Corporate Liability for Corruption – Should Private Universities and Colleges be concerned?

 Changes made to the laws on corruption in 2020 have generally gone unnoticed by private higher educational institutions and other providers in the private sector of higher education. The new provisions are directed at commercial organizations which clearly include the companies that establish and manage private higher educational institutions under the Private Higher Educational Institutions Act 1996 (Act 555).[i] The implications of the changes on the operation of private universities and colleges are too serious to be ignored.

Liability under s. 17A

The changes introduced through a new s. 17A of the MACC Act 2009 came into operation in June 2020, just as the Covid-19 pandemic was beginning to take hold in the country.  The new provisions make a commercial organization (a term defined by the Act to include registered companies or partnerships) strictly liable for the corrupt conduct of its officials, agents, and other service providers of the organization even if those acts were done without the knowledge of the organization or its officers. Any director, controller, officer, partner, or manager of the commercial organization is deemed personally liable for the same offence.

The penalties are severe. The commercial organizations and its officers are liable to a fine of not less than 10 times the value of the gratification, or RM1 million, whichever is the higher; imprisonment for a term of not more than 20 years; or liable to both fine and imprisonment.

Adequate procedures to prevent corruption

To counter the severity of the offence and the penalties attached to it, s. 17A provides commercial organizations a complete defence to a charge under the section if they can show that they had ‘adequate procedures’ in place to prevent corruption in their operations. Guidelines issued by the Minister indicate what constitutes adequate procedures. Generally, they require commitment at the top level of management and their involvement in the prevention of corruption. The procedures include risk assessment, undertaking control measures, carrying out systematic reviews of those measures, the monitoring and training of staff and the setting up of whistleblower procedures.

It is a defence for directors and officers to prove that the offence was committed without their consent and that they had exercised due diligence to prevent the commission of the offence. The due diligence defence available to directors, controllers and partners is linked to the establishment and monitoring of adequate procedures.

The rationale of s. 17A

The provisions of section 17A reflect a worldwide trend to shift the responsibility of preventing corruption from enforcement agencies to the business organizations themselves. The carrot and stick approach imposes heavy penalties on businesses that benefit from the corrupt behaviour of employees and associates whilst giving them complete protection if they can show that they had instituted adequate procedures in their operational space to prevent corruption. The section will require businesses to be vigilant of corruption risks not only from people within their organizations but of those outside the organisation who fall within the definition of associates.

Who are associates?

The term associates cover a very wide class of persons including those with tenuous links to the organisation such as those who perform services for the organization. Under the section, the question of whether a person performs services for the organization is to be determined not simply by reference to the nature of the relationship between that person and the organization but by reference to all relevant circumstances. The range of persons who would fall within the definition will have to be determined by the courts but the way the section defines associates will require businesses to review how their businesses are affected by agents, suppliers, and others in their supply chain.

Why PHEIs must be concerned

The risk of corruption has been observed to be highest among businesses whose dealings include regular interactions with government agencies. If the normal operation of a business is subject to obtaining regular official approvals and permissions, the corruption risk becomes greater.

PHEIs are creatures of law that are subject to tight regulation by government agencies. They can only be established with the approval of the Minister of Higher Education. The application process involves the submission of many documents to the Ministry and responding to different official inquiries. Once established, the PHEI must then enter another series of interactions with the same Ministry to register the institution. This in turn requires approvals from the local fire department and the local council where the institution is located. Once the institution is in operation, approvals must be obtained from the Ministry to teach a course of study or training programme. Applications must be made to the Malaysian Qualification Agency for accreditation and if foreign students are involved, applications must be made to the Ministry of Internal Affairs (KDN) and Immigration Department. Interactions with different government agencies will continue over the life of the institution. According to a MOHE circular, the Ministry alone processes 23 different types of applications from PHEIs. One of the risks that PHEIs face is the likelihood of government approvals being withdrawn or modified. Act 555 creates uncertainty in many of its provisions where an approval that has been previously granted to a PHEI is withdrawn.

High-risk industry

The range of interactions with government agencies makes the private sector a textbook case of a high-risk industry. This position is compounded by the multitude of contracts that the PHEI typically makes in the ordinary course of its business. These include contracts with marketing and recruiting agents, funding agencies, and foreign universities and their agents, advertisers, newspapers, and the list goes on. These arrangements bring with them people whose actions may not always be within the control of the PHEI but may yet fall within the class of persons defined as associates of the PHEI.

Protecting Senior Officials

Another reason why PHEIs must be concerned with the new law is the exposure of a category of its senior officials to liability under s. 17A. These are officials who are employed because of their academic standing and their role in the management of the institution is limited to the educational processes of the institution. However, because they are concerned in the management of the institution, if an offence is committed under the section they would be caught in the dragnet of the section and be held liable for that offence, even if it was committed by persons far removed from their area of responsibility.

