GLC Transformation Programme was the programme that coordinated the performance improvement initiatives of Government-linked companies for 10 years, from 2005 – 2015. The Government’s efforts at improving performance in companies under its control or stewardship had demonstrated a positive effect on the rest of the corporate sector. Undertaking such a programme resulted in a sustainable lift to the current trajectory of GLC performance, improving Malaysia’s ability to achieve the target of Vision 2020.

Government-Linked Companies (GLCs) and their controlling shareholders, Government-Linked Investment Companies (GLICs), constitute a significant part of the economic structure of the nation. In 2005, GLCs employed an estimated 5% of the national workforce and accounted for approximately 36% and 54% of the market capitalisation of Bursa Malaysia and the benchmark Kuala Lumpur Composite Index respectively. Even with active divestment and privatisation, GLCs remain the main service providers to the nation in key strategic utilities and services including electricity, telecommunications, postal services, airlines, airports, public transport, water and sewerage, banking and financial services. In areas of industrial policy and development such as in automotive and semi-conductors sectors, GLCs play an important role in executing Government policies and initiatives and in building capabilities and knowledge in key sectors. Further, in the areas of building international economic linkages through investments in foreign ventures and investments in new growth sectors, GLCs and GLICs increasingly played a more active and significant role in line with a gradual internationalisation of Malaysian economic interests, in tune with increased global economic liberalisation.

The 3 key principles to the GLC Transformation are:

1. National development foundation – the GLC Transformation Programme was a subset of the broader national development strategies, including the principles of growth with equity, improving total factor productivity, the development of human capital, and the development of the Bumiputera community.
2. Performance focus – the underlying rationale of the GLC Transformation Programme was to create economic and shareholder value through improved performance at GLCs. Hence, specific policy guidelines and initiatives were driven by principles of performance and meritocracy within the broader national development focus described above.
3. Governance, shareholder value and stakeholder management – the GLC Transformation Programme, while being led by the Government, fully observed the rights and governance of shareholders and other stakeholders. Hence, the policy measures to be implemented came in the form of policy guidelines rather than rules that GLCs were expected to implement through their Board of Directors, in line with good governance. In addition, and within the context prescribed above, GLCs were expected to engage in managing other valid stakeholder interests, in particular those of employees, customers, suppliers and the Government itself as regulators and policy makers.

The 3 key principles to the GLC Transformation are:

1. National development foundation – the GLC Transformation Programme was a subset of the broader national development strategies, including the principles of growth with equity, improving total factor productivity, the development of human capital, and the development of the Bumiputera community.
2. Performance focus – the underlying rationale of the GLC Transformation Programme was to create economic and shareholder value through improved performance at GLCs. Hence, specific policy guidelines and initiatives were driven by principles of performance and meritocracy within the broader national development focus described above.
3. Governance, shareholder value and stakeholder management – the GLC Transformation Programme, while being led by the Government, fully observed the rights and governance of shareholders and other stakeholders. Hence, the policy measures to be implemented came in the form of policy guidelines rather than rules that GLCs were expected to implement through their Board of Directors, in line with good governance. In addition, and within the context prescribed above, GLCs were expected to engage in managing other valid stakeholder interests, in particular those of employees, customers, suppliers and the Government itself as regulators and policy makers.

Based on one methodology established in 2005 to estimate potential value creation, it was estimated that high performing GLCs could contribute a potential upside of RM250 – 300 billion in market capitalisation in the 5 to 7 years that followed.

Beyond the economic and financial benefits to shareholders, GLCs would also benefit all other stakeholders and contribute to Malaysia’s future wellbeing in important ways. For example:

1. Higher service and quality levels for customers;
2. Better job prospects in more dynamic GLCs;
3. Increased transparency favouring higher value-for-money suppliers, with reduced levels of leakages and inefficiencies;
4. Continued development of the Bumiputera community – with better skilled and more competitive Bumiputeras

The Transformation Manual (Manual) was launched on 29 July 2005, and was intended to be a “live document”. New policy guidelines and initiatives to be added over time, and updates or amendments to be made to existing guidelines and initiatives as and when necessary, over the course of the 10-year journey.

This Transformation Manual comprised of four sections:

1. Introduction
2. Section II comprises the Policy Guidelines of the PCG, which are divided into individual chapters applicable to different audiences, namely GLICs, GLC Boards, and GLC management. The final chapter in this second section lays out PCG’s recommended approach to implementing the GLC Transformation Programme
3. Section III comprises the 2005/6 GLC Transformation Initiatives. The initial Initiatives are introduced in this section. Over time, this section will be augmented with further Guidelines and supporting materials, such as templates, tools, and best practice case studies. The primary audience of this section is the CEO and senior management of GLCs, with several Initiatives for GLICs and GLC Boards
4. Appendix

The manual is a public document made available for all stakeholders.

