Frankly Speaking: Feb 14-20, 2011

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Encourage independent directors to speak outThe recent goings-on at Seloga Holdings Bhd, where several directors have stepped down after purportedly being at loggerheads with a controlling shareholder, provide a disturbing insight into what happens behind the closed doors in Corporate Malaysia.   Statements by the Seloga directors, if true, shed light on the corporate wrangling and purported serious lack of governance in listed companies, at the expense of minorities who would have no knowledge of the mismanagement that is going on.While caveat emptor, or “let the buyer beware”, clearly puts the onus on investors to find out more about the companies they invest in, the authorities should take cognisance of the developments in Seloga and look seriously at the allegations made by the independent directors against the major shareholders.In fact, this should be extended to include all cases where independent directors, or any director for that matter, resign for no apparent reason. They should be compelled to state to Bursa Malaysia why they are leaving the company. The Seloga case has shown that they can voice their displeasure without fear of being sued for defamation.Such disclosures by departing directors will, to a certain extent, curtail abuse of power and in turn ensure that listed companies are kept in check even after the independent directors have left.It is common knowledge that independent directors play a key role in ensuring management and major shareholders do not mismanage the company for their own benefit. That is their fiduciary duty, which the directors of Seloga have chosen to carry out after their forced departure.On the other hand, there are many situations where independent directors have chosen to leave quietly instead of sounding the alarm bell. In such cases, the authorities should urge independent directors to make a declaration. This is one way to bring corporate shenanigans to light.

Out with rent-seekingIt is immaterial whether the New Economic Model (NEM) was watered down because of opposition from right-wing groups like Perkasa — as was publicly aired last week — or whether the government had resisted pressure from certain quarters and sought to meet the demands of all levels of society in its strategic plan to make Malaysia a developed economy by 2020.The first revelation was made by National Economic Advisory Council member Datuk Zainal Aznam Yusoff at a forum last week. He expressed regret that the proposal for an Equal Rights Commission had been excised from the first NEM report. The second assertation was a response from Deputy Prime Minister Tan Sri Muhyiddin Yassin.What matters is that unless Malaysia can reinvent its economy, it stands to be bypassed by much of the growth that is stirring up the region, as other emerging economies become relatively more attractive to both foreign and domestic capital. Rent-seeking is just another disincentive for business that the country can ill afford.To drive growth in the next phase, Malaysia must decouple from the low-cost economic model, which has outlived its usefulness. Instead, it must generate wealth through intellectual capital, as developed economies do. A crucial factor is for the required talent pool to buy into the transformation agenda.Unless Malaysia gets serious about becoming an open society in which the best and brightest want to have a stake, the prospects of an economic rejuvenation look increasingly dim. Hopefully, defenders of the status quo realise that the game is up, or it could be “game over” sooner than anyone would like to think.

EPF’s selldown puzzlingThere is no doubt that the kingmaker in the proposed privatisation of MTD Capital Bhd by its major shareholder is the Employees Provident Fund (EPF). Yet the actions of the fund are puzzling at times.In the last two weeks of January and up to Feb 2, it sold some 2.5 million shares in the tightly held counter. There is nothing wrong about the disposal but the manner in which it was done is somewhat out of the norm.Instead of accepting the offer, which was at RM9.50 per share, the EPF simply sold the shares on the market. By doing so, the fund would not be able to benefit from the upside of the revised offer price of MTD Capital — RM11 per share. That’s a difference of RM1.50 per share!What is more surprising is that the EPF continued to sell the shares on the open market even after the major shareholders of MTD Cap came up with an alternative offer to buy over the assets and liabilities of the Malaysian highway concessionaire for some RM3.5 billion on Jan 28.This offer values MTD Cap’s shares at more than RM12 each, not taking into account the company’s debt post the disposal of assets. After the offer to buy up MTD Cap’s assets and liabilities came up, the EPF sold another 357,000 shares.In the bigger scheme of things, the EPF’s investment in MTD may seem small. The fund may have overlooked the implications of a disposal of shares on the open market as the corporate exercise is complicated with two offers, by the same party, for virtually the same asset.But the EPF is the single largest shareholder in the company and must know that its actions will affect the minorities.

 
This article appeared in Corporate page, The Edge Malaysia, Issue 845, Feb 14-20, 2011