PHEIs must also be concerned because of the heavy penalties the section imposes, which may have a terminal impact on the business.

For these and other reasons not explored here, it would be prudent for PHEIs, whether large or small to institute corruption proofing procedures as a shield against liability under the new law.

 

 

Espact’s team of legal and other specialists can assist you to assess your organization’s current position vis-à-vis the Act and develop adequate procedures in line with the Ministerial Guidelines. Espact’s team also provides briefings for directors and training for staff at all levels to meet the requirements of the defence. For a free consultation, please call 03 7865 5062 during office hours.

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[i] Under Act 555, only a registered company may apply to the Minister of Higher Education to establish a private higher education institution, whether a university, university college or a college (s.6)

Appointment to Universiti Malaya Board Sparks Controversy

 Appointment to Universiti Malaya Board Sparks Controversy

The appointment of a former student of the university to the board of Universiti Malaya sparked a broad range of responses on social media, online news sites, and chat groups of academics. Putting aside the vitriol, the racist remarks, and the personal attacks on the young man, one of the causes of the annoyance was that the appointment was political and that the appointee was too young for that position. Interestingly, the criticisms were targeted mostly at the appointee, not so much the Minister who was responsible for the appointment. University board appointments are matters of public interest and public scrutiny of the appointments will uphold good governance of universities and greater care taken in selecting the right people for the position. In this short blog, we talk about the role of the university board, the profile/composition of the board, the type of skills they must possess, and how they are appointed. We also show a chart showing the current composition of the board of the universities established under the Universities and University Colleges Act 1971 (the Act)

The University Board

Under the Act, the university board is the highest governing body at the university, overseeing all aspects of the university from finances to student disciplinary rules and even over some academic matters such as the appointment of staff. The extensive powers vested in the university are exercisable only by the board although there are limitations to how the power is exercised. First, the board must recognize the senate’s exclusive jurisdiction over academic matters and must avoid intruding into those powers. If there is a conflict between the board and the senate, there are provisions in the Act for the dispute to be referred to the Minister. Next, the board must recognize the principles of collegial governance that are integral to the Act. Unlike the boards of commercial corporations which have control over the entire company, the university board’s powers over the different constituents of the university such as faculties, institutes, centres, and even officers such as deans and heads of centres are limited by the powers and functions designated to those constituents. It will be misleading to describe the university’s governance structure as bicameral without at the same time mentioning the distribution of powers over the other constituents. In the nomenclature of the Act, the board is only one of many authorities established by the Act.

The Functions of the Board

Notwithstanding the limitations referred to, the functions ascribed to the board are extensive. The Act requires it to provide strategic planning-oversight of the educational character and mission of the University; it must promote efficient and effective management and provide an overall review of university operations; it is required to develop links with the community, corporate sector, and industry and finally foster global linkages and internationalization in higher education and research. As if these were not complex enough, in 1996, additional powers were vested in the board of a commercial nature. The 1996 reform of higher education laws gave the university extensive commercial powers that entitle the board to invest in shares, form partnerships, joint ventures and set up subsidiary corporations with commercial objectives. These powers are as extensive as those exercisable by any corporate business organization. Considering the board’s wide powers and the statutory expectations cast on it, it is obvious that great care must be shown in making appointments to the board and that the appointees are able to execute the statutory expectations. For this, the composition of the board must reflect the different functions ascribed to it. This is where the Act fails. In amending the Act to give the university those commercial powers, no attempt was made to change the statutory composition of the board to support the wider powers conferred on the university.

Membership of the University Board

The membership of the board as mandated by the Act is as follows.

i          A Chairman;

ii         The Vice-Chancellor;

iii       Two officers of the public service;

iv       One person to represent the community at the place where the University is located;

v         One professor of the University elected by the Senate from amongst the members mentioned in paragraph 17(d); and

vi       Five persons comprising three persons from the private sector, one person from the alumni of the University and one other person from within or without the University who, in the opinion of the Minister, have the knowledge and experience which would be of assistance to the Board.

vii     The Deputy Vice-Chancellors, Registrar, Bursar, and Legal Adviser shall be ex-officio members of the Board but shall not be entitled to vote at the meetings of the Board.

With respect, the prescribed profiles do not match the legislative powers and functions of the board.

Appointments to the university board

The powers of appointment to the board of directors are vested in the minister. Obviously, to comply with the statutory prescriptions, any appointment made by the minister must ensure that the appointee fits into the shape of the composition laid down by the Act. It is open to an argument that if a board is not constituted as legally prescribed, any power it exercises or decisions it makes may also be flawed and be challenged in a court.