1. Enhance Board Effectiveness
2. Strengthen Directors Capabilities
3. Enhance GLIC Monitoring and Management Functions
4. Improve the Regulatory Environment
5. Clarify Social Obligations
6. Review and Revamp Procurement
7. Optimise Capital Management Practices
8. Manage and Develop Leaders and Other Human Capital
9. Intensify Performance Management Practices
10. Enhance Operational Improvement

The PCG via its Joint Working Team (JWT), conducted a significant amount of research and analysis into the causes and issues surrounding GLC performance. Various research methodologies were employed including more than one hundred interviews, review of relevant best practices, regional and international benchmarking, and a review of existing policies and legal frameworks governing GLCs.

Ultimately, GLICs and GLC Boards had the responsibility of overseeing the transformation of GLCs.

The GLICs and GLCs implemented the initiatives throughout the Programme journey, between 2005 and 2015.

Transformation Management Office (TMO) was a unit that was set up to:

1. Develop, evaluate and prioritise new initiatives in line with themes and objectives
2. Launch the identified initiatives, including identifying pilot projects/programmes, assembling the relevant working team, monitoring progress, managing interdependencies across initiatives and de-bottlenecking any execution issues, whenever required
3. Ensure codification and dissemination of learnings/best practices from pilots and initiatives across GLCs and GLICs. For example, via the creation and dissemination of the “Coloured Books” with guidelines, workshops led by pilot candidates, facilitating the creation of ‘Centers of Excellence’ at GLICs and/or GLCs
4. The TMO reported and published Progress Reviews of the Programme over the course of the Programme journey

GLC Transformation is a long journey, like any other change management effort. Phase 1 started in May 2004 with the introduction of 2004 Measures aimed at inculcating high-performance culture at GLCs. This was followed by the development of the Transformation Manual which culminated in the manual being launched on 29th July 2005 by YAB Prime Minister.

Phase 2 was designed to generate momentum for continuous improvement efforts at both the GLICs and GLCs levels through implementation of initiatives between July 2005 and December 2006.

It was envisioned that tangible results would begin to be realized in Phase 3, i.e. within 2 to 5 years from December 2006 across all GLCs with greater operational and financial performance improvement.

Phase 4 marked the reaping of full national benefits from year 5 onwards as a result of GLC Transformation implementation, with the hopes of producing several regional champions among GLCs, able to compete competitively with their competitors in the global arena.

Government-Linked Companies (GLCs) are defined as companies that have a primary commercial objective and in which the Malaysian Government has a direct controlling stake

Controlling stake refers to the Government’s ability (not just percentage ownership) to appoint Board members, senior management, and/or make major decisions (e.g. contract awards, strategy, restructuring and financing, acquisitions and divestments etc.) for GLCs, either directly or through GLICs.

GLCs include the companies:

1. that the Government of Malaysia controls directly through Khazanah, MoF Inc, KWAP, and BNM; or where GLICs and/or other federal government linked agencies collectively have a controlling stake
2. where GLCs themselves have a controlling stake, i.e. subsidiaries and affiliates of GLCs

Government-Linked Investment Companies (GLICs) are defined as Federal Government linked investment companies that allocate some or all of their funds to GLC investments.

Defined by the influence of the Federal Government in: appointing/approving Board members and senior management, and having these individuals report directly to the Government, as well as in providing funds for operations and/or guaranteeing capital (and some income) placed by unit holders.

By definition, there are currently five GLICs involved in the GLC Transformation Programme: Employees Provident Fund (EPF), Khazanah Nasional Bhd (Khazanah), Lembaga Tabung Angkatan Tentera (LTAT), Lembaga Tabung Haji (LTH), and Permodalan Nasional Bhd (PNB).

In a nutshell, Economic Profit (EP) measures net profit after deducting a charge to account for the cost of capital utilized to generate this profit. Technically, EP is defined as capital invested multiplied by the spread between the return on invested capital (ROIC) and the weighted average cost of capital (WACC). Sometimes, EP is referred to as Economic Value Added (EVA). The formula is:

Economic Profit = Invested Capital x (ROIC – WACC)

Alternatively;
Economic Profit = NOPLAT – (Invested Capital x WACC) where NOPLAT is Net Operating Profit Less Adjusted Taxes

You may find further explanation and details on EP by reading standard Corporate Finance textbooks. As an example, textbooks written by these authors are a good place to start:

1. R. A Brealey, S. C. Myers, Principles of Corporate Finance, 6th Edition, Irwin McGraw-Hill, BurrRidge, IL, 2000.
2. T. Koller, M. Goedhart, D. Wessels, Valuation : Measuring and Managing the Value of Companies, 4th Edition, John Wiley & Sons, Hoboken, NJ, 2005