Issued by Lim Teck Ghee and Edmund Terence Gomez
Following the publication of a study on Corporate Equity Distribution: Past Trends and Future Policy by the Centre for Public Policy Studies (CPPS) of ASLI there has been public debate on the ownership of equity capital in the Malaysian economy. In response to the statement by the Prime Minister concerning the need for transparency concerning the statistics on corporate equity and his remarks to the media (Oct. 16) that Malaysians have the right to question the government or to seek answers when referring to calls for the public disclosure for the EPU methodology and data, we have prepared a further note on the issue which we hope can help the authorities shed more light on this contentious issue.
Our paper argues that the use of an inappropriate and flawed system of measurement of equity distribution, based on par values, has fundamentally distorted the estimation of the wealth of the nation over the past three and a half decades. The use of flawed and distorted data has undoubtedly had an impact on the direction of public policy. The cost of the distortion of wealth distribution figures on policy implementation is incalculable.
In our paper, we propose that the Government must abandon the present system of valuation and immediately move to the use of standard internationally accepted basic commercial accounting concepts that provide a true value of companies, based on concepts of net-worth, capitalization or universally accepted notions of equity value. There is no rational and objective argument to the continued use of par valuation.
We have also proposed that the Prime Minister should direct EPU to make public in full the methodologies, classifications and assumptions it has used in estimating the equity ownership figures that were listed in the 9th Five Year Plan. Concurrently, EPU should be asked to publish the underlying detailed data sets it used.
The Prime Minister should also, as a matter of urgency, establish an independent Panel of Experts to review the current methodologies and practices used by the EPU and other Government agencies, and evaluate the data sources used in computing the ownership of corporate equity. The Panel should make comprehensive recommendations concerning methodological modifications that are needed, taking into account professional statistical and accounting best practices and standards. The Panel’s terms of reference should be wide enough to permit it to consult with knowledgeable professionals and appropriate bodies in developing new standards of measurement. The Panel, to enable it to enjoy credibility, should include professional accountants, economists, corporate analysts, academicians and statistical experts. It should also include representatives of both the public and private sectors and its work should be transparent and made available to the public. The Panel should be charged with completing its work speedily and new agreed estimates should be available for use in the preparation of the Mid Term Review of the 9th Malaysia Plan.
Our paper argues that the use of an inappropriate and flawed system of measurement of equity distribution, based on par values, has fundamentally distorted the estimation of the wealth of the nation over the past three and a half decades. The use of flawed and distorted data has undoubtedly had an impact on the direction of public policy. The cost of the distortion of wealth distribution figures on policy implementation is incalculable.
In our paper, we propose that the Government must abandon the present system of valuation and immediately move to the use of standard internationally accepted basic commercial accounting concepts that provide a true value of companies, based on concepts of net-worth, capitalization or universally accepted notions of equity value. There is no rational and objective argument to the continued use of par valuation.
We have also proposed that the Prime Minister should direct EPU to make public in full the methodologies, classifications and assumptions it has used in estimating the equity ownership figures that were listed in the 9th Five Year Plan. Concurrently, EPU should be asked to publish the underlying detailed data sets it used.
The Prime Minister should also, as a matter of urgency, establish an independent Panel of Experts to review the current methodologies and practices used by the EPU and other Government agencies, and evaluate the data sources used in computing the ownership of corporate equity. The Panel should make comprehensive recommendations concerning methodological modifications that are needed, taking into account professional statistical and accounting best practices and standards. The Panel’s terms of reference should be wide enough to permit it to consult with knowledgeable professionals and appropriate bodies in developing new standards of measurement. The Panel, to enable it to enjoy credibility, should include professional accountants, economists, corporate analysts, academicians and statistical experts. It should also include representatives of both the public and private sectors and its work should be transparent and made available to the public. The Panel should be charged with completing its work speedily and new agreed estimates should be available for use in the preparation of the Mid Term Review of the 9th Malaysia Plan.
We feel that it is in the national interest that these steps are taken immediately with the objective of defusing unhealthy speculation and restraining the polarizing trends associated with this issue. What the nation needs is a clear and agreed set of yardsticks that contribute to building national unity rather than being tools for divisiveness.