Professional Documents
Culture Documents
1. Introduction
Malaysia Airlines, the national carrier of Malaysia, is recognised as one of Asia's largest,
flying more than 14 million passengers last year to over 100 destinations across 6 continents.
It is the pride of all Malaysians. It has come a long way, since the financial crisis which
threatened its existence since 2002. The adoption of GLC Transformation Manual introduced
by the Putrajaya Committee had provided the new management of Malaysia Airlines with the
2. Corporate Background
Malaysia Airlines is listed on the stock exchange of Bursa Malaysia under the name
Malaysian Airline System Berhad (MYX: 3786). The airline suffered high losses over the
years due to poor management and fuel price increases. As a result of financial restructuring
became its parent company, incorporated in 2002, in exchange for assuming the airline's long-
term liabilities.
The Government of Malaysia appointed Dato Idris Jala as the new CEO effective 1st
December 2005, to execute changes in operations and corporate culture. Under his leadership,
Malaysia Airlines unveiled its Business Turnaround Plan (BTP1) in February, 2006, which
highlighted low yield, an inefficient network and low productivity (overstaffing). The airline
headquarters building in downtown Kuala Lumpur was sold. The new corporate headquarters
While BTP1 started with 3 phases, ie. financial survival in 2006, profit generation in 2007 and
profitable growth in 2008 and beyond, Business Transformation Plan 2 (BTP2) was
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introduced to enhance further the efficiency of the administration and achieve profitable
growth within the next three to five years. Thus, the implementation of BTP1 and BTP2
would further improve the effectiveness and efficiency of its corporate governance in a very
competitive industry. The MAS management aimed to transform the organisation into a
“Five-Star Value Carrier”. Consequently, Malaysia Airlines has to look into the current issues,
which may impact its operations and profitability in the short and medium term.
Now, the new MAS management team has to continue to face the challenges provided by the
competitors, specifically the budget and full-fare carriers, regionally and domestically.Its main
full-fare competitor would be Singapore Airlines, while no-frills airline Air Asia provides
competition domestically.
Volatile fuel prices due to shortages and irregular supply had caused a drastic increase in
operational costs, due to uncertainty in fuel supply. However the hedging of fuel prices had
helped MAS in providing certain price stability in the short term. Price increase may be
unavoidable in the mid to long term and will affect the operational costs incurred.
Consumers have always looked to MAS for the “Malaysian Hospitality”, a branding that aims
to provide service excellence to its customers. Consumers’ needs and demands have changed
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during the last decade, for example, availability of multimedia entertainment in the cabin, fast
check-in and no-delays or even healthy meals on-board.
However, it must be noted that Malaysia Airlines’ core competencies, if further maintained
and developed, would provide a competitive advantage over its competitors in the industry.
The following have been identified as the core competencies of Malaysia Airlines.
C
4. Core Competencies of Malaysia Airlines
Global Brand
Its focus on service quality has earned the company the status of a top-tier global brand. In
2004, SkyTrax, the preeminent airline quality monitor, awarded MAS ‘Five-Star’ status, one
of only four airlines in the world to achieve the rating. Other recognition include being the
best cabin crew for four years consecutively, while TTG designated MAS as the ‘Best Airline
to Asia’ in 2005, and also in January 2006 by Travel Weekly, a UK-based travel periodical.
Therefore its personnel has continued to provide service excellence to its customers while
Customer Loyalty
Due to its frequent flyer loyalty program and various benefits that come with the program,
MAS had successfully created customer loyalty amongst its consumers. With the emphasis on
providing personal satisfaction to each and every of its customers, Malaysia Airlines had
successfully maintained its customer base while attracting more customers to its services.
MAS' maintenance staff, flight operations staff and ground crew are all very well trained and
are experienced. This had resulted in an excellent safety record, both at workplace and flight
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safety records. This in return had allowed a very positive perception among its customers,
For the financial period 2005,Malaysia Airlines reported a loss of over RM1.3 billion. It was
the biggest loss in the company’s history and it had expected a further loss of RM1.7 billion
for the full year 2006. Financial liquidity had become a major concern for the organisation.
