Engaging New Kids On The Block

The talent market has changed significantly since McKinsey first exposed the “war ... nEw Kids on thE blocK the. ... get out of their way and...

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ISSUE 09 2012

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Managing Talent in a Fast Changing Environment Human Capital Development You Can Lead a Horse to Water Islamic Finance and Human Resource Challenges: Truth or Myth?

Engaging the New Kids On The Block

AIF Board Of Directors Tan Sri Dr. Zeti Akhtar Aziz Chairman of the Board, Governor, Bank Negara Malaysia Datuk Ranjit Ajit Singh Vice Chairman of the Board, Chairman, Securities Commission Malaysia Tan Sri Azman Hashim Chairman, AmBank Group Dato’ Sri Zukri Samat Managing Director, Bank Islam Malaysia Berhad Dato’ Hj. Syed Moheeb Syed Kamarul Zaman Dato’ Dr. Nik Norzrul Thani Nik Hassan Thani Chairman and Senior Partner, Zaid Ibrahim & Co Dato’ Yusli Mohamed Yusof Non-Executive Chairman, Mudajaya Group Berhad Mr. Hashim Harun President and CEO, Malaysian Re Mr. Kung Beng Hong Director, Alliance Financial Group Berhad & Alliance Bank Malaysia Berhad

contents contents 3

Editorial Note

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Engaging the New Kids on The Block

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Managing Talent in a Fast Changing Environment

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Islamic Finance and Human Resource Challenges: Truth or Myth?

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Human Capital Development You Can Lead a Horse to Water



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Potential Risks of Competition Law Infringement in Mergers and Acquisitions in Malaysia

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Customer Satisfaction Index for Banks in Malaysia

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The Winner Takes it All, Really Now? Discovering Talent Lessons from the Olympics

Editorial Team Chief Editor Dr Raymond Madden Co-editors Dr Sofiza Azmi Richard Yu Assistant Managing Editors Dr Zamros Dzulkafli Fara Iza Abd Rahim Yogaretnam Kanagandram

DISCLAIMER: The Asian Institute of Finance does not represent nor warrant the completeness, accuracy, timelines or adequacy of this material and it should not be relied on as such. The Asian Institute of Finance does not accept nor assumes any responsibility or liability whatsoever for any data, errors or omissions that may be contained in this material or for any consequences or results obtained from the use of this information. This publication does not necessarily reflect the views or the positions of the Asian Institute of Finance.

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The International Conference on Financial Crime and Terrorism Financing 2012

editorial

note Play the Talent Game The talent market has changed significantly since McKinsey first exposed the “war for talent” as a strategic business challenge and a critical driver of organisation performance. Changes in economic and geo-politics dictate a new approach and focus on talent management. This is even more so in the financial services industry. With further liberalisation of the financial sector, demand for talent will persist as existing and new players continue to expand their operations locally as well as regionally. Having the right talent and qualified employees in the financial industry is critical for the industry to grow and compete successfully in a rapidly changing financial services market. In Malaysia, while both private and public universities churn more than 30,000 graduates in banking and finance yearly; there is a limited supply of ‘high quality’ and ‘qualified’ talent. Hence, the issue of employability amongst these graduates remains high due to talent misalignment. An issue we need to resolve. A report titled Graduate Employability in Asia which was released by UNESCO recently, highlighted that majority of graduates were not employable due to lack of generic skills and serious inadequacy in terms of work-related competencies. Herein lies the paradox of scarcity amidst plenty. The problem does not lie in the skills shortage but more of skills gaps. The latter refers to a situation where recruits are available, but they do not have the required skills demanded by the industry. Concerted efforts and collaborations between relevant stakeholders are needed to address the issue of skills gaps. Stakeholders need to up their game in developing the right talent and going as far as detecting skills requirement, even at the recruitment stage. They also need to consider new approaches such as internships and apprenticeships to help fill the talent gap.

“Each generation imagines itself to be more intelligent than the one that went before it, and wiser than the one that comes after it.” George Orwell

Efforts to upskill the workforce in the financial services industry in Malaysia were given a boost when the Asian Institute of Finance (AIF) was established. Although AIF focuses on human capital development in the financial services industry, it is fully committed to elevating Malaysia’s role as a premier provider of comprehensive solutions for industry across Asia. These include driving the talent management agenda; develop, implement and harmonise professional standards across the financial industry; develop and monitor capacity building initiatives; and produce high quality internationally recognised applied research with an industry focus. As part of its talent development strategies, AIF plans to play a prominent role in the Financial Services Talent Council in providing strategic leadership on human capital development of the financial services industry and realising Malaysia’s growth ambitions. With the imminent establishment of ASEAN Economic Community by 2015, greater integration and competition amongst ASEAN member countries will also result in greater demand for and mobility of talent. AIF is poised to lead the next talent transformation by redefining the ‘talent game’. Dr Raymond Madden Chief Editor

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By Dr Raymond Madden & Dr Sofiza Azmi

Engaging New Kids on the block the

Generation Y or Gen Y for short, has been referred to with many names – millennial, echo boomers, me first, first digital and net generation. This cohort of individuals is born between 1978 and 1995. Unlike the generations before them, this group of employees comes with pre-honed technology skills and ingrained multi-tasking skills (refer to Table 1). However, they remain an enigma to many organisations. Lindsay Pollack, author and Gen Y theorist, said that when it comes to dealing with Gen Y, “what used to be common sense isn’t common sense anymore”. She suggested for organisations to rethink their approach to training Gen Y.

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Table 1: Four Generations at Work Silent Generation

Baby Boomers

Generation X

Generations Y

Who they are

Born between 1925-1945

Born between 1946-1964

Born between 1965 - 1977

Born between 1978-1995

• “Live to work” • “Willing to go the extra mile” for an employer

• “Work to live” • “Original latchkey kids” • “Vanguard of the free agent workforce”

“Like Xers on steroids”

Tagline(s)

“When in command, take charge. When in doubt, do what’s right.”

• Respect, empowerment, challenge and growth

Values

• Work itself and the people they work with. • Command-andcontrol mindset

• • • •

Work/life balance;family Individualism; Entrepreneurial Technology; creativity Diversity and transparency

• Immediate feedback and payoff • Hard work pays off. • Technology; creativity

To work with strong leaders with proven track records

• Work environment conducive to resultsorientation • Job stability and security

• Demands immediate rewards for contributions • Flexibility, money and portable benefits, harmonious work environments and fulfillment • Work environment conducive to relationship building

• High expectations of personal and financial success • Seek challenging, meaningful work that impacts their world • Do not like being treated as the new kid on the block

Willing to learn new skills to be more effective in their current job

• Include them in decision-making, give clear goals and responsibilities and then get out of their way and let them get the job done”

• Always looking for “bigger/better deal” • Less loyalty to an employer; not intimidated by authority • More willing to make lateral moves to add to their skill sets • More self-reliant and more selfdirected

• Most high-maintenance generation to ever enter the work force • Little loyalty to an employer; not intimidated by authority

Preferences

Relationship to Employer

Source: Bruce Tulgan; Rainmaker Thinking

Gen Y is the largest age group to emerge since the baby boom generation. And as this generation grows to become a significant proportion of the workforce, recognising the unique forces that shape this misunderstood generation requires insights and a fine sense of balance. According to the Minister of International Trade and Industry, Dato’ Sri Mustapa Mohamed in an interview last week, Gen Y currently makes up about 40% of the Malaysian workforce. “It was important for Gen Y workers to have access to companies with good training, exposure and salaries,” he was quoted as saying. 1 A Graduate Employability Blueprint which is set to be launched by the end of the year is expected to greatly emphasise on developing

training programmes that hone new skills for youths in tandem with the future need of the country as a developed economy.

proportion of the workforce, the primary source of competitive differentiation for organisations will be human capital.

Malaysia is not alone in her quest to develop Gen Y and prepare them for workforce entry. Representing the future of Asia’s workforce; countries like Singapore, Hong Kong, India and China are also putting their resources in harnessing the potential of Gen Y workforce. In Singapore, there are about 400,000 Gen Y in the workforce, forming about 20% of the economically active population. By 2015, this number is estimated to reach about 30%. In China and India, this demographic cohort makes up about 600 million and 500 million of the labour market, respectively. As Gen Y is set to become the largest

This is a uniquely global phenomenon and affects developed as well as emerging economies. “Britain’s got talent”, a popular TV talent program in the UK and around the world has strong parallels for multinational corporations who need to be aware of the generational differences of their employees if they are to maintain performance and sustain employee engagement.2 Hence, it is strategically imperative for organisations to understand the environmental influences of Gen Y including understanding who they are and what has defined their experience. This is particularly more important and relevant for the financial

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The Star, October 6, 2012

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Raymond Madden, Britain’s Got Talent Leadership Lessons and Drive, Changeboard, Top Story, 2010.

