6. INSTITUTIONAL RESTRUCTURING IN SARAWAK, MALAYSIA

Barney Chan¹

Fings ain’t wot they used to be. Frank Norman, 1959

SUMMARY

The Chief Minister of Sarawak, as the minister in charge of forestry, was the initiator of changes, initially in response to intense international criticism of the logging industry in Sarawak, Malaysia and subsequently as projects carried out by the International Tropical Timber Organization (ITTO) in Sarawak identified potential spheres for change.

The ITTO Sarawak Mission (involving three trips to Sarawak from 1989 to 1990) made three main recommendations that resulted in six ITTO projects for Sarawak, one of which studied the human resource needs of Sarawak in order to meet the requirements of managing its forests sustainably.

A new flexible model — instead of a rigid government department — was needed to handle a rapidly changing environment. The chief minister recognized that this new environment required the creation of an independent entity able to work in a private sector environment.

In keeping with this new model, the existing Forest Department was downsized and its operational functions were vested in a newly created Sarawak Forestry Corporation (SFC). Under an innovative agreement, a private company, the Sarawak Forestry Corporation Sdn Bhd,² owned by the SFC, supplied management personnel and general staff to the SFC to execute and perform its functions.

Some initial improvements in delivery of services due to the re-engineering have been noted, though it is generally thought to be too early to detect any significant changes.

PREAMBLE

Demands for forests to be managed sustainably have been at the core of relatively recent institutional re-invention in Sarawak, Malaysia. A largely traditional Forest Department has had most of its operational roles supplanted by a more dynamic corporation that operates largely according to private sector principles. Under an innovative institutional arrangement, most of the SFC’s staff are employed in a private company created, and indirectly owned, by the Government of Sarawak.

INTRODUCTION TO SARAWAK

It is vital to understand the geopolitics of Sarawak in order to appreciate the complexities of this institutional restructuring.

The Federation of Malaysia was formed when three existing sovereign entities were joined on 31 August 1963: Malaya, North Borneo and Sarawak (initially Singapore was part of Malaysia but seceded in 1965). Unique in this union was the respect given to the smaller and relatively undeveloped states of North Borneo and Sarawak. Together with the other states of Malaya, they were given authority — and retained control — over forestry and land matters. This means that the federal government has no direct control over forestry; moreover revenues from forestry are paid to the state, rather than the federal treasury. These arrangements are enshrined in the Malaysian constitution.

Regulation and oversight of international trade and commerce, and other commitments of national interest such as environmental and social matters, are in the hands of the federal government and state governments adhere to federal directives on such matters.

Pensions for civil servants are administered by the federal government and therefore, any increase in staffing of the civil service must have the agreement of the federal government. This has an impact on any institutional restructuring within the state civil service.

Geographically, Sarawak has a total land area of about 12.3 million hectares and lies just north of the equator, on the island of Borneo. Three major river systems, the Rejang, Tatau and Baram, demarcate the operations of the timber industry of Sarawak because river transportation is crucial to the logging industry.

The population of Sarawak was 2 071 506 in 2000 (Department of Statistics 2000), demonstrating broad ethnic diversity. There are 16 major ethnic groups in Sarawak with significant numbers living in or near the forests, many of whom derive subsistence livelihoods, especially in very rural areas.

Forests (not including palm oil plantations) cover some 71 percent of the land in Sarawak. In 2005, Sarawak produced just over 12 million m³ of logs, from which almost 3 million m³ of plywood were made and exported, along with more than 1 million m³ of sawntimber (Sarawak Timber Association 2006). Other timber exports included mouldings, dowels and furniture. The total value of timber exports in 2005 amounted to US$1.87 billion³ (Sarawak Timber Association 2006).

Sarawak has almost 6 million hectares of Permanent Forest Estates (PFEs), which produce about 9.2 million m³ of logs each year. The ITTO mission to Sarawak confirmed the sustainability of this annual production (ITTO 1990). However, approximately 3 million m³ of logs are produced each year, in areas of agricultural conversion and state land forests, which are outside the PFEs. This production is not considered sustainable.