Due to MAS’ financial crisis, the Business Turnaround Plan (BTP1) was introduced in
February 2006. The BTP 1 was developed using the Government-Linked Companies
Transformation (GLCT) manual as a guide to good corporate governance, and targeted its
losses from RM1.7 billion to RM620 million in 2006, while aiming to achieve a profit of
RM50 million in 2007 and RM500 million in 2008. However, beyond their expectations,for
the financial year ending 31st December 2007, MAS’ profit after tax stood at RM852million,
400000 Group
Company
200000
-133737 -188377
0
-200000 Year
2007 2006
(Source- Retrieved from Malaysia Airlines Annual Report 2007)
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6. Board of Directors
The following figure 5.1 shows the current composition of MAS’ Board of Directors. The
board executives include Tan Sri Dr Mohd Munir who is the Chairman, while Dato Sadasivan
is his deputy.The Chief Financial Officer is Tengku Dato Azmil while Dato Sri Idris Jala is the
Managing Director and Chief Executive Officer.There are currently five independent non-
executive directors, three non-independent and non-executive directors and three alternate
directors. Nomination to the Board of MAS is made either by the Special Shareholder in
accordance with Article 5(2) or by the Board pursuant to Article 136 of the Company’s
Dato' Sri Idris Jala Managing Director and Tuan Haji Abdul Rahman Bin Abdul Ghani
Chief Executive Officer Alternate Director to Datuk Haji Yusoff
Martin Gilbert Barrow Independent and Non- Dato' Mohamed Azman Bin Yahya Non-
Executive Director Independent and Non-Executive Director
Keong Choon Keat Independent and Non- Dato' Puteh Rukiah binti Abd Majid Alternate
Executive Director Director to Dato' Dr. Wan Abdul Aziz bin
Wan Abdullah
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7. Shareholders
subsidiary, Penerbangan Malaysia Berhad is the majority shareholder with a 52.0% stake.
which holds 17.33% of the shares. Minority shareholders include Employees Provident Fund
Board (10.72%), Amanah Raya Nominees (Tempatan) Sdn Bhd (5.69%), State Financial
Secretary Sarawak (2.71%), foreign shareholders (5.13%) and Warisan Harta Sabah (2.4%). It
The following figure (Figure 7.1) shows the shareholders, as at March 2007 in percentage(%)
52 KWSP
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The Board Audit Committee was formed in accordance to the Malaysian Code of Corporate
Governance (MCCG) and para 15.10 of Bursa Malaysia Securities Berhad (BMSB) Listing
Requirements (LR). The BAC was appointed amongst MAS Board of Directors (Board) and
fulfi lls the following Listing Requirements and the MCCG, as follow:
In
Datuk Haji Yusoff @ Hunter bin Datuk
Dato' N. Sadasivan a/l N. N. Pillay
Haji Mohamed Kassim Independent Non-
Independent Non-Executive Director
Executive Director
compliance with the Malaysian Code on Corporate Governance (Revision 2007), the
(Source- Retrieved from Malaysia Airlines Annual Report 2007)
appointment of members of the Board Audit Committee(BAC) is referred to the Nomination
Committee, which would ensure that the members meets the independence and experience
required. The term of office is three years, and subsequently can be re-nominated and
appointed by the Board of Directors, which will also oversee the effectiveness of the BAC at
least once every three years. The Board Audit Committee had held eight meetings during
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Its primary objective is to assist the board in discharging its statutory duties and
it is to evaluate the quality of the audits performed by the internal and external auditors, while
providing assurance that the financial information presented by the management is relevant,
reliable and timely. The BAC also needs to ensure that its governance is compliant with the
Companies Act, and other regulations set. The group’s system of internal control should be
The Board Audit Committee has the task of reviewing the progress of the risk management
functions and its on-going activities for identifying, evaluating, monitoring and managing
risks. It also reviews the adequacy and effectiveness of the system of internal controls through
the evaluation of results of work performed by internal and external auditors, committees as
The internal audit function is performed by the Audit and Business Advisory Department
(ABA) which reports to the Board Audit Committee. The function has an approved Charter
that provides for its independence in evaluating and report on the adequacy, integrity and
effectiveness of the overall internal control system, risk management and corporate
Nomination Committee
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Dato Dr Mohd Munir b Abdul Majid is the Chairman of the Nomination Committee. The
ensure the selection of Board members with the right skill set, expertise and industry
knowledge thus strengthening the composition of the Board and contributing significantly to
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• Review the adequacy & integrity of internal control systems for compliance YES
Board Effectiveness
• Division of responsibilities between Chairman of the board and Managing Director YES
Nominating Committee:
• All audit committee members should be financially literate to discharge their functions YES
Frequency of meetings between non-executive directors and external auditors at least twice a
YES
year
• Head of internal audit function who reports to the audit committee YES
• Is there an effective communications policy between the board and management, with
its shareholders, stakeholders and the public? Interpretation of operations and YES
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The summary above shows that the Malaysia Airlines Group had been in compliance and had
adhered to the set guidelines by the Malaysian Code on Corporate Governance (2007). The
The guidelines to Putrajaya Committee’s Code for GLCs were initiated by the government
and private sector as a result of the Asian Financial Crisis of 1997-1998, as many of the
government-linked corporations were affected. Malaysian Airline System Berhad has, apart
from adhering to the principles and best practices of the Malaysian Code on Corporate
Governance (revised 2007) also abided by the Guidelines to Enhance Board Effectiveness set
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The following table shows the characteristics which can enhance the effectiveness of MAS’s
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High performing GLCs will benefit the stakeholders and contribute to Malaysia’s economic
resilience towards future economic downturns. The benefits to stakeholders are as follow:
Figure 10.1- GLC Transformation Benefits to
Stakeholders
CUSTOMERS • Higher service and quality levels
• Better value for money propositions from more productive and efficient
GLCs.