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industry in Malaysia as Mercer’s survey on Total Remuneration reported that finance jobs are one of the top three categories of ‘jobs most difficult to retain’.3

Unlock the Values According to the Robert Half survey of 300 CFOs and finance directors, nearly half of employees said Gen Y were the hardest to retain compared with Gen X and baby boomers. More than 60% of them attributed this to high expectations among Gen Y employees for career advancement, expectations for remunerations and work life balance. A joint report by ACCA and Mercer offers interesting insights into the aspirations and traits of Gen Y finance professionals.4 The report highlighted that a dynamic career progression is key to attracting, developing and retaining them. And this entails ambitious, fluid and continuously evolving career paths.

to provide a number of career options as opposed to specialising in specific areas of finance. However, many institutions and organisations are still wrapping their heads around what makes Gen Y ticks and how to effectively engage and leverage the newest entrants to the workplace. Why should organisations care? Understanding what shapes Gen Y is valuable to employers if they want to successfully attract, develop and retain this newest talent. Some of the major characteristics of Gen Y are described below:



It is even more interesting to note that almost half of Gen Y finance professionals surveyed had diverging career expectations. Dubbed as “a tale of two career paths”, the report contended that 40% of young finance professionals wished to pursue a traditional career in finance whilst the rest are seeking careers outside mainstream finance roles (see Table 2). Those who wanted to remain in finance are looking for vertical career progression and to develop specialisation in finance field. Gen Y professionals seeking non-traditional finance roles prefer to build their financial management capacity in business and eventually expand their career beyond finance function. The findings of the survey have huge implications on the strategies of financial institutions on talent management. Bottom line, Gen Y expects institutions



Gen Y is the first generation to grow up with technology and rely on it to perform their work better. The explosion of technology has shaped Gen Y’s values and attitudes both in their personal and work life. Being digital native, this tech savvy workforce is accustomed to real time information anytime and anywhere. For them, gadgets like iPad, tablets and smartphones or android phones are regarded as status symbols. Armed with these high-tech gadgets, Gen Y is plugged-in 24 hours a day, 7 days a week and is very good at multi-tasking – they talk on the phone while surfing on the net and text messages while listening to music. This ability to multitask can challenge the way baby boomers perceive their younger colleagues. And because of their deep reliance on technology, they believe in workplace flexibility and that they should be evaluated on their work output rather than on how, when or where the work is being done. Gen Y’s life is on social networks. Social media plays a dominant role in Gen Y’s personal and professional life. Unlike other demographic cohorts

Table 2: Career Expectations of Gen Y Finance Professionals Traditional Finance Career

New Career Pathway

Traditional finance roles

Broader business goals

Depth of finance knowledge

Breadth of knowledge outside of finance

Career paths within finance roles

Career paths outside of finance roles

Quick vertical progression early in career

Slow vertical progression early in career

Source: Generation Y: Realising the Potential, ACCA & Mercer 2010

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Total Remuneration Survey, Mercer 2009

Generation Y: Realising the Potential, ACCA and Mercer 2010.

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who use social networking mainly for entertaining and socialising, Gen Y is using this platform in more diverse ways. Between Facebook, Twitter, Instagram, LinkedIn and WhatsApp in Asia; these digital natives use social media sites to connect and communicate with their friends, colleagues and superiors. To them, social media goes beyond making contacts, updating status and discussing life as well as topics of interest. Social and professional networking sites have evolved to become a platform for them to expand their professional network and mine for job prospects. Gen Y is inadvertently blending social and professional life; blurring the lines between the two. The Cisco’s Connected World Technology Report revealed that more than half of Gen Y respondents said that they “will not accept a job that bans social media”. The fact that Gen Y prioritized social media access at work over salary speaks volume! But the financial services industry is not responding to this need. Most banks ban social media as they are concerned about open access to their IT infrastructure.





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Gen Y puts personal fulfilment ahead of pay. In another study, personal growth and work life balance were found to be important considerations over pay rates for Gen Y when choosing a job. These results as reported by Kelly Global Workforce Index (KGWI) survey provide a startling revelation on the motivations of Gen Y.5 They have a deep-seated desire for work to be personally enriching and rewarding. More than any other generations, Gen Y professionals are attuned to the bigger picture; seeing everything as connected. They want to see how their work contributes to the larger corporate objectives. Essentially, Gen Y seeks greater engagement and “meaning” from their work. The Asian culture of working long hours and long term loyalty is also fast becoming a passé as Gen Y values work life balance over career. Like their peers in other regions, Gen Ys in Asia are rejecting the traditional “work hard and get rich” mentality in favour of a lifestyle devoted to personal satisfaction. Gen Y is achievement-oriented. Gen Y professionals grew up with the entitlement mindset. Jean Twenge, author of the book Generation Me, describes them as “smart, brash, arrogant, and endowed with a commanding sense of entitlement’. Nurtured and pampered by parents to believe in themselves and their abilities, Gen Y-ers are confident with strong self-esteem. Such strong self-confidence, she argues, “is what allows them to accomplish great things and can keep companies

progressing”. Gen Y’s so-called ‘helicopter parents” tend to hover over their kids, dote on them, and protect them from criticism and disappointment with constant positive reinforcement. As a result of such upbringing, these trophy kids display an abundance of self-confidence and are very ambitious. Likewise, they are particularly achievement-oriented, thanks to video games that have taught them to constantly advance to the next level.



Gen Y craves for immediate feedbacks. The same electronic games that they grew up with also trained them to receive immediate feedbacks, rewards and recognitions on their performance. In the workplace; they favour the same constant and consistent feedbacks from their managers but in a non-formal fashion. In this sense, the traditional annual, semi-annual or even quarterly performance review is not effective with Gen Y. In a report produced by Kelly Services titled Gen Y at Work, employers are recommended to “provide regular feedback sessions and lesser performance review cycles supported by mentoring or coaching” to retain Gen Y at the workplace.

Conclusion With Gen Y employees poised to become future managers and leaders, employers and HR practitioners need to have a better understanding of how to work with them and manage them. It is also important to develop effective strategies to attract, retain and motivate Gen Y employees from the start. An important step to attract Gen Y finance professionals is to clearly communicate with them what career paths and associated time-lines are available. Since lifestyle is also an essential consideration, organisation’s brand value is the key to attract these young finance professionals. In developing these young professionals, organisations should provide a host of well-coordinated opportunities for experiential learning. Organisations should also design learning interventions that are most suited to Gen Y based on their unique predilections such as interactive features and social characteristics. The final challenge is retention. The key here is to offer a compelling career that matches their dynamic and trendy lifestyles. If in doubt, ask Gen Y’s themselves. They will tell you what they want. Dr Raymond Madden is Chief Executive Officer at the Asian Institute of Finance and Dr Sofiza Azmi is a Senior Research Fellow and Head of Policy Studies at the Asian Institute of Finance.

Acquisition and Retention in the War for Talent, 2012 Kelly Global Workforce Index.

