By P Gunasegaram
WHILE BDO Governance Advisory Sdn Bhd, the independent company appointed by AirAsia Group Bhd directors, has cleared founders Tan Sri Tony Fernandes and Datuk Kamarudin Meranun of wrongdoing over bribery admission by European planemaker Airbus SE, are they in the clear?
No, not least because there are three other agencies that are still continuing with their investigations – the Malaysian Anti-Corruption Commission, Securities Commission and Bursa Malaysia. On top of that, what we know of the BDO report so far does not seem to have covered all the bases, with questions remaining unanswered.
But Fernandes and Kamarudin have been reinstated into the board after their “clearance” by BDO although the other agencies have said that they are continuing investigations.
The report was commissioned by directors. Some of them were long-serving, and five current directors, including Fernandes and Kamarudin, were also directors in 2010 at the time the transactions were made in 2010. There is clear conflict for some existing directors and the investigations.
I checked the 2010 annual report and there was no disclosure of related party transactions.
Even if the board was notified of the transactions, it does not necessarily mean that the deals were above board. It would be good if the report had been made public, but this was not done.
BDO was appointed by the AirAsia board on Feb 11 following Airbus’ admission to Britain’s Serious Fraud Office (SFO) on Jan 31 of bribing AirAsia and AirAsia X Bhd staff as a reward for an order of 135 planes.
SFO said Airbus had paid US$50 mil (RM205 mil) in sponsorship to a sports team jointly owned by the two AirAsia executives. These were among the details Airbus divulged to authorities as part of a US$4 bil settlement.
While these executives were not named, Fernandes and Meranun had been implicated due to their past ownership of the now-defunct Caterham Formula One team.
Here are the main points made in the BDO report as disclosed in AirAsia’s announcement to the stock exchange:
- AirAsia has a robust aircraft procurement process. The process was complied with and AirAsia’s aircraft acquisition was justifiable and at prices favourable to AirAsia.
- AirAsia’s sponsorship of the sports team was approved in compliance with its procedures.
- The sponsorship of the sports team by Airbus was disclosed to and supported by the board of directors of AirAsia at the relevant time. The sponsorship showed demonstrable benefits to the AirAsia Group and was not linked to any purchase decisions by AirAsia.
- The two executives (Fernandes and Kamarudin) had properly disclosed their interests to the board of directors of AirAsia and abstained from discussions and/or decisions relating to the said sponsorships.
Let’s take each point in turn. In terms of point 1, the issue is not of robust procedures or compliance or even if the prices were fair, but whether there was a demonstrable conflict of interest, which there was in this case. Also, the basis for saying this has not been given.
Point 2 again talks about compliance, which is not the issue. Point 3 talks about benefits to AirAsia but not about conflict. And in terms of point 4, even if there was disclosure to directors, that does not make it right but instead raises fresh questions as to why these directors did not raise issues of conflict of interest and report it.
Here are four issues that the BDO report ought to have highlighted and decided on:
- Was there a sponsorship agreement as mentioned in the SFO allegations and were there emails which tied the deal to sponsorship payments?
- What was the total sum involved and to whom and how were they paid?
- Was everything done to ensure that there were no conflicts of interest?
- Did the board take all steps to ensure that the conflicts, if any, were disclosed and properly reported to all shareholders?
If these questions were properly and fairly answered and highlighted in the report, then it would have been far more meaningful and specific in terms of answering allegations.
Instead, the report talks in general terms without answering individual allegations.
In its 2010 annual report, AirAsia had this to say on page 137: “Material contracts involving directors and major shareholders: There were no material contracts entered into by the company and its subsidiaries involving directors and major shareholders’ interests still subsisting at the financial year ended 31 December 2010.”
And on page 141: “Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than directors’ remuneration as disclosed in Note 5 to the financial statements) by reason of a contract made by the company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest, except as disclosed in Note 37 to the financial statements.”
Under the circumstances, with BDO’s clearance of the duo, minority shareholders should call for an EGM and demand a forensic audit as I wrote here. They also can appoint (or remove) directors. Fernandes and Kamarudin own some 32% stake, so the minority shareholders are the majority in this case.
This is important, for if there was indeed no bribery, AirAsia can sue Airbus for restitution in the hundreds of millions of ringgit and more in terms of reputational damage. After all, Airbus has admitted to bribery. – March 24, 2020