LABOUR FORCE • Better job prospects and human capital development at more dynamic
and rapidly growing GLCs
• Likely to be preceded by phase of reduced employment to drive out
inefficiencies
is important for Malaysia to move forward. To facilitate this transformation, the Putrajaya
Committee for GLC High Performance (PCG) has undertaken two sets of actions. First, it has
codified the policy guidelines with the objective of creating an environment for GLCs to
perform. Second, the translation of the Policy Guidelines into specific initiatives that are
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Malaysia Airlines had incorporated these thrusts into its BTP1 transformation plan, as shown
below.
Figure 11.2- Malaysia Airlines Transformation
Plan-BTP1
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Route Profitability Project- “Labs” are used to turnaround unprofitable routes. By having
these “labs” decision making processes are quicker and cross-functional conflicts can be
sales leaders communicate closely and work to reverse the unprofitability of these key
Revenue Enhancement Project- Yield on flights are raised through surcharges and
administrative fees, taking into consideration other competitors’ within the industry. This
The management of Malaysia Airlines had taken the initiative to be regularly informed
and reported to on departures and arrivals through a process of track and report. This is to
ensure delays are minimized, as these issues may affect its profitability and operational
efficiency. In addition, due to the volatility of fuel prices, a Fuel Efficiency Task Force
communications. It assist the Finance department in producing daily cash reports, weekly
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Actions had been taken in unleashing talents and capabilities. Some of these involved
governance issues. New and revised people policies, processes and agreements had been
established. These include launching clear Whistle Blower policy, to bring immediate
transparency to fraud.It allows the MAS personnel to raise concerns about malpractices,
irregularities and negligence affecting the organization. It also ensured that clear
succession plans for all key positions. It had launched “rough and ready” performance
management of top leadership and frontline, with meaningful rewards for success and
5. Winning Coalitions
Winning coalitions involved working and establishing relationships with partners like
domestic aviation policies and leveraging GLC relationships for new joint-venture
The transformation plan had also identified the importance of the stakeholders in turning
around Malaysia Airlines. Here, it had specifically identified the roles of its employees,
and their productivity levels which would assist the organization in its profitability.
Managers are encouraged to perform highly and be more accountable, while delivering the
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The participation of Government and Investors, including GLICs, would help the
management in creating and establishing new policies and procedures while receiving
The PCG policy guidelines have identified ten initiatives to drive and enhance the GLC’s
several weaknesses, including inter alia, (i) insufficient individual and collective Board
performance accountability; (ii) not enough time spent on critical issues like strategy, talent
review and risk management; and (iii) focus on ‘letter’ rather than ‘spirit’ of rules and
procedures, resulting in inconsistent Board processes, including Board meeting logistics and
focus. The review would assist the Board in identifying specific areas for improvement and
provide practical potential solutions, that once adopted could raise the overall level of Board
effectiveness.
equipping Directors of GLCs with world class knowledge, skills and mindset to perform to a
understanding the boundaries between Board and management, actively problem solving with
both the Board and key management on strategic issues, while leveraging networks and
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requirements , which are relevant knowledge, skills and mindsets. Some of the practical skills
• the ability to actively and constructively solve problems with the Board and key
management.
process.
• Possesses business acumen from prior experiences to identify key issues and propose
• Proactively uses networks and manages multiple stakeholders for the benefit of the
organization.
