It's iPad!

So we will see guys in Malaysia with pads! Not the kind of pad that you may think but the iPad recently released by Apple.

Malaysians may not have the opportunity to use one until perhaps June but the excitement generated through the launch certainly would continue for a long time. Some did feel disappointed though as some features like multitasking is not available.

For the strategy point of view, Apple appears to create something between a smart phone and a laptop. iPad appears to be focusing on specific functions which many laptop users spend most of their time on like browsing the web, checking emails, keeping their photos and watching videos. By ensuring the applications that work on iPhones could also be used on iPads, iPad goes into the market with hundreds of thousands of ready applications. This makes the new product more interesting in addition to the technical features which I find very interesting. At the same time it reduces cost to Apple in terms of R&D since the results could be used in both iPhone and iPad.

iPad is another example how diffuse it is now between which one is product and which one is services. If we take a step back, we should be able to acknowledge that products or services have their own ecosystem. Demand for cars for example depends on the network of services centres, part suppliers, accessories, fan clubs as well as critics. Similarly for iPads, the number of application developers, service centres and supporters clubs would contribute towards its success or failures, apart from the functionalities it offers.

There would be more commentaries and review on iPads especially when the first iPad hits the street. But what has been revealed so far is enough to make Apple's competitors to review their strategy in anticipating tough battle ahead with iPads.

Rethink, Redisign, Rebuild

The annual congregation of business people, economist, politicians and other key figures who shape the world will commence in Davos, Switzerland today. Celebrating its 40th anniversary this year, the World Economic Forum has earned itself as the platform for thought leadership and advocacy for better future.

This year's forum is held on the background of the world recovering from financial and economic crisis that has no precedent in terms of magnitude and breadth. At the same time the advancement of technology has allowed people to work and collaborate in a manner not seen before a decade ago. The issue of sustainability of the planet has emerged as one of the critical problem that needs immediate and firm response. Problems not need to be resolved at the global level, with agreements and concurrent of many nations and key institutions.

Aptly chosen, the theme of this year's WEF is Rethink, Redisign and Rebuild. The forum intends to encourage the rethinking of business models, financial innovation and risks management, a direct response towards the recent collapse of the global financial system and to emphasis the point that business as usual is not sustainable.

Events in the past clearly demonstrated about the need to redesign institutions, policies and regulations with the aim of closing governance gaps, preventing systemic failures and restoring growth. However, the challenge would be to shape common vision among the stakeholders and players who have different interests and agendas based on which part of the world they are coming from.

Leaders and decision-makers, therefore, must rebuild trust, not only to establish the legitimacy of their redesign but also to instill confidence in their future success.

The key challenge is always about what happens after the dust has settled. How far the thoughts, views and agreements in Davos is converted into effective initiatives and efforts will be the real measure of any achievements. Not withstanding that, the annual pilgrimage to Davos can also be seen as the willingness of the human kind to sit together and discuss about our common destiny.

The right person for the position

Organisations, whether they are geared towards profit or otherwise, consist essentially of people working in groups.

Irrespective of the size, geographical location and the level of technology employed, it is the quality of the people that eventually determines the effectiveness of an organisation and the achievement of its mission.

A lot has been said about people and organisations but most will agree that ultimately, the aim of any organisation is to ensure it has the right people for each available position, right from the top to the bottom of the organisation. Is this normally the case?

“Right person”, if not anchored against certain principles, could be understood differently by many people and organisations.

It could simply mean somebody who is not a threat, in whatever ways, to the person making the decision. At the other extreme, the organisation would go to great length to determine the criteria of the person being sought, after considering the mission and strategies adopted before commissioning a search for likely candidates. This is then followed by a filtering process until the “right person” is identified.

It is obvious that the quality of the person eventually hired or selected depends on the quality of the person or group of persons making the decision. Therefore, organisations should be cautious in deciding who this responsibility should be assigned to. Perhaps in addition to where the person sits in the hierarchy of the organisation, specific knowledge and expertise may be required.

