Further questions in Apple bribery case


Published April 25, 2012

Published in Business Times, Apr 25, 2012

JLJ Holdings shareholders need to know their company’s chances of keeping Apple as a customer

JLJ

Need for more transparency: At the JLJ’s EGM tomorrow, shareholders ought to ask a lot more questions about the Apple bribery case and the potential impact on the company. They deserve a lot more answers than what the company has given so far

– REUTERS

TOMORROW, JLJ Holdings Limited is convening an extraordinary general meeting (EGM) to seek shareholders’ approval to change its name to Jubilee Industries Holdings Limited.

According to its circular to shareholders, this is “in line with the Group’s increased presence in Malaysia through its key wholly-owned subsidiary Jubilee Manufacturing Sdn Bhd”. It added that “the Directors believe that the proposed change of name will allow the Company to leverage on Jubilee Manufacturing’s brand name”.

Earlier, on March 30, JLJ had announced that the name of its subsidiary, Jin Li Mould Manufacturing Pte Ltd, had been changed to Jubilee Industries (S) Pte Ltd.

The name changes by JLJ Holdings in its short history as a listed company come after JLJ Holdings and Jin Li Mould became ensnared in a bribery scandal involving an Apple global supply manager, Paul Devine.

JLJ Holdings was incorporated and listed in 2009, with an IPO price of 27 cents per share. Jin Li Mould became a wholly-owned subsidiary of JLJ. Jacky Chua, the founder of Jin Li Mould, became executive chairman of JLJ and executive director of Jin Li Mould. In 2008, Apple accounted for 82.5 per cent of JLJ’s total revenues.

Indeed, in response to pressure from lobby groups to identify its key suppliers, Apple named Jin Li Mould among its list of 156 key suppliers in January this year.

The documents filed by Apple in its civil lawsuit against Devine, which is publicly accessible online, provides a detailed account of the alleged bribery scheme and made a number of claims. The following are some of the highlights of the allegations:

In October 2006, Devine collaborated with Andrew Ang, an assistant manager of Jin Li Mould, whereby Devine would supply confidential Apple information to Jin Li Mould and five other Asia suppliers. In return, Devine received kickback payments from the suppliers. Ang served as the middleman between Devine and the suppliers and shared in the kickback payments. Ang is the nephew of Jacky Chua, the then executive chairman of JLJ.

In April 2009, Ang resigned. According to the court documents, Devine then emailed Chua a proposal to continue making payments to Devine. Devine and Chua allegedly agreed that Jin Li Mould would pay Devine US$700,000 over a five-month period. In June 2009, Devine thanked Chua for the payment of US$90,000 and informed him that the outstanding balance owed was US$310,000 and Jin Li Mould shares worth US$400,000. On the same day, Devine allegedly emailed Chua and Andric Ng (JLJ’s CEO) pricing information from a Jin Li Mould competitor. It was alleged that Jin Li Mould paid a total of US$1 million to Devine.

Before the alleged bribery scandal became public, JLJ’s last closing price was 23 cents per share. Today, its shares remain at the level immediately after the scandal broke, hovering at around 12 cents.

What is of concern are the actions of certain key officers, and the dearth of communication from the company about the steps it is taking to address the serious issues and to prevent recurrences. Let’s look at the actions of some of the key officers.

On Aug 12, 2010, Chua sold 10 million shares at 15 cents per share through married trades with seven unrelated individuals. Bearing in mind that Devine was arrested on Aug 13 in the United States, and that both Chua and his nephew Ang are mentioned in the court documents, questions arise regarding the timing of the sale of shares by Chua – even though the share sales slightly preceded the arrest of Devine on Aug 13.

On Aug 16, 2010, Tan Soon Liang, a non-executive director of JLJ, also reduced his shareholdings in JLJ from 2 per cent to 1.19 per cent. That same day, JLJ issued an announcement which acknowledged the civil and criminal suits in the US and reassured investors that there was “no clear adverse impact on JLJ’s business with Apple”.

It is unclear whether Tan sold his shares before or after JLJ’s announcement. Even if the benefit of the doubt is given to Tan, the key officers were selling shares while the company was reassuring investors about the lack of a negative impact on the company.

What followed was a series of other announcements to the market. On Aug 18, 2010, JLJ reiterated: “Neither (JLJ) nor Jin Li Mould nor any other member of the Group is a party to any suit by Apple or the subject of any indictment whatsoever”.

On Aug 19, 2010, the company announced that Chua had stepped down as executive chairman. Its announcement stated: “Andrew Ang is the brother in law of the Company’s Executive Chairman. In order to facilitate the impartial review of all activities relating to the Apple Claim that may involve the Company and its subsidiaries, the Company’s Executive Chairman has also voluntarily relinquished all executive duties in the Company for the time being.”

The CEO, Andric Ng, did not step down from his role. JLJ justified it as follows: “There has been no evidence to suggest that (he) had knowledge of or was involved in the alleged payments related to Apple’s civil suit.” Today, Ng remains as the CEO.

The company needs to do much more to reassure investors because, as mentioned above, the court documents filed in the US have alleged that Ng was included in an email from Devine which provided pricing information from one of Jin Li Mould’s competitors.

On Aug 24, 2010, JLJ announced that Foo Say Tun was appointed as the new non-executive chairman. The company also mentioned that the company, Chua and Ng are “co-operating with CPIB in its investigations”. A Steering Committee comprising Foo, Tan and two other independent directors of JLJ was also formed to look into the bribery case.

On Nov 8, 2010, the company made the announcement that “neither Jin Li Mould Manufacturing Pte Ltd nor any of the Company’s subsidiaries had, at any point, made payments to Devine personally and/or Devine’s ‘vehicles’ referred to in Apple Inc’s civil suit”.

On June 1, 2011, the company announced that Chua has resigned from the board “on his own accord to pursue personal interest”.

Apple has been under great pressure to hold its suppliers to account. It audits them each year and takes actions against those which violate its supplier code of conduct.

This is especially so if Apple feels that a supplier has a poor ethical culture that is pervasive and that inadequate corrective actions had been taken. If JLJ loses Apple as a customer, it would be catastrophic for JLJ.

Business with other customers will also be at risk. This may be a real threat to the business continuity of JLJ. Changing the names of the companies involved is unlikely to make a difference.

I believe that at the JLJ’s EGM tomorrow, shareholders ought to ask a lot more questions about this episode and the potential impact on the company. They deserve a lot more answers than what the company has given so far.

The writer is associate professor at the NUS Business School where he teaches corporate governance and ethics

 

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