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Managing Talent in a Fast Changing Environment By Dr Zamros Dzulkafli

The global financial crisis had taught us many valuable lessons; it provided unexpected and sudden deviation in the financial and economic paths and called for unprecedented remedial actions. Various policy responses, which had been proven effective in the past, may have been pro-cyclical this time around. Mistakes were made along the way and we acquired new lessons in the process. Businesses too were not immune from facing the same consequences, and unless human capital or talents are trained and armed with the required skills and knowledge for prompt actions during these uncalled crises, recovery will take longer and we may well lose the opportunities to take advantage of the shift in business needs and demands. As a result of the recent global financial and economic crises, unemployment rates have remained at higher levels especially in developed countries. The demand for talents has also shifted accordingly as countries

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began to undergo economic transformation so as to create a better platform that will allow them to adapt to new challenges and the changing dynamics in the global economic environment. Talents must be ready to change and equip themselves with the latest required competencies and skills as the evolution of the human capital demand continues to move in tandem with the changing dynamics in the global economic environment. Hence, talent development will continue to be the subject of interest in the foreseeable future; from the formal education delivered at schools and universities, to on-the-job training and experience gained from the work place. This is more so as employers are expected to continue to demand suitable and ideal employees that can fit well into their organisations and business plans. Therefore, the question whether our graduates are able to quickly adjust themselves from being in a theoretical environment typical of most universities, to being in

a fast-moving and demanding working environment, is another concern that requires immediate attention. Certainly, both the universities and the industry have to position themselves in addressing this issue and to come up with a concrete longterm solution for their mutual benefits. To that end, the Asian Institute of Finance (AIF) will continue to support the universityindustry collaboration and welcome engagements that would enhance this partnership. Interestingly, despite the rapid exponential technology advancement, human capital is still a much sought after asset by most organisations. As cleverly put by the management guru Peter Ducker way back in 1992: “The most valuable assets of a 20th century company were its

equipment. The most valuable asset of a 21st century institution, whether business or non-business, will be its knowledge workers and their productivity”. The compounding effects from both human and technology enhancements have produced the positive synergy that led to the tremendous growth witnessed during the last few decades, which also saw an increase in productivity and efficiency. While research and development continue to be given an emphasis in the field of technology, the same level of importance should also be placed on producing and managing the best talents to ensure sustainable growth, not just for the current but also for the future generation. The recently concluded sports event, the Euro 2012 held in Poland and Ukraine

where 16 European teams took part in competitive football, is a good case study to understand the dynamics of managing talent in the real working environment. Undoubtedly, all 16 teams have the best talents available in Europe with their high-level of skills and lucrative pay. These talents were managed by their managers who were entrusted with the task of ensuring that all players within the team are able to understand and execute the intended game plan. The vision is to be the best football team in Europe and the mission is to score as many goals as possible as well as to avoid conceding goals; however, not all managers were successful in achieving this. We have seen high profile teams such as Holland, the runner’s up during the World Cup 2010 in South Africa, unable to progress into

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the quarterfinal of Euro 2012. This was despite them having among the best talents in the world. Team spirit was low and the hunger to win was lacking. In the end, of all the 16 teams, Spain had proven to be the best and emerged as the European champion. One could certainly argue that the reason for this was the excellent work of the manager in managing the team particularly the players - and of course, with the help of a little bit of luck.

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Another clear example of a team that possesses great talents but failed to live up to expectations is Chelsea FC under the management of Andre Villas-Boas (AVB). Players did not perform well during his watch and fans sensed that there was something not quite right with the manager-player relationship, management style and communication. The team was fast losing its grip on the English Premiere League, and consequently, AVB was replaced with Roberto Di Matteo. Under Di Matteo’s watch, Chelsea seemed to be re-energised and with the same pool of talents, managed to win the UEFA Champions League title for the 2011/12 season. These situations are real and could also be observed unfolding in the workplace. Sometimes, we have talents who have the competencies and ability to execute the business plan or perform their daily duties; we have talents with different roles in the company in which each needs to work together and bond as a team to ensure company’s success and to be the best in the industry; and we also have supervisors or heads to supervise the team and ensure that everything runs smoothly and according to plans; but somehow, success still seems to elude us. This is because, merely having good talents without also having effective leaders who have the capability to encourage positive thinking and maintain a positive team spirit would cause things to not work out as expected. Moreover, under the

current challenging economic and corporate environment, having highly qualified and certified talents with the required skills to perform their jobs are necessary but not necessarily sufficient to ensure success. There are other essential soft skills required such as creativity, critical thinking, effective communication and continuous talent improvement. Maybe it is time for both the university and industry to give more emphasis and focus on developing the talents’ soft skills. It may be the case that too much weight was given to developing the technical skills and that the soft skills have been neglected and more often than not, taken for granted. How many times have we come across communication breakdowns at the workplace? These are costly errors that may result in giving the wrong message and is certainly unhealthy for the organisation. What is more important is that communication is a two-way street; it requires both speaking and listening. The recent financial and economic crises had again demanded us to put on our creative and critical thinking hats. Our immediate responses and strategies should not only be aimed at recovering from the current crises, but also to prepare ourselves for possible future shocks and opportunities. Hence, the mandate is now to produce a continuous supply of talents who are well equipped with both technical and soft skills. The challenges are real; so let us work together as a team to create better synergy and share the understanding on the new prospects and risks from the effect of globalization. This article was featured in the Malaysian Reserve, 6th July 2012 . Dr Zamros Dzulkafli is a Research Fellow at the Applied Finance Research and Publication Centre, at the Asian Institute of Finance

By Dr Wafica Ali Ghoul

Islamic Finance and Human Resource Challenges: Truth or Myth?

T

he current global financial crisis has alerted the international financial community to the distinct nature and inbuilt strengths of Islamic finance, as pointed out by Muhammad bin Ibrahim (2010) Deputy Governor of the Central Bank of Malaysia, who adds that the crisis thus has provided an opportunity for Islamic finance “to strategically position itself as a stable form of financial intermediation, .” The continued growth of the lucrative Islamic financial industry is currently hindered by a global deficiency of qualified personnel who have a thorough knowledge of finance as well as Shari’ah. This fact serves as an indication that the growth of the industry is faster by far than the emergence of adequate Islamic finance expertise.

The International Centre for Education in Islamic Finance (INCEIF) in Malaysia projects that 50,000 Islamic finance (IF) experts are needed in the next decade, 30,000 of whom are needed in GCC countries, whereas only 1000 new graduates currently enter the job market annually (cited by Khnifer 2010).

Impact of Human Capital Deficiency on the IF Industry The scarcity of skilled IF human resources has been causing an unjustifiably high inflation in compensation packages and a high turnover rate. In addition, the prevalent hiring of conventional finance personnel has been taking the Islamic

finance industry away from its right path; it is hindering innovation, and it involves a high cost of training these people in Shari’ah and its application in Islamic finance.

Main Causes of the Human Capital Deficiency In Islam there are different schools of thought and religious sects which exist across the various Muslim countries, a fact that results in different interpretations of Shari’ah. This difference impacts the IF education and training programs and makes it harder to match the supply of IF graduates from a country such as Malaysia, with the demand for IF experts in GCC, for instance KPMG (2007) notes that the sector

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lacks a global industry body that oversees the standardization of continuous education and training. The problem is that many academic programs are producing mostly “unemployable” IF graduates, who usually have to compete with experienced people from the conventional banking sector. Parker (2011b) claims that most IF programs are “ordinary and mediocre”. Opportunist universities and professional training companies all over the world have been jumping on the bandwagon to benefit from the rising demand for IF degrees and certificates; the credibility of most of them is questionable due to the absence of a global accreditation body thus far. Others have criticized ‘textbook-based’ as opposed to ‘experttaught’ online as well as on-ground degrees which might be questionable in terms of the quality of the education and training. One would expect people from the conventional sector to be able to teach themselves enough about IF, if it was not for the shortage of adequate textbooks on Islamic finance, the scarcity of published research, and the inaccessibility of most Islamic finance journals. Another factor that adds to IF human resource shortages is the frequent emergence of new IF institutions, due to low barriers to entry and weak government regulations of the IF industry in most countries. These institutions are constantly on the prowl, seeking to lure away IF professionals without being limited by geographic borders, which plagues the industry with a high turnover rate and unjustified high wages. Other critics lament the fact that what is claimed to be an Islamic finance degree program in most cases is a conventional finance program with a few Islamic finance classes that are taught by conventionally trained professionals (Ghoul 2012). There are also some claims of preference being given to Muslims when hiring, even if they are less qualified, or to put it another way, discrimination against non-Muslims even if they are more qualified. This is inconsistent with the observation that Western names dominate large IF institutions in Muslim countries as well as many conferences. Critics of the progress of the IF industry have expressed some disapproval of the first generation of Islamic bankers who for the most part came to Islamic banking from the conventional sector and who learned the IF jargon in a haste, without fully understanding the field. Another contributor to the personnel shortage is the fact that IF graduates may be requiring a higher starting salary which might be justified due to their highly specialized skills which are in demand, but which may be making them too expensive to hire. The IF industry is also criticized for following the example of its conventional counterparts by being unfair to women when

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In Islam there are different schools of thought and religious sects which exist across the various Muslim countries, a fact that results in different interpretations of Shari’ah recruiting, and for having a similar glass ceiling, since women have not thus far been given senior position at IF institutions, with Malaysia being an exception. Another topic which has been discussed extensively is the shortage of Shari’ah scholars, the reliance by most IF institutions on a select small number of highly visible scholars, who end up serving on an excessively high number of Shari’ah supervisory boards (SSB). This raises concerns about the independence and objectivity of scholars who get paid by the financial institutions to issue opinions and certify products as Shari’ah compliant (Ghoul 2008). A recent survey by [email protected] Work found that the top 20 scholars accounted for over 619 board positions, over half of the 1,141 positions available. Two of those scholars held 85 positions each and four held 14 board positions each. In Malaysia a Shari’ah scholar may serve on only one SSB at a time, whereas there is no such restriction in the GCC region.