THE SIGNIFICANCE OF ITTO PROJECTS IN SARAWAK

The ITTO Sarawak mission

The Chief Minister of Sarawak personally invited ITTO to send a mission to Sarawak during the Sixth Session of the International Tropical Timber Council in May 1989, held in Abidjan, Côte d’Ivoire. This was in part to demonstrate that intense international criticisms of logging in Sarawak were incorrect and unwarranted.

The mission was established under a Council Resolution to assess the sustainable utilization and conservation of tropical forests and their genetic resources as well as the maintenance of the ecological balance in Sarawak, Malaysia, and to make recommendations for the further strengthening of sustainable forest management policies and practices, including areas of international cooperation and assistance (ITTO 1990).

The mission comprised ten experts representing a diverse range of interests. These experts made three trips to various sites in Sarawak, with each trip lasting two weeks. In Sarawak, they interviewed scores of stakeholders within government, local communities, the timber sector and NGOs.

The final overall assessment of the ITTO mission was, among other findings, that sustainable management of the forests of Sarawak was partly achieved; the ITTO mission felt that full achievement depended on immediate actions in three priority areas (the third is very relevant to this case study), summarized here:

1. Control of logging of the hill dipterocarp forests.
2. Improvement of catchment management and control of felling operations.
3. Increase in staffing of the Forest Department to ensure “control of operations on the ground, to provide technical training and education and to undertake research”.

The mission made several recommendations in its final report published in May 1990 and of particular relevance is its recommendation to strengthen the Forest Department, especially in the areas of (i) control, (ii) planning, (iii) research, (iv) education and training and (v) public relations. The mission felt strongly that this could only be done by increasing the staffing of the Forest Department.

While the state government accepted all of the recommendations made by the ITTO mission, it was understandably concerned about increasing the staffing of the Forest Department given the significant implications for finances and the overall size of public bureaucracy.

The ITTO mission report was presented, debated and adopted in the Council Session of May 1990, held in Bali, Indonesia. In subsequent Council Sessions, the international community came forward and offered funding and resources to carry out six ITTO projects to address the recommendations made by the ITTO mission.

The manpower development study

The most pertinent (for this case study) of the ITTO projects was the Study on Manpower Development of Sarawak Forest Sector. ITTO summarized the project as intending “to provide a core of adequately and appropriately trained and re-trained staff which would enable the re-constituted state forestry instrumentality to start an immediate, effective and efficient transition to sustainable forest management in all aspects” (ITTO 1992).

An ITTO preproject assessment was carried out and its analysis concluded that the “Forest Department did not have enough staff for adequate supervision and control of timber harvesting operations” (ITTO 1992). The state authorities accepted this finding, but were reluctant to increase the number of employees to meet such expectations. Increasing the number of employees in the Forest Department would mean an increase in the state civil service; and this had implications — not only in that such an increase would require federal government endorsement (because it manages the pension fund of all civil servants in the country), but also for other parts of the civil service, because other departments might also expect commensurate staff increases.

The pre-project assessment recommended the structure of the Forest Department should be changed in order to facilitate employment of requisite additional staff, along with provision of appropriate training. These additional staff would improve what appeared to be an already efficient delivery system of forest management and monitoring — to make it even more effective. Not many options, however, were available to address all of these concerns.

This presented the state authorities with a difficult problem as the obvious path was not palatable — in terms of costs and political expediency. The state needed a new and innovative way forward.

FORMATION OF THE SARAWAK FORESTRY CORPORATION (SFC)

Transforming the recommendations of the ITTO project studies into plans which could be implemented on the ground proved to be challenging. While the Chief Minister of the state government could see the advantages, some other members of the civil service were reluctant to embrace the changes. Their reluctance could be interpreted as more of a fear of leaving their comfort zones rather than substantive concerns over specific changes. After all, the status quo, the way the existing Forest Department was run, was understood by all. Moreover the staff had mainly been civil servants operating within these structures all of their working lives.