Organisations which have good public image may not find it difficult in looking for potential people who are interested to join them.

Having a big pool to choose from would be an added advantage. However, some organisations do carry reputations which may not be that attractive for people to be associated with.

Given the emphasise on governance and integrity nowadays, any organisation which is seen to be compromising on these principles may find it difficult to attract top talents.

Goods talents are attracted to organisations which could offer them career development prospects. If an organisation appears to be directionless, it may be the place for bright and talented people to build their career.

In as much as organisations have to look outwards in search of talents, there is a need for them to look at themselves and initiate any necessary changes to ensure they are in the radar screen of the “right” people they are searching for.

Unfortunately, as image and perception are based on their real conduct and behaviour, any cosmetic changes could be sensed by the market and may not carry them that far in competing for top talents. Do we have enough of the “right person” in the first place? The debate about the lack of graduates who fit the needs of employers could be a sign that the supply may not be adequate. This debate is happening not only in Malaysia but in other parts of the world as well.

However, we could not use that to justify that status quo is acceptable. We as a country need to compete and move our way up the value chain and we need more smart and talented people.

More industry-academics collaboration is needed to address this issue but more openness and flexibility on the part of the institutions of higher learning are necessary. The KPIs of our universities need reassessment as some may not point to the right direction as far as the people in the industry are concerned.

The other issue in getting the “right person” is that competition for talent has no geographical limit. A talented person with capabilities to serve global companies will be valuable in any economy.

The challenge for Malaysian organisations is that we normally limit ourselves to offering Malaysian scale of salary and benefits. What more when the person in question is a Malaysian.

This may be reasonable, in most cases, as the sources of income for the organisations are mainly from Malaysia.

Global companies may have more flexibility as they could offer global job prospects, global salary scales and focus more on merits rather than anything else.

This does not mean they are better than Malaysian companies and organisations but they simply could offer something more that what we could.

It would certainly be very unfortunate if we lose more of our smart and talented Malaysians whom we have invested in since their schooling days. However, it would be very difficult to retain them if the choices that they have are aplenty. People are more globally minded nowadays as our ways of living change.

How many kids do not have a Facebook or Friendster account? If from young, they start making friends with people from many parts of the world, it is only natural that they go out and explore the world later in their lives.

While our organisations continue to seek the “right persons”, we as a nation need to start changing our ways of nurturing and retaining talent so that we have enough brain power to remain a competitive and blessed country.

This article was also published at The Edge Malaysia website here:

http://www.theedgemalaysia.com/commentary/158328-the-right-person-for-the-position.html

Whistle-blower policy set to be used in more agencies

PORT KLANG: Informants have been assured of protection under the whistle-blowing policy launched by Transport Minister Datuk Seri Ong Tee Keat for the Port Klang Authority (PKA).

Ong said he hoped the people would come forward to offer information on malpractices, misuse of power or corruption without fear of reprisals with the policy in place.

“We will implement the policy first with PKA and this will be followed by other port authorities,” he said after launching the policy aimed at ensuring good governance and transparency for the PKA and Port Klang Free Zone Sdn Bhd, the operator of the Port Klang Free Zone (PKFZ) yesterday.

Independent members: Ong (right) presenting a letter of appointment to Nik Mohd. Looking on (from left) are Ng, Transparency International Malaysia president Datuk Paul Low and PKA chairman Datuk Lee Hwa Beng.

Informants are encouraged to lodge complaints or offer details on fraud to the Whistle-Blower Committee set up by the PKA or via the website www.wbs.pka.gov.my.

The whistle-blowing policy will be extended to other agencies under the purview of the Transport Ministry soon.

Besides the policy, other measures would be implemented by the PKA to help the port authority re-establish its image and credibility, said Ong.

The policy was one of the proposals made by the PKA’s ad hoc committee on corporate governance chaired by Transparency International Malaysia president Datuk Paul Low Seng Kuan.

