CEO accountability is under scrutiny as former 1MDB chief executive Datuk Shahrol Azral Ibrahim Halmi returns to the witness stand, with defence lawyers questioning where responsibility lies for decisions that led to the fund’s multibillion-ringgit losses.
KUALA LUMPUR: The 1MDB civil trial has raised a question that goes beyond the individual defendants before the court: What is the responsibility of a CEO when billions are lost under his watch?
The question is particularly pertinent in the case of former 1MDB CEO Datuk Shahrol Azral Ibrahim Halmi, who was not merely the company’s chief executive.
As highlighted by senior counsel GK Ganesan during cross-examination, Shahrol held three positions — managing director, CEO and Board member.
Ganesan’s central argument was that, in those roles, Shahrol had a duty to ensure that material risks were placed before the Board and that proper advice was given before major investments proceeded.
Shahrol rejected the suggestion that he had been negligent.
But the evidence raises an important corporate-governance question:
Where does the CEO’s responsibility end when the Board ultimately makes the decision?
The Serdar Field Warning
One of the clearest examples came from the proposed US$1 billion investment involving PetroSaudi International.
Kelvin Tan, who was the Director of Investments for 1MDB had written to the management in October 2009 warning that both Turkmenistan and Azerbaijan claimed rights over the Serdar Field, the asset linked to the proposed investment.
Shahrol agreed that this represented a genuine risk.
Yet the Board was not informed of the issue before the investment proceeded, according to the evidence highlighted by Ganesan.
Ganesan put it to Shahrol that, given his positions, he should have advised the Board to hold off until the ownership dispute was resolved.
That goes to the heart of the CEO’s role.
A Board can only make an informed decision based on the information placed before it.
If management knows of a material risk but the Board is not told, can responsibility simply rest with the Board for approving the transaction?
Or does responsibility also extend to the executive responsible for ensuring that the Board is properly informed?
Why Was Jho Low The Channel?
Another striking part of the testimony concerned Shahrol’s communications with the then Prime Minister.
Asked how he communicated with the Prime Minister, Shahrol said he had “alternative means” — through Jho Low (Low Taek Jho).
Ganesan pointed out that Low held no formal position in 1MDB.
He also raised the requirement for Federal Government approval for an investment of that size. Shahrol said that, to his knowledge, such approval had not been obtained.
The question is therefore not simply why Jho Low was involved.
It is why the CEO of a government-owned company relied on someone with no formal position in 1MDB to communicate with the Prime Minister on matters involving billion-dollar investments.
If a CEO believed that a matter required the Prime Minister’s attention, why was the communication not made through formal corporate and governmental channels?
Vincent Beng’s Defence Line
The same broader question of responsibility has emerged through the defence’s questioning, including that of Nur Syafinaz Vani, counsel for Vincent Beng, former Chief Investment Officer of 1MDB.
The defence has sought to distinguish between individuals who had actual authority over 1MDB’s decisions and those who were merely employees operating within the company’s management structure.
That distinction is particularly relevant to Kelvin Tan.
Ganesan established that Tan was a staff member, did not sit on the Board and was not named in either the Public Accounts Committee or National Audit Department reports.
When Ganesan asked Shahrol whether it was fair to have named Tan as the seventh defendant, Shahrol answered no.
The defence position therefore raises a simple question:
If a staff member without Board authority can be pursued for losses arising from major investment decisions, what level of responsibility should attach to those at the highest levels of management?
What Did The Law Require In 2009?
There is an important legal distinction when considering Shahrol’s responsibilities.
The PetroSaudi transaction took place in 2009. The governing statute at the time was therefore the Companies Act 1965, not the Companies Act 2016.
Under Section 131B of the Companies Act 1965, the business and affairs of a company were managed by, or under the direction of, its Board.
Section 132, as amended in 2007, required directors to exercise their powers for a proper purpose and in good faith in the best interests of the company, as well as to exercise reasonable care, skill and diligence. Crucially, the provision’s definition of “director” included the chief executive officer.
That is significant in Shahrol’s case.