The state government studied several options to undertake the recommendations made by the ITTO projects as well as the desire of the state to develop economically. This was to be balanced with the implications of any such changes on the public service. In order to capture all of these elements, several strategies were considered:

• Privatization, a tried and tested approach in Malaysia.
• Corporatization, another typical approach in Malaysia.
• Hybrids of privatization and corporatization.

During the study period, staff of the existing Forest Department were understandably apprehensive, as their professional futures were at stake. Their concerns can be summarized into three main areas:

• Being made redundant if the new organization chose not to employ them — on whatever basis.
• Fear of the unknown if they were chosen to join a newly created organization and the expectations of the new employer.
• Worry over the possible loss of existing “perks”, such as subsidized housing and car loans, and accumulated annual leave. Some worried over the loss of seniority in service.

During the study period, the Sarawak Forest Department Employees Union protested. Union leaders were critical of potential changes. The union’s preoccupation was with maintaining jobs for union members, and to that extent it even took the state government to court.

Eventually a model was proposed whereby the operational functions of the Forest Department were vested in a newly formed corporation. The main functions of the streamlined Forest Department would basically be to execute the laws applicable to forestry (Forest Ordinance 1954, National Parks and Nature Reserves Ordinance and the Wild Life Protection Ordinance 1998) with a very much reduced staff.

Meanwhile, a new corporation, the Sarawak Forestry Corporation (SFC), would act as an agent of the state government for the performance of such functions or responsibilities as stipulated in the Sarawak Forestry Corporation Ordinance 1995 (Chapter 17). The functions are stated under Section 10 of the Ordinance:

(a) to act as agent of the Government and to provide services in administering, assessing, collecting and enforcing payment of royalty, premia, fees and other dues or levies chargeable under, and to perform other functions conferred by, the Forests Ordinance, the National Parks and Nature Reserves Ordinance and the Wild Life Protection Ordinance, 1998;

(b) to act as agent of the Government to enforce compliance by all licensees, contractors, subcontractors, operators and those involved in the logging and timber processing industry of all laws and regulations governing their operations, and the conditions, directives, plans and schemes contained or imposed on any permit or licence issued to them under the Forests Ordinance;

(c) to act as agent of the Government to enforce provisions under the Forests Ordinance, the National Parks and Nature Reserves Ordinance and the Wild Life Protection Ordinance, 1998;

(d) to carry out and implement plans and policies of the Government for the sustainable forest management, forestry development, reforestation, and rehabilitation and research of any nature into forest produce and resources;

(e) to undertake research on all aspects of forestry including the management of wild life and other non-timber resources in the forests;

(f) to advise the Government on all matters relating to forestry, management of forests, forestry research and development and enhancement of the utilisation of forest produce;

(g) to manage and administer, on behalf of the Government, all forest reserves, protected forests, communal forests, national parks, nature reserves, wild life sanctuaries, and areas reserved for forestry research, recreation and conservation;

(h) to provide consultancy services;

(i) to plan for and undertake human resource development in forestry and timber processing industries; and

(j) to perform such other functions as are conferred on the Corporation by any other written law.

In a stroke of brilliance, the state government also created, and indirectly owned, a private company named Sarawak Forestry Corporation Sdn Bhd to supply the SFC with management personnel and general staff, and generally any human resources needed by the corporation to discharge, execute and perform its functions.

The significant difference between Sarawak Forestry Corporation Shd Bhd and the Sarawak Forestry Corporation is the flexibility given to management in terms of creating or deleting work positions. Direct employment under Sarawak Forestry Corporation would have to have been agreed upon by the federal government, because it has implications for federal pension funds, and would have significantly increased bureaucratic requirements for every new position.

The Sarawak Forestry Corporation Sdn Bhd is a private limited company formed under the Companies Act 1965. This company gave itself a brand name of SARAWAK FORESTRY (the company refers to itself in capital letters). SARAWAK FORESTRY, like all private companies under Malaysia’s employment laws, takes care of its employees’ retirement pensions by contributing to a provident fund.

