the US$2.318 billion investment parked in Cayman Islands was pledged to Deutsche Bank to secure a US$975 million loan?  The ensuing question, then is, if the Board didn’t deliberate and approve the decision, then who did?

Did the then top executives of 1MDB have the audacity to carry out the above transaction on their own accord? Or did the Prime Minister, Dato’ Seri Najib Razak approve the transaction and by-passed the Board of Directors?

This is because, according to Clause 117 of the 1MDB Memorandum and Articles of Association (M&A), the Prime Minister’s written approval must be obtained for “any financial commitment (including investment), restructuring or any other matter which was likely to affect the guarantee given by the Federal Government of Malaysia for the benefit of the company, national interest, national security or any policy of the Federal Government of Malaysia.”

Regardless of whether it was the 1MDB top management who acted on their own accord, or the approval came from the Prime Minister, the 1MDB Board of Directors must be castigated for failing to fulfil their fiduciary duties as directors of the company.

It is clear their their appointment was only for show. They are mere stooges working for the powers that be. No Board worth their salt would have tolerated the degree of transgressions which took place within the company which included embezzlement and misappropriation of billions of ringgit.

Tan Sri Lodin’s request in the January board meeting that in the future, “last-minute proposals are to be avoided”, and the “Management is to alert the Board on any issues faced as early as possible, for example, on the delay in payment of the RM2 billion loan due to Maybank”, only served to prove the ignorance and incompetence of the Board.

Tan Sri Lodin is also the Chairman of Lembaga Tabung Angkatan Tentera (LTAT), while another fellow director, Tan Sri Ismee Ismail is the Chairman of Lembaga Tabung Haji.  Malaysians are concerned that two other statutory funds managing billions more of Malaysian’s hard-earned savings are led by these same directors who have demonstrated such incompetence in 1MDB.

Their complete failure to navigate the company, ensure proper corporate governance and institute checks and balances contributed in no small way to the financial disaster that is 1MDB.  The authorities investigating 1MDB, assuming there are any still investigating the debt-laden company, must investigate the role of these directors in the Board and charge them for their complicity in the entire monstrous scandal.