He was not merely an employee of 1MDB. He was its CEO and, as highlighted in court, also its managing director and a Board member.
There was, however, another layer specific to 1MDB.
Article 117 of 1MDB’s Memorandum and Articles of Association required the Prime Minister’s prior written approval for specified matters, including investments and major financial commitments.
That did not, by itself, turn the Prime Minister into 1MDB’s Board of Directors. The Board remained responsible for the company’s affairs.
The question, therefore, is not simply whether the Prime Minister had a role in approving major decisions.
It is whether 1MDB’s management and Board properly discharged their own responsibilities in preparing, evaluating and placing those decisions before the Board, and in seeking the required approval through the proper channels.
If the CEO knew of a material risk — such as the ownership dispute surrounding the Serdar Field — what was his responsibility to ensure that the Board knew about it?
And if Prime Ministerial approval was required, what was the proper corporate process for obtaining it?
Those questions go directly to CEO accountability.
Why Is Shahrol A Witness?
That brings us to the uncomfortable question surrounding Shahrol.
He has appeared as a prosecution witness in the 1MDB-Tanore criminal trial and has testified in other proceedings.
Yet he is no longer a defendant in the current US$8 billion 1MDB civil suit.
That does not, by itself, establish that he bears no civil or criminal responsibility. Nor does being a CEO automatically establish liability.
But it does raise a legitimate question:
What distinguishes a CEO who is an important witness to alleged wrongdoing from a CEO who should bear responsibility for decisions made under his management?
The answer lies in the evidence — what he knew, what he advised, what he communicated to the Board and government, what risks he escalated and whether he exercised the standard of care required of his position.
The Bigger Question for Corporate Malaysia
The 1MDB case should not create the impression that CEOs are responsible only when things go well and become mere witnesses when things go disastrously wrong.
A CEO cannot simply be a conduit between political principals, advisers and a Board.
The role carries professional responsibility.
That includes asking difficult questions, challenging questionable assumptions, ensuring that material risks reach the Board and, when necessary, advising that a transaction should not proceed.
The law applicable at the time recognised that responsibility.
The court must now determine what the evidence says about Shahrol’s own conduct.
But there is another question that deserves attention.
If The CEO Is Not Responsible, Then Why Is Najib The First Defendant?
The bigger question is not simply whether Shahrol should be liable.
It is how responsibility is allocated in the first place.
The 2009 legal framework placed management and corporate decision-making within the Board, while 1MDB’s Article 117 imposed an additional requirement for the Prime Minister’s prior written approval on specified matters.
That means the existence of Article 117 does not, by itself, answer the question of who was responsible for preparing, evaluating and placing investment decisions before the Board.
Nor does the fact that the Prime Minister’s approval was required necessarily mean that the CEO and directors ceased to have their own responsibilities.
And this brings the issue back to the civil suit.
If a CEO who was also managing director and Board member is not responsible for decisions made under his watch, then why was former prime minister Datuk Seri Najib Razak named as the first defendant?
Najib was not 1MDB’s CEO.
He was not its managing director.
He was not responsible for its day-to-day management.
But he was Prime Minister, Minister of Finance and chairman of 1MDB’s Board of Advisers, and Article 117 specifically required his prior written approval for certain major matters. Those facts are central to the case and must ultimately be determined in light of the evidence.
The court will have to determine what each person knew, what each was responsible for, what was placed before the Board, what approvals were obtained and whether the conduct alleged caused the losses claimed.
But as Shahrol returns to the witness stand, the question remains:
If the CEO who ran 1MDB, the managing director who managed its affairs and the Board member who participated in its governance is not responsible for the decisions made under his watch, then why is the former prime minister — named as the first defendant — at the front of the civil claim?
That is not a question of guilt.
It is a question of corporate accountability.– NMH
Datin Hasnah is the co-founder and CEO of New Malaysia Herald based in Kuala Lumpur, Malaysia.
With an extensive background in mass communication and journalism, she works on building up New Malaysia Herald and it’s partner sites. A tireless and passionate evangalist, she champions autism studies and support groups.
Datin Hasnah is also the Editor in Chief of New Malaysia Herald.
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