Are the Shortages True or Mythical? There have been some allegations of a lack of proper recruitment policies, namely that the human resources (HR) departments at some IF institutions may not be very familiar with the skills that are needed when selecting IF recruits, that their employment selection criteria may be biased towards hiring from the conventional finance sector, and that they are less likely to hire fresh graduates even those from top IF programs, many of whom are eliminated by computer programs that sift through stacks of applications. According to K hnifer(2010), “many Islamic banks prefer experience from a conventional background”, instead of recruiting IF graduates, they look for people

with a solid background in conventional finance who are familiar with Islamic finance.

training workshops, promoting research, and offering scholarships for doctoral candidates.

Khnifer quotes graduates from some top programs who point out that the shortage of personnel in IF is a “propaganda”, Khnifer quotes John Board, Dean of Henley Business School “Our students are finding that searching for jobs in IF has never been harder at a time when demand for IF services has never been stronger”.

Malaysia’s Efforts to Rectify the Human Capital Deficiency

Khnifer also notes that the embedded ‘indiscriminate hiring’ policies have resulted in hiring people who are not qualified in IF, he quotes Gilles Rollet, Head of Swiss Bank Mirabaud’s Middle East unit who notes that a “possible shake-out of less qualified people would benefit the nascent sector, I wouldn’t be surprised in a year’s or two year’s time if some of these people will be on the street, .”

Main Centers for Islamic Finance Human Capital Training Malaysia has been playing a leading role in the development of human capital for Islamic finance which will be discussed further below. The next main player is the United Kingdom where successive governments have been introducing legislation that helps facilitate the introduction of Islamic financial products, for the purpose of developing London into a major international Islamic trade, investment and finance centre. The United Kingdom is also home for the leading Islamic finance university degree programs with Durham, Reading, Bangor, and Aston universities, and the Markfield Institute of Higher Education. In the Middle East the Islamic Development Bank which is based in Saudi Arabia leads the human capital development efforts through organizing conferences,

Malaysia has been known as the benchmark for the Islamic finance industry in the areas of regulation and product innovation. However, despite having some of the top Academic Islamic finance degree programs in the world, Malaysia is currently suffering from a flight of Islamic finance talent to GCC countries, where Islamic finance is experiencing extraordinary growth (KFH 2010). In response to the brain drain issue, Bank Negara Malaysia (BNM) has been trying to restore the balance between the talent supply and demand for Shari’ahqualified banking professionals. BNM has established the Asian Institute of Finance as well as the International Centre for Education in Islamic Finance (INCEIF) to continuously develop new talent in the industry. INCEIF offers programs for practitioners and post-graduate studies. Halim (2011) points out that Malaysia faces the challenge of retaining and nurturing the current Islamic finance talent pool in the country, especially with many global players pursuing Malaysian IF experts who are eager to venture abroad in hopes of new experiences and more generous compensation packages, while not being prepared for the cultural issues, language barriers, and inadequate family support systems (Thomson Reuters 2011). As a step towards stopping the brain drain crisis and in order to bring experienced Malaysian personnel back home, Malaysia has established the Talent Development Corporation in 2011. Moreover, Malaysia’s Prime Minister Mohd Najib Abdul Razak has launched the

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Economic Transformation Program the objective of which is to transform Malaysia into a global leader for Islamic finance education hubs. This sector is expected to contribute RM1.2 billion to gross national income and to create 4,300 related jobs by 2020. Malaysia has also initiated the Association for Islamic Finance Advancement (AIFA), an accreditation body for Islamic finance programs worldwide which was recently authorized by Bank Negara Malaysia (BNM). The International Islamic University of Malaysia (IIUM) is leading the AIFA initiative. AIFA aims to develop a program that sets quality standards as well as the practical relevance of Islamic finance education and related fields. Its plans include collaboration with the USA-based Association to Advance Collegiate Schools of Business (AACSB) and other international accreditation bodies to help Malaysian universities in developing curricula and quality measures. Additionally, five standard Islamic finance textbooks are planned by John Wiley the USA publishing company.

Recommendations to Help Offset the Human Resources Bottleneck In the Industry The Islamic finance industry needs long-term strategic plans that produce an appropriate pool of skilled talent to maintain the sustainable long-term growth of Islamic finance. IF institutions need to invest time and capital in designing appropriate HR policies; unfortunately their main priority is typically the meeting of profit targets. Islamic financial institutions may also want to consider the allocation of resources to launch graduate training programs or at least partnering with academic institutions for that purpose. Universities are well advised to consider exerting more effort to develop placement services for their IF graduates, at least with the same vigor that they show in “dishing out” expensive IF degree programs and certifications. If that does not happen soon enough, universities are likely to experience a loss of interest from potential IF applicants. Additionally, instead of focusing on pure IF specialization, universities may want to develop dual degree programs which emphasize IF and conventional courses equally, since some parts of the world such as Hong Kong for instance, might require less IF expertise. As for IF graduates, Islamic finance expertise in one jurisdiction is no longer sufficient to catch head-hunters’ attention, graduates could differentiate themselves through seeking an international experience and/or training.

Conclusion Sami Al-Suwailem (2006) of the Islamic Development Bank reminds us that Islamic finance is not only for Muslims, it is for the entire humanity. Al-Suwailem adds that this presents a

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serious challenge to Muslim economists, namely to successfully deliver Allah’s message to humanity, and positively contribute to world economic stability and prosperity. At a recent World Bank conference, The Islamic Development Bank President Ali noted that “the main message of Islamic finance, while ethical, is also universal; at a time when world leaders are calling for financial reforms, it is appropriate to have our financial systems rebuilt on widely accepted ethical and moral bases to serve the common good of humanity”(cited by Parker 2011a). Now that Islamic finance has started making headway around the globe, it would be a great shame to let this golden opportunity slip away due to the short sightedness inherent in Islamic financial institutions, governments and universities, if they were to allow the shortage of human capital to be able to change the course of the industry or slow it down!

References Al-Suwailem, Sami(2006), “Hedging in Islamic Finance”, Jeddah, 150 p; ISBN: 9960-32-160-6. Bin Ibrahim Muhammad (2010), “Evolving the Next Frontier Of Islamic Finance Development Through Innovation” Speech at the Mock Cheque Exchange Ceremony between (INCEIF) and Bank Islam, Maybank Islamic and Affin Islamic, Kuala Lumpur, 15 June, BIS Review 87/2010 Ghoul Wafica Ali(2008), “Shariah Scholars and Islamic Finance: Towards A More Objective and Independent ShariahCompliance Certification of Islamic Financial Products”. Review of Islamic Economics, Vol. 12, No. 2, page 87-104, December, 2008, UK. www.sbp.org.pk/library/ContentsJuly2009.pdf Ghoul Wafica Ali(2012), “Islamic Finance in the GCC Region: Human Capital Challenges and the Role of Universities”, Presented at The 2012 Gulf Research Meeting, July 11– 14, 2012, University of Cambridge, United Kingdom Halim Nazneen(2011), “The Talent Tussle”, Islamic Finance News, October Khnifer Mohammed (2010), “The Human Remains of Islamic finance”, available at www.cpifinancial.net DECEMBER 2010 | Islamic Business & Finance 37, and www.ssrn.com KPMG(2007), “Growth and Diversification in Islamic Finance”, http://ribh.files.wordpress.com/2008/05/growth__ diversification_in_islamic_finance_reported_by_kpmg_. pdf Kuwait Finance House(KFH) Research Ltd. (2010)”Islamic Finance Research”. Parker Mushtak(2011a), “ World Bank Meet Fails To Address Islamic Finance Role In Development”, Arab News, Oct 2 Parker Mushtak (2011b), “Madrid aims to become education hub of Europe”, ARAB NEWS, Dec 12. Thomson Reuters(2011), ‘Cross pollinating’ Islamic finance in GCC, Malaysia”, available at http://alifarabia. com/2011/11/30/cross-pollinating-islamic-finance-ingcc-malaysia/ Dr Wafica Ali Ghoul is a Professor of Finance at the Lebanese International University.