SARAWAK FORESTRY swiftly re-engineered the approaches, operations and mindset of the “old Forest Department ways of doing things” into a modern private organization, with specified principles (SFC 2002). These were:

• Vision 2020 Principles⁴ and Objectives;
• national policy on the environment;
• international standards governing sustainability and conservation;
• SARAWAK FORESTRY’s Vision, Mission, Objectives and Brand platform;
• a business model based on integrity, customer focus, accountability, recognition and environmental stewardship; and
• focus on core functions assigned by the Sarawak Forestry Corporation Ordinance.

The significant differences between the existing Forest Department and the proposed SARAWAK FORESTRY are shown in Table 1 with the expected outcomes from this change given in the right-hand column.

Brainstorming sessions held among senior managers developed a vision statement for SARAWAK FORESTRY: “To be globally recognized as the leader in tropical forest conservation and products”.

Table 1. What will change?

Source: Slide in a presentation, Meet and Greet session. SARAWAK FORESTRY

The final result of the changes left the Forest Department administering regulations and policy matters, and SARAWAK FORESTRY responsible for operational matters.

The formation of SARAWAK FORESTRY

Sarawak Forestry Corporation Sdn Bhd was registered as a private company on 21 November 1997 in preparation for a launching that was not straightforward. Initial staffing plans had to be modified and improved when difficulties emerged in the early months.

In the early stage of the institutional restructuring in Sarawak, a small team of senior Forest Department officers worked with an expatriate chief executive officer (CEO) and various consultants to design the framework of SARAWAK FORESTRY. It was decided that the CEO should be accountable to a board of directors while executing his work through six business units, namely:

1. Sustainable Forestry & Compliance
2. Security & Assets Protection
3. Corporate Services
4. Protected Areas & Biodiversity Conservation
5. Applied Forest Science & Industry Development
6. Strategic Planning, Special Projects & Land Use

Three smaller departments were also set up, reporting directly to the CEO:

Brainstorming sessions were again carried out to translate the vision statement into a mission statement to guide SARAWAK FORESTRY. The mission statement is: “To conserve and develop Sarawak’s forest products and services, while maintaining a balance of economic, environmental and social interests”.

An important challenge also addressed during the brainstorming exercises was how to manage the human resources of the new organization when, most likely, many of the employees would be drawn from the old Forest Department. In other words, how to motivate the former civil servants to perform to the level and manner expected of workers in the private sector.

Senior management felt strongly that a set of values must be established and adhered to by all employees. This could be achieved initially by selecting the correct employees and afterwards by inculcation and training. Obviously the potential parameters were wide when it came to inspiring workers, however SARAWAK FORESTRY decided on a set of values pertaining to:

• Integrity
• Customer focus
• Accountability
• Recognition for performance
• Environmental stewardship

(Sarawak Forestry Corporation 2002).

These values are referred to as “I CARE” and were used virtually as a daily battle cry within SARAWAK FORESTRY. On top of these values, all employees were made to understand in no uncertain terms that they would be measured against international standards.

Staff were drawn from the old Forest Department and were inculcated with the set of I CARE values. A strong orientation programme was drawn up to impress upon the new employees the importance of discipline, even in seemingly routine matters (for example coming to work on time, carrying out standard duties, etc).

The process to populate the new institution turned out to be more difficult than expected. Not everyone in the old Forest Department was to be offered a position in the new agency. An Establishment Committee was set up by the state government to assist in identification and selection of suitable candidates. The committee was chaired by the director of forests, with two officers from the Forest Department, one from SARAWAK FORESTRY and one from the state employment ministry. In the end, the entire employment approach resulted in two distinct phases.

• Phase 1.

After a pre-assessment process by the Establishment Committee, selected persons from the Forest Department, especially senior officers and those in critical positions, were offered permanent employment in SARAWAK FORESTRY. This approach was not entirely successful as some candidates did not accept the direct offer, thus, not all the positions in SARAWAK FORESTRY were filled. Many reasons were offered to explain this, but the fear of change was perhaps the most significant: There was general concern by those who had worked for many years in the public service of being uprooted and joining what was essentially the private sector. This phase started at the end of 2002 and ended around the first quarter of 2004.