GLICs are the key conduit for Government to support and influence GLCs. The primary
objective of the M&M function is to increase shareholder value. It is to reinforce the role and
enhance the organisational structure, processes and capabilities of the departments within
GLICs which monitor and manage the GLICs’ investee companies. This includes establishing
‘nominee director term sheets’ in order to clarify the nominee directors’ roles and interaction
environment through engagement with GLCs, policymakers, regulators and other key
and organization. The participation of the GLC and regulatory bodies would be encouraged
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through trainings, in the development of a suitable regulatory agenda for the respective
industry the GLC is in. This would provide a platform for the policymakers and regulators in
GLCs need to align the expectations of the Government, private investors, employees and
consumers around the nature and extent of their contributions to society. It is critical that the
GLCs clarify and manage these expectations to demonstrate the value they are creating from
their contributions to society. Therefore, the Silver Book’s objectives are to:
• Provide the GLCs with a comprehensive set of tools, methodologies and processes
Dato Captain Mohd Nawawi leads the airline’s commitment towards Project PINTAR, a
Malaysia, which is part of the airline’s Corporate Social Responsibility initiatives. PINTAR is
This project aims to provide assistance to schools specifically targeted towards under-
priviledged students. Malaysia Airlines had committed itself for a duration of three years to
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• Motivational talks
• Tuition packages
• Leadership courses
This particular GLC procurement manual (“Red Book”) is targeted at Board members and
The success of review and revamp would rely on endorsement from various stakeholders,
Its objective is to establish guidelines for GLCs to optimise their capital structure, taking into
account any existing dividend policy Guidelines established by the Ministry of Finance. These
Guidelines (“The Purple Book on Capital Management”) will provide GLCs direction on
capital and balance sheet design. This is due to the fact that some GLCs are over-capitalised
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Its objective is to develop guidelines that contain best practices on how to attract high
advantage. Attracting, developing and retaining a talented team of staff is critical for any
address the issues of GLCs’value proposition to attract and retain the best talent, and ensure
their development. GLCs would be expected to improve its human capital management and
be on par with the private sector companies in Malaysia, and internationally, too.
Malaysia Airlines had identified this area, and in its BTP1, under “People Thrust”, it had
made four fundamental changes in its working environment to utilize the strengths of its
workforce. These include creating leaders in their midst, creation of accountability and
The objective is to illustrate these principles through best practices and case examples, in
GLCs. There are five parts to the structure, which include the following:
explains why performance indicators and targets are critical elements of a successful
performance management scheme, and provides some best practices and case
• Establishing KPIs and setting targets for senior management: It addresses how such
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The main goal of this initiative is to enhance value creation of GLCs through more efficient
capital usage by freeing up cash from non-core assets and increasing focus on core businesses.
Its focus is on potential divesture or re-allocation of property assets of a non-real estate GLC.
It is to be complemented with other initiatives that focus the company on value creation.
In BTP2, Malaysia Airlines had indicated that it would continue its efforts to improve
will also inculcate a risk and control culture within the organisation as part of the Internal
Control Enhancement (ICE) programme launched in April 2007. Key initiatives indicated, as
follow:
• Enterprise Risk Management (ERM). MAS will intensify risk management activities at
strategic and operational level via ERM. The objective is to enhance the speed of detecting
critical risks and prompting management to take immediate action to mitigate the risks.
• Control Self-Assessment initiative. This initiative aims to instill accountability among MAS
managers and business heads to execute proper risk and control assessments that are linked to
their KPIs.
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• Quality Assurance Collaboration initiative. Going forward, Audit & Business Advisory will
work closely with Quality Assurance functions to provide greater assurance to the Board and
the management using the Internal Control Enhancement (ICE) framework. The establishment
of the internal control scorecard and incident reporting will assist the Board and management
followed through. Launched in 2007, exemplary behaviours are commended whilst the
• Corporate Information Technology Policy (CITP). The CITP is formulated to ensure the
14. Conclusion
Malaysia Airlines’ successful transformation since 2006 had been attributed to the new
directorship of Dato Sri Idris Jala’s implementation and compliance to the Putrajaya
Committee’s Code on GLC Transformation. The success of BTP1, which achieved its target a
year earlier, had propelled BTP2 to the fore. It remains to be seen how the issues identified
would impact the operations of Malaysia Airlines, specifically the volatility in global fuel
prices. It is hoped that by complying to the Malaysian Code, the organization may find itself
to be structurally sound to face the full impact of an uncertain global economy in a very
competitive industry.
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List of References:
Legal Research Board, Companies Act 1965 (Act 125), Regulations, Rules and Order, ILBS
2008.
Mallin, C., (2007), Corporate Governance, 2nd edn., Oxford University Press, United
Kingdom
Mintzberg, H.,Lampel, J., Quinn, J.,Ghoshal, S.,2003, The Strategy Process, Concepts,
Website References:
http://www.malaysiaairlines.com/my/en/corp/corp/info/directors/our-board-of-directors.aspx
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APPENDIX
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Making the Most (MTM) Step 1: Maintain 5-Star products MH Campaign (Revitalising our
and services customer value proposition)
• PSS Project
• MASwings
• MASkargo
• Revitalisation of IT Services
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