“The policy gives protection to the provider of information and, as such, I hope the people will come forward without fear of reprisals over their action,” Ong said.

Ong also announced the appointment of Datuk Ng Mann Cheong and Nik Mohd Hasyudein Yusuff as independent board members of the PKA. The other independent board member appointed earlier was Datuk M. Rajasingam.

Ong wanted board of directors of all port authorities under the ministry to have independent directors making up one-third of the board as soon as possible.

The ministry sent circulars on the directive to the port authorities in December last year.

“We are serious about it, we walk the talk,” he said.

As reported by the Star, 22 January 2010

Managing systemic risks globally

HIGHER level of systemic risks, risks from slow failures or creeping risks and global governance gaps are the three themes that provide the backdrop in the Global Risks 2010 report issued by the World Economic Forum (WEF) last week.

Divided into five distinctive domains — economics, geopolitics, environment, society and technology — the report does not only point to the likelihood and severity of the risks but provides useful insights on the interconnection between the risks. Further fall in asset prices, slowing of China’s growth to less than 6%, fiscal crisis, global governance gap, chronic diseases and underinvestment in infrastructure are the key risks for 2010.

The fact that further fall in asset prices has been identified as the key risk for 2010 reflects the concern about how resilient the global economy is at the moment. The report cited the worry among experts about a lag in the impact of the recession experienced by the developed economies, particularly bankruptcies among small and medium enterprises, credit card defaults and unemployment. The fear now is that any new downturn would be liquidity driven rather than debt-driven like last time.

The reliance on China to be the saviour of the world economy on its own creates another risk; what happens if China fails to deliver? The report notes that the growth in China is fuelled by high credit growth which carries the risks of misallocation of capital and renewed asset bubbles. Failure by China to deliver would adversely affect the global capital and commodity markets.

Responding to the global financial crisis, many governments went into the pump-priming mode to ensure their economies remain inflated. Inadvertently, this results in some exposing themselves to unsustainable amounts of debt. Whether this will in turn result in pressure on their sovereign debt rating would be something to be observed this year.

The experts who contributed to the report identified global governance gap as the most significant source of risks in terms of interconnectedness. An example of this could be observed by the discussions by the G20 leadership on how to respond to the systemic failures associated with the recent global financial crisis.

The lack of results from the Copenhagen climate conference last year is also an example of how we are assuming more risks when governments fail to take the tough but necessary steps to address risks that are coming, albeit slowly.

Klaus Schwab, executive chairman of WEF, asserts that global risks, due to its endemic and systemic nature, can only be addressed through a fundamental overhaul of current values and behaviours.

Population growth, transmigration due to liberation of markets, longer life expectancy and changing dietary habits contributed to the increased risk of chronic diseases. This will further stress the healthcare infrastructure which is suffering from cutback in funding due to the economic crisis. This will further impact productivity and economic growth.

The report also highlights the findings of multiple studies across the world noting repeatedly that vast segments of our water, energy or transport infrastructure are structurally deficient or functionally obsolete, requiring considerable annual investments to avoid catastrophic failure.

There is much to be learnt from this report, especially for corporate planners and policymakers in Malaysia. The fact the interconnectedness and policy gaps are widely discussed makes it clear that we could not plan our future on our own as the world now is too interconnected for us to ignore how others are addressing the issues we are trying to address.

Just consider the sub-risks listed under the geopolitics category. International terrorism and specific Islamic countries are listed very clearly. Therefore, when there are issues which relate to religion developing here, we should not be surprised if some governments react swiftly although we may feel that things are still fairly under control here.

The interconnectedness of the risks requires a new paradigm of responding. Our government is generally structured based on specific mandates and powers. How would the various agencies react and respond to risks which are multidisciplinary in nature and cut across these mandates? If the past is an indication of the future, we tend to see things from narrow angles depending on the mandate of the people around the table. Is this a sustainable approach?