• Phase 2.

In response to the unsatisfactory progress in Phase 1, the state government, under the Civil Service Rules, “seconded” senior officers from the Forest Department in batches to SARAWAK FORESTRY. The concept of “secondment” was to allow the chosen officers a chance to experience working in the new environment in SARAWAK FORESTRY for three years, with all their original employment benefits from the Forest Department kept intact. A secondment could be terminated by the officer concerned, the state government or SARAWAK FORESTRY. At the end of three years, SARAWAK FORESTRY would make a secondee an offer of permanent employment. This process proved to be more palatable, with 480 candidates accepting a pro-offered secondment out of a total offer to 741 candidates (N.B. some of these candidates would have come to the end of their three-year secondment by mid-2006, and then would have had to make the decision of whether or not to stay in SARAWAK FORESTRY).⁵ Approximately 100 additional staff were employed from outside the Forest Department.

Phase 2 commenced during the third quarter of 2003. (There is overlap between the two phases, because offers of employment in Phase 1 were made in a gradual process, which meant vacancy problems became apparent before the phase was completed).

Operational launch of SARAWAK FORESTRY

The entire organization of SARAWAK FORESTRY could not be launched in one “big bang”; it had to be phased in gradually, not least to enable its new staff to adapt to a new working environment. But the overarching worry lay in ensuring smooth delivery of all services to the timber industry during the transition period. The launching schedule is shown in Table 2.

Table 2. Launching schedule for business units of SARAWAK FORESTRY

As the launch of the institution commenced, progressively more staff were needed as the multiple divisions of SARAWAK FORESTRY became operational. This part of the entire restructuring process was both complex and sensitive. The complexities lay not only in the correct choice of employees, but also on where they came from.

The Human Resources Department of SARAWAK FORESTRY then faced a major problem of how to measure the performance of these employees in their new jobs and surroundings.

A KPI was introduced as a gauge of their work as well as their understanding of the I CARE values. Each employee group was allowed to develop their own performance indicators for objective measurement (for example a key indicator for a researcher is, among others, publication of at least one research paper each year).

Nevertheless, despite the care of the Establishment Committee, there were some problems in the placement of staff from the Forest Department into SARAWAK FORESTRY:

• Some were critical that SARAWAK FORESTRY did not employ contract staff from the old department (N.B. in the old Forest Department, some staff were employed on short-term contracts and were not absorbed into the civil service proper).
• Some Forest Department staff perceived their employment in SARAWAK FORESTRY to be at a lower level than their previous position, thus creating unhappiness. Some alleged that they sensed “demotion” when moving over to SARAWAK FORESTRY.

Improvements due to restructuring

No comparative studies were done before and after the restructuring to enable objective measurement of the performance of the former Forest Department and the present SARAWAK FORESTRY. However, there are indirect indications — and certainly some deductions can be made — to show an overall improvement.

Change in mindset

The mindset of SARAWAK FORESTRY is more progressive and professional than that of the old Forest Department. SARAWAK FORESTRY adopted new, modern management techniques and concepts almost unheard of in the old government department. For example, the new business units underwent ISO certification for their main line of work. With ISO certification, the work flow became more transparent, which in turn allowed for greater monitoring by both managers and users. Compliance with ISO certification means clients (i.e. the timber industry) are assured that, for example, application for a certain permit will be carried out in the time frame specified in the ISO certificate — not according to some arbitrary schedule of the officer in charge.

Same work for less and with less

Based on the annual budgets of both the Forest Department and SARAWAK FORESTRY, and their employee head counts, it is apparent that under SARAWAK FORESTRY, basically the same functions for the state government were carried out with fewer employees working on a much smaller budget. The data in Table 3 for 2003 to 2005 show the budget and number of employees left in the Forest Department after deployment of selected staff to SARAWAK FORESTRY. Table 4 shows the budget and staff for SARAWAK FORESTRY.