Further, the minister is also bound by s. 4A of the Act to appoint a committee to advise in the appointment of a qualified and suitable person to the board. It may be worth reproducing the section in full to emphasize its provision.

4A.  For the purpose of selecting a qualified and suitable person for the post of Vice-Chancellor or for any other post to which the Minister has the power to appoint under this Act, the Minister shall, from time to time, appoint a committee to advise him on such appointment.

A recent decision of the High Court has held that the minister’s actions under the section are open to judicial review.

Current Appointments

In conclusion, what is clearly needed is greater transparency and observation of the law in making such appointments. Otherwise, public confidence will be lost in how our universities are managed. The attached chart tells a woeful tale of how appointments have been made without any considerations given to ethnic or gender diversity in the appointment of directors.

The University as an Arbitration Institution – Will it Support Collegial Governance in Public Universities?

Abstract

University Arbitration^[i] is a novel concept developed by a senior judge of the Malaysian Court of Appeal, Justice Datuk Dr Haji Hamid Sultan bin Abu Backer. When implemented, the concept would make radical changes to dispute resolution by arbitration, and equally importantly, to the purposes and role of the university as a social institution. Locating an arbitration tribunal in the university would also strengthen academic freedom and collegial governance which are two essential requirements of a university. The full concept with model rules of procedure governing the new arbitration process is described in a booklet entitled University cum Court Annexed Arbitration.^[ii]

Why annex arbitration to universities?

The concept’s main aim is to democratise arbitration, to offer the advantages of this form of dispute settlement to a larger section of the population, at a cost that is affordable and thorough procedures that are simple. The authors of the concept, with good reasons, believe this can be immediately achieved by annexing the arbitration institution to the university and leveraging on the latter’s resources. There are almost a hundred universities in the country, public and private. With at least one in every state, arbitration institutions can be rapidly established across the country and not only in the main cities. With the right collaboration, locating arbitration centres in universities will also minimise rental and administrative costs. The alignment of the two distinct types of institutions has a unique advantage in that the professoriate, with knowledge from across many disciplines, can be pressed to engage in the arbitral process. One of the acknowledged advantages of the arbitration process is that disputes are resolved by experts on the subject matter of the dispute.

This article examines how an arbitration institution in the university may fulfil an important need for an independent arbitrator to decide on intra-university disputes and foster the strengthening of academic freedom and collegial governance.

The university, to fulfil its role and duties to students and society must be assured of three important attributes – autonomy or freedom from external, especially government interference, a system of collegial governance that ensures the equal participation of the different components[iii] of the university, particularly, the academics and guarantee academic freedom. An independent tribunal within the university or another university will be eminently placed to arbitrate disputes arising between the different components of the university. 

Expanding the Purpose of the University

University arbitration sets to expand the purpose of the university as no other concept has done in recent years. The purpose of the university has always been to teach students, create new knowledge, and serve the community. Annexing an arbitration centre in the university contributes to all three of those traditional purposes. Firstly, arbitration can be taught as a course by itself or as part of a larger programme in the university’s offerings. The arbitration centre can then double as a place for practical training; the university’s research agenda can be enlarged using information generated by the arbitration centre; the arbitration centre with the support of students and academics can serve as a counselling and advisory centre for the local community.

A Short Note on the Different Types of Universities in Malaysia

 In Malaysia, the main legislation on universities, the Universities and University Colleges Act 1971 (UUCA), provides for the creation of two types of universities. The first type (UUCA universities), which includes all public universities, is established under s. 6 of the UUCA. The university thus established is an incorporated entity with all the attributes of a corporation. The second category, formed under s. 5A (2) of the UUCA is only a higher educational institution having the status of a university but is not incorporated. The next type of universities is those established under the Private Higher Educational Institutions Act 1996, (Private universities) which are by far the most numerous. These universities are also not incorporated. Private universities are established, owned, and managed by companies registered under the company’s legislation. The private university operates as a business of the registered company. Polytechnics, institutes of teacher education and other higher education institution all operate under the aegis of the government and are not individually incorporated. A final category includes those higher education institutions established by special legislation such as the University Teknologi Mara (UiTM) established under legislation bearing the same name passed in 1976, and the Akademi Seni Budaya dan Warisan Kebangsaan (ASWARA) established by legislation of the same name in 2006. ASWARA is a statutory body.

In this article, unless otherwise stated, references are to UUCA universities.

Dispute Resolution in the University

The idea of setting up an arbitration centre in the university has the potential to support and enhance collegial governance in UUCA universities, which is an important aspect of academic freedom. The two ideals are important cornerstones of the university and have been so from the time universities were first established.