The final point about the report is that views were sought in arriving at the position taken in the report. It would be really great if Malaysians and Malaysian organisations are recognised as well. For this to be achieved, we need to demonstrate that our viewpoints matter.

We could certainly make more effort to demonstrate that we are also great at thought leadership. This is where various institutions set up by the government can prove that they are at par with the rest of the world. The private sector should certainly contribute as well.

Risks are there for us to take opportunity from. The sooner we understand how to do so, the better we would be in addressing the challenges of the future.

This article is also published at the Edge Malaysia website here:

http://www.theedgemalaysia.com/commentary/157801-managing-systemic-risks-globally.html

Developers need to take IFRIC 15 seriously

In another step towards full convergence with the International Financial Reporting Standards (IFRS) in 2012, the Malaysian Accounting Standards Board (MASB) last week announced the issuance of three revised Financial Reporting Standards (FRSs), amendments to five existing FRSs and four new interpretations.

While the issuance and amendments of the FRSs and interpretations have been exposed, discussed and commented on in the past, the interpretation on the agreements for the construction of real estate or IFRIC 15 would have a major impact on the property development industry in Malaysia.

Under the present FRS 2012004, Property Development Activities, the revenue from property development activities is generally accounted for using the percentage of completion method, that is, revenue is recognised as the project progresses. FRS 2012004 will be withdrawn with effect from July 1, 2010, when IFRIC 15 will be operational and becomes part of the applicable approved accounting standards in Malaysia.

Essentially IFRIC 15 clarifies the difference between a construction contract which should be accounted for under FRS 111, Construction Contracts, with a contract for the sales of goods which FRS 118, Revenue, will be applicable.

According to IFRIC 15, a construction contract is when the buyer is able to specify the major structural elements of the design of the real estate before construction begins or specify major structural changes once construction is in progress. Hence, FRS 111 shall apply.

In contrast, IFRIC 15 takes the view that an agreement for the construction of real estate in which buyers have only limited ability to influence the design of the real estate, for example to select a design from a range of options specified by the entity, or to specify only minor variations to the basic design, is an agreement for the sale of goods within the scope of FRS 118.

If the agreement or a component of the agreement has the elements of rendering of services, revenue may be recognised on the percentage of completion method. An indicator of a service agreement is when the entity is not required to acquire and supply construction materials.

On the other hand, if the contracting entity is responsible to provide construction services together with construction materials in order to deliver a completed real estate to the buyers, the agreement is for the sales of goods.

Here, whether or not revenue could be accounted for using the “percentage of” method depends on whether control and significant risks and rewards of ownership of the work in progress could be transferred to the buyers as construction progresses. In the example accompanying IFRIC 15, when a property developer retains control and significant risks of ownership of the work in progress until completion, profit is recognised on the completion of the contract.

If most of our property development contracts fall under the sales of good category and revenue is only recognised at the completion of the contracts as developers still retain control and significant risks in the ownership of the uncompleted units, property developers in Malaysia may need to revise their accounting policy and their books accordingly.

In fact, MASB indicates that IFRIC 15 “may have a significant impact on the real estate industry, particularly those involved in multiple-unit developments, such as apartments and condominiums and sell the units before the construction is completed”.

IFRIC 15 requires the effect of the change in accounting policy to be applied retrospectively, meaning affected property developers shall adjust the opening balances of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied.

While the effective date of IFRIC 15 is still around six months away, property developers which are required to apply IFRIC 15 should consider the implications and start the required process of adoption. Those which carry a significant number of outstanding projects before the cut-off date of July 1 would need to start looking at the terms of the sales and purchase agreements and determine how revenue for those contracts should be determined when IFRIC 15 is operational.

It would also be interesting how the Inland Revenue Board would respond to the changes brought about by IFRIC 15. At the moment, property developers are taxed based on the percentage of completion method.

