Financial system needs paradigm shift: Nazir Razak

Kuala Lumpur

NAZIR Razak, a veteran Malaysia banker whose career progressed from investment banking to development finance, has called on the industry's senior practitioners to help change global finance and make capitalism more sustainable.

Speaking at a conference organised by Genesis Alternative Ventures in Singapore on Thursday, the former chairman of CIMB Group Holdings said the excesses of global finance have exacerbated the climate and inequality crises the world faces today.

He added that senior bankers, including himself, should step up to rectify the situation by contributing towards overhauling the international financial system.

After retiring from CIMB in 2018 after a 29-year stint, Mr Nazir was last month appointed as the chairman of Bank Pembangunan Malaysia, a development finance institution.

Mr Nazir, who started out as an investment banker in Kuala Lumpur in 1989, recalled a time of exponential growth in the finance industry, attracting the brightest young people who went with the norms of worshipping the "greed is good" mantra.

The capital market was also deeply rooted in the Friedman doctrine, a theory advanced by economist Milton Friedman that the only duty of a company was to maximise shareholder value.

"I remember many moments thinking: 'This isn't right,' or 'That isn't proper'. But I stayed on, and I stayed in. So when I look back, I consider myself one of the guilty ones," said Mr Nazir.

"I was a full-on part of the international finance system that was unfair and probably did more harm than good to the world. I feel a sense of obligation to now find a better and more sustainable path for finance and capitalism," he added.

"I cannot yet claim that everything I do is on that path, but at my family office and the national development bank that I chair, we already do place purpose first."

Mr Nazir said profit should not be the prime motivator of a business. Instead, he said a company should be built on purpose, and profit is just a by-product to satisfy shareholders, adding that investments made by his family office now have to pass an impact test to ensure they contribute to a bigger cause.

He proposed several measures the world could take to incorporate climate change and sustainability into the corporate agenda and make capitalism work to save the planet.

He said governments must impose rules on environment, social and governance and ensure compliance to these regulations because capital market participants and private enterprises will not go very far on their own in self-reforms.

Accounting rules can also be used to realign behaviours, he said, suggesting that damages done to the environment should come at a cost on corporate profits.

The tax system should also be more progressive to provide better safety nets to segments of society while ensuring more efficient redistribution policies.

"I could never understand why, in Malaysia, glove companies made billions of super profit from the pandemic and yet they are not imposed super taxes to help pay for the cost of this very pandemic," he said.