The UUCA does not expressly articulate either of the traditional values. However, collegial governance may be implied from the way the Act distributes the functions and powers of the university. An important fact that is not often recognised is that the functions and powers are not concentrated in any one single person or group but across many groups and individuals described by the UUCA as Authorities and Officers. The UUCA university is made up of the authorities and officers.[iv] Also called, shared governance, collegial governance is distinct to universities. It means that the academics are not only protected in their employment with the university but also in their right to participate in the management of the university. Collegial governance also involves the recognition of the rights of the different authorities and officers. Academic freedom consists not only of freedom over matters of scholarship but also the way the university is managed.

The UUCA university, although established as a separate legal entity with corporate status, manifests an amalgam of many different interests. These include the interests of the administrators, the interests of faculties, departments and officers of the university, the academics, and other staff, interests of the students, factions within the student body and, finally, the interests of the alumni. Most of these different interests - they may be regarded as internal stakeholders, are represented through the authorities that make up the UUCA university.

The authorities of the university, as defined in the constitution scheduled to the UUCA (the Constitution), include the Board, the Senate, the Management Committee of the University, the Faculties, the Schools, the Centres, the Academies, the Institutes, the Studies Committee, the Selection Committees, the Employee Welfare Committee, the Student Welfare Committee and such other bodies as may be prescribed by Statute as Authorities of the University.  The officers of the university are the Chancellor, Pro-Chancellor, the Vice-Chancellor, the Deputy Vice-Chancellor, the Heads of Branch Campus, Deans of faculties, Heads of Schools, Centres, Academies, Institutes, the Bursar, The Registrar, the Chief Librarian, the Legal Adviser, and the holder of any office created by a university statute or otherwise. The composition, powers and procedure of the Authorities and officers are prescribed by the Act, the Constitution of the university and by university statutes, which are rules and regulations, made in accordance with the constitution of the public university.

These are not merely administrative divisions; they are a mark of the collegial governance structure of the university where authority is distributed across the divisions. Debate and dissent are vital to the functioning of the collegial system and are norms of the university. The distribution of power across authorities and officers ensure that decision making involves more than one person or one group. These ideals have fallen victim to the hierarchical systems that have been forged on to universities in recent years, mainly through political patronage. University governance has become authoritarian and has replaced the collegial ideal. Undermining the collegial processes have placed at risk academic standards, academic rights, student interests and the very meaning of the university. Academics and other staff, as well as students aggrieved in the processes, have little or no recourse within the UUCA university structure which has no independent authority to hear complaints such as an Ombudsman.

Arbitration

An arbitration centre in the UUCA university may contribute in a significant way to remedy the absence of an independent body to which grievances and disputes can be referred. The model that is proposed requires disputes to be filed in courts as a first step, which may not sit well with the temperament of university personnel. If this preliminary step is modified for intra-university disputes whereby disputants can refer directly to the arbitration institution in the university, the university annexed arbitration institution will play a transforming role in the way universities are managed. Not only will university disputes be resolved efficiently but the tribunals deciding the disputes may be able to develop a clearer understanding of the traditions, laws and regulations surrounding higher education through their accumulated decisions. It is not important that the concept is introduced in all universities. Arbitration centres in a few universities will be able to serve the needs of universities and higher education institutions that do not have such centres.

Private Universities and Colleges

As mentioned earlier these institutions are established under the Private Higher Educational Institutions Act 1996 (Act 555). Private universities established under this Act bear no resemblance to their counterparts established under the UUCA. The complex division of the university into authorities and officers found in the UUCA are not found under Act 555. As private universities are established by companies registered under the Companies Act, the governance of these institutions follow the governance structure of commercial corporations. There is little scope for collegial governance in such universities unless of course, the company decides to implement such a system as a corporate decision. Even then, legal responsibility will still lie with the two main organs of the company, which are the general meeting and the board of directors.

A general survey of reported cases shows that most disputes in private universities centre around questions of employment. In the circumstances, an arbitration centre in the university may not have the same impact on governance as it would in the case of UUCA universities. However, academics in private universities may find that they are entitled to some measure of academic freedom and rights under the regulations issued by the Malaysian Qualifications Agency. Access to an arbitration system may therefore also be of service to academics in private institutions to enforce their rights as academics.

The first arbitration centre is established in MAHSA University, a private university. That fact and the potential of the arbitration centre is worth publicising through a conference or webinar.

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[i] The full title of the concept is University cum Court Annexed Arbitration.

[ii] The full booklet can be downloaded from www.janablegal.com

[iii] More precisely, the authorities and officers of the university that make up the UUCA university.

[iv] The view held by many, that the Vice-Chancellor, the Board and the Senate have unfettered power over the affairs of the university does not fit the model of administration adopted in the UUCA. Power is not concentrated in any one authority of the university or in any single officer of the university.