By Dr David Bobker

HUMAN CAPITAL DEVELOPMENT You Can Lead a Horse to Water There have been and will continue to be buckets of ink spilt about “talent development” and shortages of “human capital”. Risk management is often singled out as an important area where there will be a growing requirement for competent risk managers if Malaysia’s ambitious economic development plans (particularly in the financial sector) are to be realized.

Is JP Morgan Chase (JPM) short of risk managers? One assumes not. Just as the other hitherto blue chip institutions which blew up in the crisis (AIG, UBS, HBOS, Lehmans, Bear Stearns, RBS etc) all had armies of rocket scientist, - PhD risk managers. These disasters happened because either the risk managers, following standard practices, got their models wrong or because the decision makers knew

It is easy to understand why there is a focus on risk management. Even as this is being written, once again one of the world’s leading banking institutions has hit the headlines for all the wrong reasons. JP Morgan Chase’s shock and awe tactics in the derivatives markets have resulted in losses which were initially stated to be $2b but soon sparked feverish speculation in the blogosphere as to when they will hit $5bn or $10bn or possibly even more. This is a significant case because it is not a lone “rogue trader” behind the disaster, but a whole department.

better and ignored the risk managers’ advice. Either way, it seems clear that lots of risk managers trained in standard methodologies are not a complete solution to the ongoing litany of disasters in the banking industry. Ultimately all the failures are primarily that of the CEO either for poor strategy, poor execution or, as it appears to be in the JPM case, poor control. It was also very much the board’s failure in each case for not exercising their responsibility to supervise the executive.

The episode has clearly dented the reputation of JPM’s well-known CEO, Jamie Dimon. But it is significant that Dimon is both Chairman and CEO of JP Morgan Chase. This contravenes the very first rule of almost every corporate governance code (except in the US) and is just plain prohibited for banks in Malaysia. And for good reason: an executive chairman has far too much power which means there is no effective check and balance on his or her actions. So what can we learn from this latest episode? Actually not much more than we should have learned from previous 40-50 episodes but apparently did not! But just to spell it out one more time: First, over-confident individuals with too much power and influence over decision making, without sufficient checks and balances pose intolerable risk in a bank. This particularly applies to “star” traders and some CEOs. The only potential check and balance on the CEO is the board of

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directors, a responsibility it is generally reluctant to assume, and is almost impossible if the CEO is also chairman of the board. Second, standard risk methodologies which depend fundamentally on the continuation of historic market patterns cannot be relied upon to manage very large risks and in particular, many economic capital models are fundamentally flawed. By this time the reader is doubtless wondering what all this has to do with the development of risk management talent in the financial sector. In fact there is an underlying theme relating talent development to the many episodes of company failure, namely attitude and culture. First, it is generally accepted that risk management is primarily the responsibility of management and the board, and only secondarily that of the risk support functions (risk management, internal audit, compliance, etc). Therefore, training in risk management needs to be directed to all senior managers and board members in financial institutions, not just risk managers. In terms of bang per buck, getting deeper understanding of financial risk into the thinking of top management will pay off far more than concentrating solely on risk managers. However, here we run up against the attitude problem. Senior executive managers tend to be highly business delivery focused. Anything which diverts them from delivering results tends to be sidelined, dismissed, or at the very least, not embraced with enthusiasm. Because risk management falls right into that category it is difficult to get risk management messages across to top management.

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be general resistance. Any attempt to move beyond the comfort zone and the day job is met with “how will this help me do my work?” Unfortunately this laudable focus on the job in hand leaves neither room for thinking as well as just doing, nor for self development. It also misses the point that, as in JPM, just doing what you have done before is not enough in risk management. Unfortunately the incentives do not appear to be there to go against the grain, challenge conventional wisdom and, in short, innovate. And effective risk management above all requires an ability to think well outside the box about things which may never have happened before, such as the breakdown of long term patterns and relationships or the emergence of threatening new trends. These issues are indicative of a general cultural issue and seem to be common, to a greater or lesser extent, globally. Management theory is partly to blame, having brought about a general belief that success invariably follows a set formula of writing down clear objectives, formulating strategy, getting buy-in and then, almost robotically carrying out the plan while monitoring performance and so on. For example, it is common to hear at conferences on talent development many managers bemoaning the work un-readiness of new graduates as if the work of a university is to produce ready-made little robots who can be programmed to carry out instructions and deliver his or her KPIs in the most cost effective manner, thus achieving the grand plan. The job of universities is primarily to educate and above all to teach students to think and to understand that most real life problems do not have text book answers but require the ability to analyse a problem in the round considering it from all angles.

An experienced, senior loan or insurance salesman, or a results-driven CEO is not usually the sort of person that likes to dwell for too long, if at all, on the potential disastrous consequences of their actions. We have termed this condition “risk blindness” and it is precisely those at the top of an organization who seem to suffer most from it.

We run across a similar negative attitude to selfdevelopment in those risk managers who say, “I do not need to know any theory – the system does everything”. In risk management this attitude is more than a little scary and also makes one want to ask “if the system does everything, what are we paying you for?”

Second, a similar problem affects risk managers themselves. Again being KPI and target driven, when it comes to training there seems to

The truth is that to develop talent there needs to be, above all, a willingness constantly to learn and change and adapt. In other words, talent

Management theory is partly to blame, having brought about a general belief that success invariably follows a set formula of writing down clear objectives, formulating strategy, getting buy-in and then, almost robotically carrying out the plan while monitoring performance and so on and so on. development, especially in an area like risk management, requires people with the right attitude to be developed. It has long been recognized that the learning organization, one which innovates and adapts quickly to changing conditions is the one to succeed. But all this requires a significant change in attitude from top to bottom in many organizations. How can this be brought about? As in any type of change, until the need for the change is accepted in a critical mass of people, change will not occur. Move towards change can be via push or pull or a combination of both. Push towards increased learning could come from regulatory requirements for risk certification both for senior managers in financial services institutions and for risk

managers. We do not however see any current moves towards that anywhere even though it would have obvious advantages. Pull towards change would be to encourage upward salary movement for certified managers and fast track promotion paths. This is essential incentivisation without which learning more than the essentials of a specific job, being more analytic and broad thinking just does not in itself appear, to be a sufficiently attractive proposition to the majority. Given that certification seems ultimately to be one of the most effective ways of achieving any significant movement, at the Asian Institute of Finance we are currently working on a certification programme for

risk managers, - designed to contain the essential, common core elements. This certification will be a suitable foundation both for specialist risk managers (from any industry) and, equally important, it should be an attractive qualification for any aspiring senior manager. The intention will be to cover not only the essential, core, elements of risk, but also lay equal emphasis on enhancing strategic and analytical thinking skills to ensure the risk or the general manager of tomorrow is much better equipped to succeed in a world of ever more rapid change. Dr David Bobker is Deputy Director of Risk Management at the Asian Institute of Finance and may be contacted on [email protected]

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Potential Risks of

Competition Law Infringement in

Mergers and Acquisitions in

Malaysia

By Dr. Haniff Ahamat & Norhisham Abd Bahrin

T

he Competition Act 2010 of Malaysia (CA 2010) is the first comprehensive competition policy in Malaysia. CA 2010 which was passed in June 2010 and came into force on 1 January 2012 has put an

end to the piecemeal approach to competition regulation in Malaysia. As of this date, CA 2010 has

provisions regulating market behaviour by prohibiting anti-competitive agreement and abuse of dominant position. However, CA 2010 does not specifically address market structure as it lacks clearly stipulated rules controlling or prohibiting anti-competitive mergers and acquisitions. To many, Malaysia does not need competition law that regulates market structure as yet. Economies that have not really matured may need a legal regime that is conducive for firms and companies to consolidate their market power in order to compete with foreign players on the level playing field. Some far more developed jurisdictions like the EU took more than 20 years to introduce a merger control regime. However, it is important to note that some neighbouring countries the likes of Indonesia and Singapore have enforced merger control regulation. Thus, prompting the question whether Malaysia is indeed actually lagging behind in introducing its own merger control regulation. The focus of this article is to see how far the application of CA 2010 affects the activity of mergers and acquisitions in Malaysia. It is to be noted that the term mergers and acquisitions are used in their general parlance and not intended to constitute their technical meaning.