Are we heading towards a regime where the difference between accounting and taxable profit would be minimised to reduce compliance burden of Malaysian corporates? This is something that the business community will monitor as more FRSs are introduced or amended as the 2012 convergence dateline arrives.

Given the emphasis on high quality financial reporting and the potential change in the practice of how revenue from property development activities would be accounted for with IFRIC 15, listed property development companies need to take IFRIC 15 seriously.

Since there is some time for any initiative to cater for the possible change and the consequential business implications, any delay in responding would increase the challenge of implementation.

This article was also published at the edge Malaysia website here:

http://www.theedgemalaysia.com/commentary/157309-developers-need-to-take-ifric-15-seriously.html

Directors Need to be Concern About Risk of Fraud

When 49% of companies in Malaysia which were surveyed by KMPG experience at least one incidence of fraud, directors who are ultimately responsible for the good governance of companies should take the risk seriously.

The Head of KPMG Forensic Malaysia, Tan Kim Chuan said the threat of fraud came mostly from within the organisation.

"The theft of physical assets appeared to be a popular category of fraud perpetrated among non-management level employees and external parties. Management level employees were more prone to committing the theft of funds (outgoing)," Tan highlighted.

Companies must set up the necessary systems and processes to enhance their ability to pre-empt and detect frauds, said Securities Commission Malaysia (SC) chairman Tan Sri Zarinah Anwar.

Zarinah said laws and regulations alone would not completely insulate investors against poor governance practices or fraud, but it was important that these were kept updated and that regulatory and enforcement agencies had the requisite powers to institute action to protect innocent investors from unscrupulous conduct.

A natural consequences arising from fraud would be fraudulent financial reporting as the culprits would try to cover their acts by ensuring the financial statements indicate a different picture. Unless directors ensure a rigorous fraud detection process to be in place, the effect to the reputation of the company would be severe when the fraud is later discovered and the fact that no serious attempt to prevent and detect fraud is known to the public.

Having programmes which promote integrity and good governance among the people in the organisation is one of the ways to combat this issue. Furthermore, the directors and senior management should lead by example in demonstrating conducts and behaviours which are exemplary and re-in force the values of the organisation.

The Water Issue

More Malaysians are aware and concern about the issue of water supply and management of water resources by judging from the attendance at forum on water this morning. Organised by ACCA, ICR Malaysia and Malaysian Water Association, the forum with the theme Business and Water: Should We Be Concerned was officiated by Norisah Kasnon, Deputy Minister of Energy, Green Technology and Water.

The panellists of the forum were Tay Kay Luan, Director - ASEAN & Australasia ACCA, Ahmad Zahdi Jamil, President of the MWA, Detlef Krost, Executive Director for Production, Nestle, Dato' Teoh Yen Hua, the CEO of National Water Commission and Professor Carol Adams, Deputy Dean of the Faculty of Law and Management La Trobe University, Australia.

Among the issues that were discussed was the relative ignorant of the people on the need to conserve water. This is due to the fact that water is supplied at a cheap and subsidised prices. Malaysians generally consume relatively high amount of water per capita compared to those in the developed country.

The other concern that was discussed was the implication of disruption of water supply to business. While business may assume that they would get the continuous supply of water at a cheap price, experience overseas such as Australia has demonstrated that it could be a major problem to business. Nestle, for example, takes this issue seriously and ensure that its operations are water efficient and practices water conservation throughout its global operations.

The issue of water quality was raised resulting the CEO of the National Water Commission defending the portability of our water supply. He said that he has no problem of drinking water directly from the tap. I suppose the National Water Commission should establish a standard operation procedure of serving tap water to all their staff and visitors given the high confidence in the quality of water by the CEO.

Ultimately, we the Rakyat, has to change our behaviour towards water usage and start conserving water and water sources so that we could avoid future disasters. The regulator should ensure policies and decisions are made solely on the best interest of the people and avoid the repeat of becoming Santa Claus to selected operators. The water operators themselves should be honest in ensuring the water supplied meets minimum standards and operate at the utmost efficient way to ensure the public do not need to pay for their efficiency.

