We need to comply to governance standards
Malaysia today is the 17th, or sometimes the 18th largest trading economy in the world, and the United States 10th most important trading partner. But Malaysia has a serious image problem internationally on several important fronts, corruption and human rights continue to worry foreign investors.
Tunku Abdul Aziz, MySinchew
The Konrad Adenauer Foundation invited me to Hong Kong in December 2007 to participate in a workshop on the Impact of International Law on the Promotion of Good Governance. It was attended by senior law academics from China, the Hong Kong Special Administrative Region, Korea, and Malaysia represented by me, neither an academic nor a lawyer.
I came away convinced that adherence to international laws and conventions that regulate trade and investment between and among nations is absolutely vital as a means of creating confidence which is an extremely fragile commodity. At the first sign of bad faith and erratic behaviour affecting treaty obligations, FDI or foreign direct investment will bypass your country because by your actions you have shown that you are creating uncertainty, and uncertainty and unpredictability are the last things a foreign investor wants.
As we have seen the world over, countries that are at the top table of international trade have been those quick to recognise the critical need to conform to the legal and other requirements of the new, ever evolving global economy. We have also seen at the same time how countries that have not measured up to international best practices, for one reason or another, have been punished by institutional investors. International trade is for the long haul; it is about sustainability and largely about compliance with rules-based regulatory systems. I am a lot more comfortable with the principles-based approach, but it is a matter of personal choice.
According to Hank Paulson, one time US Treasury Secretary, “Our rules-based regulatory system is prescriptive, and leads to a greater focus on compliance with specific rules. We should move towards a structure that gives regulators more flexibility to work with entities on compliance within the spirit of regulatory principles.”
I cannot agree more with this approach which is supported by Shane Tregillis of the Monetory Authority of Singapore who said some time ago, “We need to change from rules-based compliance-led approach to one where the board and senior management take greater responsibility for embedding good market conduct practices into their culture. Simply adding more rules and regulations will have limited success in lifting standards as long as good standards of conduct are viewed as a matter of compliance…….The worry is that compliance has become too rules-based and often divorced from key business operations.”
I frankly do not really believe that the rules-based approach of international laws is sufficiently dynamic to push a country and keep it ahead in the face of extremely fierce competition. The devil as they say is in the detail, and we cannot remain competitive unless we go beyond compliance which is where a principles-based approach or regime comes into the competitiveness equation.
Perhaps the last word on rules-based vs. principles-based debate should go to John Tiner who in a speech entitled: “Principles-based regulation: the EU context” had this to say which I now paraphrase: Principles-based legislation provides flexibility to regulated entities in the way they comply with the legislation. Entities are free to choose the practices and controls in order to secure the regulatory outcomes. This in turn encourages innovation and competition and aligns legislation with good business practices.”
Directly or indirectly, international laws and conventions have an impact on sustainable governance because they do prevent excesses, and encourage best practices. Many of today’s better business practices have their origin in the various laws and conventions covering such diverse subjects as employment, arbitration, protection of property rights, judicial independence, protection of the environment that have now become part and parcel of good governance.
Malaysia is a good example of a country that has no choice but to be proactive, responsive and innovative in order to remain in the mainstream of world trade. From a plantation economy, admittedly the best managed and successful in the world, it has in little more than three decades moved up the value chain to become an industrial economy. Malaysia today is the 17th, or sometimes the 18th largest trading economy in the world, and the United States 10th most important trading partner. But Malaysia has a serious image problem internationally on several important fronts, corruption and human rights continue to worry foreign investors.
The sort of changes and adjustments that have to be made to our investment policies, underpinned by principles of good, ethical and democratic governance in order to attract investment capital are extremely challenging. The question to ask ourselves is whether the government, not known for innovation, transparency and accountability is ready to replace entrenched, unsustainable race-based economic policies with those that are friendly to both domestic as well as foreign investors.
I mention this as a way of showing that in a globalised world which puts competitiveness above all else, the need for good governance in its widest sense is indisputable. It bears repeating that our long term prosperity depends entirely on good governance which is translated as a comprehensive, overarching system for managing sustainably the often complex social, economic, political development needs of a nation.
Today we live, in the fullest sense of the word in a borderless world where external pressures leave us with no option but to conform to a pattern of behaviour in strict adherence to the new international governance standards, or face the risk of marginalisation, something I am sure we need like we do a heavy dose of H1N1.