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Mergers and Acquisitions in Malaysia There is no statutory definition of a takeover under the Companies Act 1965 or the Capital Markets and Services Act 2007 (CMSA). However, Section 216 of the CMSA defines a take-over offer to mean an offer made to acquire all or part of the voting shares or voting rights, or any class or classes of voting shares or voting rights, in a company. Since there is no statutory concept of mergers in Malaysia, hence merger activities typically involve an acquisition of shares and business assets and liabilities of companies. Sections 216, 217, 218, 219, 220 and 221 of the CMSA contain the provisions governing takeovers, mergers and compulsory acquisitions in Malaysia. Apart from these provisions, takeovers and mergers are also governed by provisions of the Malaysian Code on Take-Overs and Mergers 2010, the Listing Requirements of Bursa Malaysia (to the extent that a listed entity in involved) as well as the Equity Guidelines issued by the Securities Commission (SC). At the moment, Malaysia has no merger control regulations and as a result, no premerger competition clearance is required to be complied with. Although the CA 2010 has no provisions for merger control, it does prohibit anti-competitive practices and abuse of dominant market position. Despite the absence of a comprehensive regime in controlling mergers and acquisitions, Malaysia has a number of sectoral regulators (which include Bank Negara Malaysia, Energy Commission, the National Water Services Commission and the Malaysian Communication and Multimedia Commission) who are responsible for issuing operating licenses covering various industries including banking and insurance, power, water and telecommunications.

1

A takeover offer may therefore be subject to prior approval from such a regulator. For example, the approval of Bank Negara Malaysia is required if a financial institution changes its shareholding by 5% or more. In the event a mandatory offer requires the approval of a sectoral regulator, it then becomes a requirement for the bidder to procure all the necessary approval of such sectoral regulators. It is important to note that competition regulation of mergers and acquisitions is wider in scope than the regulation of mergers and acquisitions by the SC. In defining “concentration”,1 the EU Merger Control Regulation (Regulations) stipulates that a concentration arises when there is a change of control on a lasting basis resulting from: (a) the merger of two or more previously independent undertakings (“enterprises” in Malaysia) or parts of undertakings, or (b) the acquisition of control of whole or parts of an undertaking by person(s) controlling another undertaking, or by that other undertaking whether by purchase of securities or assets, by contract or by any other means. The Regulation further provides that control can be constituted by the ability to exercise decisive influence on an undertaking via: (a) ownership of or the right to use the assets of an undertaking, or (b) rights or contracts that give decisive influence on the composition, voting or decisions of the organs of an undertaking. This means the extent to which competition law will be applied in relation to mergers and acquisitions goes beyond the realms of securities law which are concerned with the creation of an independent company

Economies that have not really matured may need a legal regime that is conducive for firms and companies to consolidate their market power in order to compete with foreign players on the level playing field

Concentration is the term used in the EU to mean both merger and acquisition.

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(enterprise) out of the merger of smaller companies or the carving out of a parent company’s division, or with the purchase of one company by another company (normally via transfer of shares). Thus the purchase of assets of one company by another company will have different impact under securities law and competition law. While such purchase does not invoke the regulatory powers of the SC, it will be subject to legal scrutiny in accordance with competition law. A similar situation occurs in a joint venture (JV) between two enterprises which does not result in the establishment of an independent entity. Since the current CA 2010 does not have merger control provisions, this article will emphasise on the risks of enterprises infringing CA 2010, by them participating in a merger or acquisition. As said, merger and acquisition here is broader in scope than merger and acquisition regulated by the Malaysian securities laws and regulations.

What are the Risks When Mergers and Acquisitions Take Place? It is important to note that the risks identified above refer to the possible infringements by the participants of a merger or acquisition of Chapter 1 and/or Chapter 2 CA 2010 that prohibits anticompetitive agreement and abuse of dominant position respectively. Parties to a merger or acquisition may risk breaching the said provisions of CA 2010 in 2 ways: (1) they risk infringing CA 2010 before the merger or acquisition is completed, and (2) they incur liability upon the completion of the merger or acquisition.

Before Merger or Acquisition is Completed Like other corporate transactions, the conduct of merger and acquisition by the relevant parties require them to go through a process by which a potential buyer of a company, potential merging companies, or potential parent company which seeks to reduce its holding of a subsidiary, will get pertinent information that will influence the decision to proceed with the merger or acquisition in question. The process is known as due diligence.

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Infringements of CA 2010 can be a valid concern as one looks at the conduct of the parties during due diligence. It is normal for the parties to exchange the information that they hold before reaching a deal. If the information exchanged falls within the category of market sensitive information, the exchanging parties and other enterprises that have knowledge of the information must be cautious as they may get involved in anti-competitive agreement. Parties involved in the due diligence process may exchange documents such as purchase orders, balance sheets etc. If these documents contain “market sensitive information”, they may be liable of information sharing. Market sensitive information refers to information that an enterprise will not, in the normal course of business, share with its competitors and/or business partners. CA 2010 does not explicitly prohibit information sharing but as stated in the Malaysian Competition Commission’s (MyCC) Guidelines on the Chapter 1 Prohibition (Guidelines), the sharing of price information could fall within the conduct that has the object of significantly preventing, restricting or distorting

conduct includes but is not limited to: (a) imposing unfair trading conditions on suppliers or customers (b) limiting production and market access to the prejudice of consumers (c) refusing to supply (d) buying up a scarce supply of intermediate goods or resources required by a competitor without reasonable commercial justification.

competition in the market. However not all pricing information, if shared will result in a prohibition. The risk of infringement is high if the conduct involves the sharing of current and future price information. However, the risk of infringement in the exchange of historic prices and other historic information is likely to be low. As regards non-price information, the exchange of information concerning future sales or output also has high risk of infringing CA 2010, in particular Section 4. The documents exchanged in a due diligence exercise may contain price and non-price information. Caution must be exercised by the exchanging parties if the documents indicate future prices, sales, output and other market sensitive information. Thus efforts must be taken to ensure that only historic data is exchanged. Nevertheless there is still risk of infringement if the exchange of the historic data still allows a competitor to detect the strategy of an enterprise it may not be genuinely historic making it market sensitive.

After Merger or Acquisition is Completed Section 10 CA 2010 prohibits abuse of dominant position. Based on this prohibition an enterprise emerging from merged enterprises or an enterprise which has successfully acquired another enterprise’s assets or shares, will incur extra obligation under CA 2010 if it becomes a dominant player in the market. The obligation is that the enterprise should not abuse its dominant position in the market. Merely being dominant in the market is not prohibited. In the absence of merger control regulations in Malaysia, competition law scrutiny over a merger or acquisition will not look at the legality of the merger or acquisition per se, but will consider the ex post effect of the merger or acquisition. MyCC will not decide whether or not a JV for example, is to be cleared on competition law grounds. Instead it will evaluate the conduct of the parties to the JV in so far as they would possibly engage in abusive conduct. As enumerated in Section 10(2) CA 2010, the

Apart from abuse of dominant position, parties to a merger or acquisition must be aware that the merger or acquisition can lead to a cartel. Cartel refers to an agreement between competitors and based on Section 4 CA 2010, it is per se prohibited for having the object of restricting competition in the market. An acquisition may open a window of opportunity to parties to know more about each other’s market share, prices, outputs etc. In case they acquire each other’s subsidiary(ies), it is possible for the acquisition to facilitate the sharing of the markets held by both enterprises or the reduction of output by either or both of the enterprises. If this happens, the parties to the acquisition may risk infringing Section 4 CA 2010 without MyCC having to establish the deleterious effect of the acquisition on competition in the market.

Conclusion At present, Malaysian competition law has no merger control regulations. However this article has illustrated that the spillover effects of a merger or acquisition can still trigger an action based on Chapter 1 (anti-competitive agreement) or Chapter 2 (abuse of dominant position) or both. Thus, it is advisable for parties to such corporate transactions to reform their practice to minimise the risks of infringing CA 2010. Dr Haniff Ahamat is an Assistant Professor at the Ahmad Ibrahim Ku l l i y ya h ( Fa c u l t y ) o f L aws, International Islamic University Malaysia (IIUM). Norhisham Abd Bahrin is a Senior Associate 1 at Azmi & Associates, Advocates & Solicitors, Kuala Lumpur. Dr Haniff Ahamat can be contacted at [email protected] and Norhisham Abd Bahrin at [email protected] azmilaw.com).

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Customer Satisfaction Index

For Banks in Malaysia By Dr Zamros Dzulkafli

T

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he Asian Institute of Finance (AIF) had conducted a Customer Satisfaction Survey, carried out in August 2011. Feedbacks were obtained from respondents from a total of 17 banks in the Klang Valley area (12 local banks and 5 foreign banks). The survey is designed to measure the level of customer satisfaction of products and services provided by the banks. Customer satisfaction is defined as the degree of optimism and satisfaction of the services provided by the financial institutions that customers are expressing through their banking activities.

industry benchmarks from which financial institutions can measure themselves against in terms of service quality of their respective institutions and henceforth identifying best practices that can help improve the service quality of financial institutions. The survey looks at six main features of customers’ level of satisfaction related to their banking experiences. The main features looked at ‘Bank Staff’, ‘Service Counter’, ‘ATM Service’, ‘Products and Services’, ‘Bank Image’ and ‘The Environment’.