The improvements from staff deployments and rationalizations were realized in 2005. In 2005, the total number of employees in both the Forest Department and SARAWAK FORESTRY declined, and their combined budgets also declined when compared to the baseline year of 2002. 2002 was the final year the department was still working as a traditional government department and SARAWAK FORESTRY had yet to be launched.

Table 3. Sarawak Forest Department (budget and employees)

Source: Sarawak Forest Department.

Table 4. Sarawak Forestry Corporation (budget and employees)

Source: Sarawak Forestry Corporation.

Achievements of SARAWAK FORESTRY

Initial achievements are by no means the only way to quantify the changes made from a traditional government department to a private sector-driven SARAWAK FORESTRY, but they do indicate some of the positive results of modern management techniques.

SARAWAK FORESTRY achieved ISO9001:2000, ISO 14001:1996 and OHSAS 18001:1999 certifications from the Department of Standards, Malaysia, the United Kingdom Accreditation Service (UKAS) and Moody International. The work processes of the three business units were likewise certified.

SARAWAK FORESTRY won the “Best E-Government and Services” award at the Multimedia Super Corridor Asia Pacific Information, Communication and Technology Awards or MSC-APICTA 2004 for its “TimberNet” innovation. The significance of this award is its acknowledgement of the adoption of information technology by the management of SARAWAK FORESTRY. By comparison, the old Forest Department was behind in its computerization programme.

Perhaps the most interesting, and arguably the biggest change from the “old style” was membership in the World Conservation Union (IUCN) in June 2006. The “old style” Forest Department was not comfortable with NGOs, especially internationally affiliated ones dealing with environment and conservation. This breakaway from conservative thinking and a willingness to work with “foreign NGOs” was a move, many felt, in the correct direction.

CONCLUSION

The making or breaking of such a re-engineering exercise is very dependent on the political decision-makers, from the very top downwards. Sarawak had the benefit of a chief minister who not only knew the problems but was also interested in solving them. The chief minister’s enthusiasm for change percolated down from the state secretary (being the head of the civil service) through to the director of forests and the other government officers involved.

Training was instrumental in bringing about a new mindset in the staff of SARAWAK FORESTRY, many of who were former civil servants with many years of ingrained bureaucratic attitudes and work ethic. Training was carried out to build skills and capacities in regard to supervision, leadership, management, mentoring, financial management and work orientation.

Internal communications proved to be vital in transferring top management’s thinking down to the rank and file. SARAWAK FORESTRY conducted numerous informal meet-the-staff sessions (they call it “Townhall”) to facilitate such communications. Many observers would agree that such internal communications were severely lacking in the old Forest Department which led to poor performance and service delivery.

Complications and problems in this re-invention exercise came from two broad areas:

The re-engineering exercise in Sarawak was not a privatization exercise. Rather, it is a unique model of shrinking an existing government department by moving most of its functions to a newly created government corporation. Via an agreement, a private company supplied staff to undertake the work in the new corporation. The company runs like any other private company with a strong emphasis on efficiency of service delivery.

As of July 2006, the re-engineering process is less than three years old. The deployed staff are only beginning to settle into a more private sector-oriented work routine, while additional specialized staff are still needed to strengthen SARAWAK FORESTRY’s operations.

Though the deployment plans have yet to run their full course, the institutional re-engineering in Sarawak can be considered thus far to be a conditional success.

BIBLIOGRAPHY

Department of Statistics. 2000. Population and Housing, Census of Malaysia.

International Tropical Timber Organization (ITTO). 1990. ITTO mission. The promotion of sustainable forest management, a case study in Sarawak, Malaysia. April 1990.

ITTO. 1992. ITTO Pre-project PCI (VII)/7: Study on Manpower Development of Sarawak Forest Sector.

Sarawak Forestry Corporation (SFC). 2002. Meet and Greet Presentation.

Sarawak Timber Association. 2006. STA review. March 2006.

Sarawak Timber Association. 2006. STA review. April 2006.