Choosing between today and tomorrow

MANY of us hope that the new year would bring us more cheers than 2009 did. Most expect our economy to be better in line with the predictions of many commentators. At the same time, some would take a more cautionary approach as there are many unanswered questions such as the possibility of a W-shaped recovery, which means that the worse is still not over.

As we plan for a more successful 2010, most of us would be scanning the business landscape to appreciate how far things had and will continue to change.

In the corporate sector, the environment would be more challenging as trade barriers are further dismantled when tariffs are reduced to zero for almost all goods in the six Asean countries including Malaysia. The various free trade agreements (FTAs) between Asean and its trading partners such as Australia, New Zealand and India would result in more trade within these economies resulting in more downward pressure on price while increasing competition.

When the situation gets tougher, the pressure would be on executives to achieve short-term results to satisfy the demands of investors and other stakeholders. In fact, most top executives are on relatively short-term contracts which would be renewed only if targets are met. To reinforce the focus on immediate results, incentives such as bonuses are tied to short-term performance such as annual profits.

As demonstrated during the global financial crisis, short-term thinking combined with the the inherent susceptibility of human to greed resulted in catastrophes which were not imagined as possible.

There are many issues we are facing now that require us to make the choice between short-term comfort and long-term interest of the society as a whole. Issues such as the proposed introduction of the Goods and Services Tax (GST), the sustainability and cost of basic needs like water and electricity could result in adverse long-term consequences if the focus is solely on short-term benefits.

The problem with long-term thinking is that we as a society do not have the patience to wait and often expect results to be demonstrated immediately. This creates a natural stress to decision made in choosing between long-term sustainable strategies that may not be popular with the mass and short-term popular choices that may not be sustainable in a longer-time horizon.

The proposed GST is an effort to shift the ways the government is funded — from direct taxes based on income to indirect taxes based on consumption. Given our dependence on petroleum related revenue, which forms a significant portion of our income tax base, we are at risk if we begin to consume more than what we produce and our reserves get depleted. Market talk is that this point is not that far away.

Of course, the introduction of GST will not be easy and will involve a lot of initial pain especially in the form of effect on prices and the burden of managing paperwork to comply with the system.

This issue needs to be debated based on facts, and having our long-term sustainability in mind. Perhaps town hall-like activities would bring more public participation in debating this issue which is important in seeking ideas and building buy in to a decision.

Sustainability seems not to be something that we take seriously at the moment. Nothing much happens here post-Copenhagen although our prime minister did make our commitment known at the climate change conference. This is where we have significant exposure, especially in respect of our palm oil industry.

The recent action by Unilever which severed ties with an Indonesian company on the basis that the company failed to take necessary measures to protect the environment could escalate into a more serious trade issue.

The progress-versus-sustainability debate will again require us to reflect the sort of future we want to pass on to the next generation. Again we have some who feel that they would not live long enough to experience the dire consequences to be bothered about taking serious decisive actions now.

We are lucky that most of our basic needs are highly subsidised by the government. However, most fail to appreciate that the funds came for us, the taxpayers. Subsidy to a certain extend distorts not only the allocation of resources but also our behaviour. The cost of treated water is so low that most of us do not feel appropriate to conserve water. For example, just observe people taking ablution at the mosque. Most will use water as if it is not wrong to waste although Prophet Muhammad reminded Muslims to conserve water when taking ablution even at a flowing river. The same applies to electricity as well.

While the solutions would not be as straight forward as what we would expect, the will to decide based on the long-term well-being of this country is important. How far are we willing to change and endure short-term pains in order to have a better future?

This article is also published at the Edge Malaysia website here:

http://www.theedgemalaysia.com/commentary/156770-choosing-between-today-and-tomorrow.html