Findings from the survey deliver valuable inputs for AIF and the industry as they provide quantitative measurements indicating customer ’s level of confidence in the financial institutions, providing

Customer satisfaction in the banking industry has always been an important issue. In the long run, customer satisfaction has effects on customer loyalty and overall profitability. It is also crucial as an input for success in the very competitive business

environment within the banking industry. As the retail banking industry goes through transformations and changes, in addition to increased competitiveness, studies in customer satisfaction, especially in gauging satisfaction levels, are important for customer retention. Furthermore, as the retail banking industry involves frequent customer interactions, service quality and customer satisfaction are instrumental in ensuring enhanced customer satisfaction and consequently, customer loyalty as well. To achieve the aims, the survey conducted has the following specific objectives : a. To identify factors that influence customer satisfaction in retail banking in Malaysia. b. To assess the relative importance of these factors on the overall satisfaction. c. To determine the customer satisfaction index of retail banking.

What is Customer Satisfaction Customer satisfaction is the feeling or perceived reaction followed by the attitude of a customer towards a product or service after it has been utilised. Most researchers agree that customer satisfaction refers to an attitude or evaluation formed by a customer comparing pre-purchase expectations of what they would receive from the product or service to their subjective perceptions of the performance they actually did receive (Oliver, R. L. (1980) 1 and Soderlund, (2006) 2). Past researchers have noted that customer satisfaction serves as a link to critical

consumer behaviours, such as cross-buying of financial services, positive word-of-mouth expressions, willingness to pay a premium-price, and tendency to see one’s bank as a ‘‘relationship’’ bank. It is also a central element in customer loyalty, which subsequently contributes to improving the financial performance of a store, or a company. Customer satisfaction has a positive impact on key corporate outcomes, such as retention rates, average deposit amounts, cost to the bank in providing services, and future earnings. Some had also established the idea that unsatisfactory customer service could lead to a drop in customer satisfaction and willingness to recommend the service to a friend. This would lead to an increase in switching by customers to other banks.

The Survey The study was conducted in two phases; focus group discussions (as well as a pilot survey) and the actual survey. Based on the feedbacks received from the pilot survey, the survey questionnaire was revised to ensure that the questions would truly reflect measurements of customer satisfaction. A focus group discussion session was held with participants representing several banks in the country. Subsequently, the pilot test was performed with data collected using mall intercept i.e. face to face approach in several banks. The final revised questionnaire was set in the English language, and consisted of four sections comprising close-ended questions. The customers were selected based on quota sampling involving age, ethnic group and banks patronized.

Summary of the Questionnaire Section

1

2



Items

Details

Section 1

Respondent Background

Details on respondent background

Section 2

Banking Information

Name of bank, type of bank, facilities and frequency of using internet banking.

Section 3

Banking Experience

Ranking of customer satisfaction features and criteria based on Likert scale of 1 to 5.

Section 4

Overall Satisfaction Level

Level of overall satisfaction of the banking service.

Oliver, R. L. (1980a), “A cognitive model of the antecedents and consequences of satisfaction decisions”, Journal of Marketing Research, vol. 17(November), pp. 460-469. Soderlund, M. (2006), “Measuring customer loyalty with multi-item scales: a case for caution”, International Journal of Service Industry Management, vol. 17, no. 1, pp. 76-98

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The Customer Satisfaction Index The Customers’ Satisfaction Index is computed based on coefficients obtained from the regression of all six dimensions on the ‘Overall Satisfaction’ level. The “Environment”, “Staff” and “Image” are found to be the three most important factors influencing overall customer satisfaction, followed by “Counter” and “Products and Services” while ‘ATM’ services was marked as being of least importance. The industry Customers’ Satisfaction Index is estimated at 69.83% (100% being fully satisfied customers). Seven of the 17 banks are found to have performance index below the industrial index with the highest and lowest being 73.21% and 65.27% respectively. The range difference is about 8% which, for practical purposes may not be of much significance. The calculated figure indicates that customers are moderately satisfied with the products and services of banks in Malaysia. In addition, customer satisfaction does not correlate strongly with bank size. It seems that the smaller, more specialised banks are able to satisfy the customers better. Six of the smaller banks are placed in the top 10.

Takeaway for the Industry The study has revealed exciting inputs, by investigating factors which customers perceived as important to their satisfaction level in dealing with banking services. Results from the survey give valuable inputs for the industry in strategizing their position to increase their service level and be ready to face the competitive environment in attracting customers. Our interest in this study focused on identifying factors that influence customer satisfaction in retail banking in Malaysia and developing the customer satisfaction index of banking institutions in Malaysia which can be called as the Malaysia Banking Customer Satisfaction Index (MBCSI). Hence, based on the study, the most important results include: • A total of 9 of 17 banks have their highest score for ‘Staff’, whereas 7 of the 17 banks have ‘Image’ as their highest score. • The MBCSI is estimated at 69.83%, which can serve as the industry benchmark. Seven of the 17 banks are found to have performance index below the industrial

The Six Dimensions of Customer Satisfaction 1) Bank Staff

2) Service Counter

1. Level of banking knowledge and skills

1. Waiting time before you are served

2. Warm and friendly gestures

2. Operational hours of the bank

3. Appropriate solution and feedback to customer’s problem or problems

3. Handling the banking transaction accurately

4. Respect to customers

4. Number of operating counters at any point of time

5. Understanding banking needs of customers

5. Overall online banking services

6. Delivery of services promised

6. Bank call-centre services

3) ATM Service

4) Products and Services

1. Safety of ATM location

1. Financing charges

2. Waiting time at ATMs

2. Variety of product offering

3. Availability of ATM machines

3. Hidden cost/fee

4. Conducting banking transactions through ATMs

4. Quality of products and services

5. Availability of cheque deposit machines

5. Customised products and services

6. Security transaction at ATM machine 5) Bank Image

6) Environment

1. Trustworthy bank

1. Location of the bank

2. Competent bank

2. Parking facilities

3. Financially sound bank (solvency, liquidity, quality of assets)

3. Quality of promotional materials

4. Customer orientation

4. Information provided by the bank

5. Technology excellence

6. Appearance of the premises

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index with the highest and lowest being 73.21% and 65.27% respectively. The range difference is about 8% which, for practical purposes may not be significant. The domestic banks posted lower average score for ‘Products and Services’ and “Counter” as compared to the foreign banks. These show that respondents are more satisfied with products and services as well as counter services offered by foreign banks. “Staff”, “Image” and “Environment” were the three most important factors used by banks’ customers to be engaged with satisfaction. These factors are perceptual and subjective, thus, banks need to make sure that factors contributing to the build-up of these perceptual images are taken care of. “Image” and “Staff” are the top two dimensions that received the highest score in terms of satisfaction by customers. This bodes well with the efforts taken by Bank Negara Malaysia in improving the image and perception of customers on the banking industry in Malaysia and the continuous enhancement in the quality of talent in the industry. ‘Service Counter’ and ‘Products & Services’ received the least score in terms of satisfaction by customers. Customers are relatively less satisfied with the level of services provided on items such as waiting time, operational hours, transaction accuracy, online services and call centre performance. There is also a need for further improvements in areas involving financing charges, products, information on possible hidden cost or fees, quality of products and customised products and services. Even though the relatively more tangible aspects (i.e. products / services offered and ATM services) are not considered as of much significance, these factors

Banks Average Score Based on Dimensions of Customer Satisfaction Overall Image Staff Environment ATM Product and Services

All Banks Domestic Banks

Counter

Foreign Banks 3.2

3.3

3.4

3.5

3.6

Score

are still important as they actually contribute to the actual determination of the image perception by the customers. It is vital to understand that customer satisfaction is a dynamic parameter of the well-being of the business organisation. Therefore, changes in the current market may affect customers’ preferences and expectations and as a result, some satisfaction dimensions may become more important in the near future if customers give more importance to them such as in the case of usage of internet banking. Dr Zamros Dzulkafli is a Research Fellow at the Applied Finance Research and Publication Centre at the Asian Institute of Finance

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By Joyce Nesamani Simson

The

Winner Takes it All Really Now? Discovering Talent Lessons from the Olympics

O

nce in every four years, the world comes together to share in the excitement of a sporting event that binds people in a spirit of competitiveness, excellence and camaraderie. The Olympic creed which appears on the scoreboard during the Opening Ceremony of each Olympic reads, “The most important thing in the Olympic Games is not to win but to take part, just as the most important thing in life is not the triumph but the struggle. The essential thing is not to have conquered but to have fought well.” In a greatly competitive world, we wonder whether the Olympic motto of ‘Citius, Altius, Fortius’ (Swifter, Higher, Stronger) still rings true not only in the sporting arena but also in the larger walks of life. It should be noted that the call is not be to be ‘swiftest, highest, strongest’ as the Olympic ideal encourages athletes to view success in terms of effort and the constant striving for improvement to achieve one’s personal best. With the Olympics as a background, the world’s biggest sports stage can indeed teach talent managers a great deal of lessons that are not only applicable in the sports arena but also in the corporate minefield. The business battlefield is getting extremely competitive and talent scarcity is the common buzzword in the corporate

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scene as businesses acknowledge their competitive advantage is derived by a well-managed talent pool. As talent becomes more mobile while brain drain and brain gain can be seen as the twofaces of the same coin, talent managers need to master the skills to choreograph an environment conducive for talents to thrive and grow. Employees too can be regarded as athletes whereby without continuous communication, coaching and opportunity, talent cannot improve.

Set short, mid and long term goals Organising the Olympics is a huge project which takes at least a decade of planning. There are various elements that have to be considered before a nation can bid for the honour of hosting the Games. Much like the Olympics, talent leaders must be able to strategically plan and set short, mid and long term goals for the organisation. They must be able to visualise where the organisation will be headed towards and the talent needs of the organisation in the future. Clear and compelling goals certainly provide focus and direction for the organisation. It is often said ‘Failing to plan is planning to fail’. Though this may seem like an overused phrase, the truth of this statement cannot be denied. Organising the Olympics as well as preparing to compete for the Olympics is a longterm goal. What we see during the two weeks of action is a culmination of a decade of planning and the success of the actual event resounds from the detailed planning and intensity of execution. This certainly rings true in organisations whereby the leaders must have clarity of vision and detailed plan set in motion to chart the organisation through the turbulent business currents.

Constantly coach employees to be on the top of their game Training is extremely important for a world class athlete. Each athlete who

qualifies for the Olympics has to undergo rigorous training to reach the world stage. Talent managers must constantly coach employees to be on the top of their game. The business world certainly can learn valuable lessons from the sporting arena whereby coaching plays paramount importance in enabling the athlete to push his boundaries and perform extraordinary feats. Talent managers must view coaching as an important organisation tool to build their talent pool. Training and development is needed to expand and polish the employees’ capabilities. Training and development enables the employees to keep abreast with the competition around them and develop their personal capabilities. Coaching has to become more than just a buzzword and needs to be weaved into the organisation as a way of life to produce talent who will be able to perform beyond borders.

Communicate the employees fit in the bigger picture Thousands of hands are involved in the production process of any Olympic Games, from planning staff to construction workers and even volunteers. It has been reported that his this year’s London Olympics will include 70,000 volunteers who will work 8 million hours over the 17-day event. In a corporate organisation, employees must understand and appreciate how they fit in the bigger picture. This will enable them to view themselves as worthy contributors towards the organisation’s goals and mission. Just like at the Olympics, not every person is called to be an athlete or the construction worker or the planner, yet no role is less important or less worthy. Each person is needed to make the Olympics a success. In the same manner, each employee brings his own strength and capability into an organisation and the organisation relies on this talent pool to take it to the next sphere of success. The

talent managers must communicate the distinct role each employee plays in the organisation to enable the employees to feel a sense of belonging towards the organisation as well as contribute to its success.

Tailor motivation needs to the individual At the Olympics, each athlete has a different training agenda and dietary requirement as required by the respective sport they are involved in. The training and dietary requirements for a swimmer certainly differ from the requirements for a gymnast. Though both compete for the gold medal in their sport, the means to achieve this goal is not the same. With this, it will certainly be unwise to attempt to use the same training methodologies for both the swimmer and the gymnast. In the same manner, talent managers must be able to ascertain the strength and motivation of their employees and tailor the motivational needs to the respective individual. The diversity of today ’s workforce which constitute various generations working together and the blend of different personalities and nationalities in the workplace creates a unique challenge for the talent managers to provide the relevant motivation for their employees. Just as the right training is vital in the athlete’s quest for gold, the right motivation is vital for the employees’ quest for professional excellence. Though much has changed since the inception of the Games in Greece, the spirit of sportsmanship still rings loud and clear each time the nations gather for the Games. The sight of our fellow human beings accomplishing great physical and mental feats can inspire nations and individuals to strive for excellence. Translating this analogy into the corporate world, talent when managed at its best can deliver world class results. Joyce Nesamani Simson is a Manager, Programme Development at the Asian Institute of Finance.

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By Fara Iza Abdul Rahim

International Conference on Financial Crime and Terrorism Financing 2012

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he Asian Institute of Finance (AIF), in collaborations with the Compliance Officer Networking Group (CONG) and the Institute of Bankers Malaysia (IBBM), has successfully organized the International Conference on Financial Crime and Terrorism Financing (IFCTF) 2012. Held on September 24 and 25, 2012 at the Shangri La Hotel Kuala Lumpur, the 4th edition of the IFCTF saw a record number of 600

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delegates from across the financial industry, government bodies, policymakers, regulators as well as foreign and local universities. Themed “Compliance, Challenges and Effectiveness: The Next Level”, the Conference was a continuance from the previous edition’s “Raising the Bar in Compliance and Enforcement”. While the past 3 years had emphasised more on awareness and creating understanding, this year the conference

focused on measuring the effectiveness of our effort and help prepare Malaysia for the assessment by international bodies such as the World Bank, Asia Pacific Group and the International Monetary Fund. The event was officially graced by the Deputy Inspector of Police, YBhg Tan Sri Khalid Abu Bakar. Tan Sri Khalid had emphasized the need for enforcement agencies such as the Royal Malaysia Police (PDRM) to continuously keep abreast with new technologies. In his speech, Tan Sri Khalid stressed that the police must also keep pace with the latest financial crime tactics. The Plenary Session which followed the Opening Ceremony, had showcased several international experts discussing on “risk-based assessment”, measuring the “effectiveness of compliance”and corporate as vehicle for money laundering. Focus was also on the implementation of the new guidelines by the Financial Action Task Force (FATF), an international body to develop policies to combat money laundering and terrorism financing. This is eminent as on Feb 16, 2012, the FATF issued revised guidelines to strengthen global safeguards and further protect the integrity of the financial system. Four key issues addressed by the guidelines were financing of proliferation, corruption and politically exposed persons, tax crimes and terrorist financing. In summarising the 1st day of the Conference, Dato’ Latifah Merican Cheong, Advisor, Chairman’s Office, Securities Commission Malaysia, had stressed the importance of collaborations between authorities in the region to tackle money laundering and financial crime in order to boost investors’ confidence.

The IFCTF 2012 also addressed the frightening increasing trend in cyber security issues as well as insurance fraud. CONG Chairman who is also the Conference Chairman, Encik Mad Yusof Yazid had said that the inclusion of cyber security was due to the growing threat especially of Internet scams in the country involving financial institutions. This helps to increase awareness as well as able to share the best practices from other parts of the world in terms of managing and detecting fraud and money laundering. Supported by BNM, the 2-Day Conference featured prominent speakers and personalities from around the world, sharing their views and experiences. Over 40 speakers spoken at the 2-day Conference, including from the U.S. Department of the Treasury, Federal Bureau of Investigation (FBI), The Government of the Hong Kong Special Administrative Region of the People’s Republic of China, Austrac Australia, Royal Customs of United Kingdom, Bank Negara Malaysia (BNM), Royal Malaysian Customs, Security Commission, Malaysian Anti-Corruption Commission as well representatives from universities and notable compliance officers and authorities from other parts of the world. Overall, the Conference was a huge success and has helped to enhance knowledge and capabilities of the compliance officers in Malaysia and increased the level of understanding as well as cooperation with other parts of the world in our efforts to combat financial crime and terrorism financing. Fara Iza Abdul Rahim is a Manager at the Applied Finance Research and Publication Centre, Asian Institute of Finance.

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Forum Symposium 2011

4th International Conference on Financial Crime and Terrorism Financing 2012

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