SingPost special audit report should reveal full methodology

Published May 08, 2016


First published in Business Times on 5 May, 2016

I refer to the executive summary of the special audit report released by Singapore Post (SingPost). The special auditors did a professional job but may have been hampered by certain limitations in their work. Perhaps as a matter of good practice for special audits, the methodology used should be fully described, even in an executive summary, as it is relevant to the interpretation of the findings.

The special audit relied extensively on interviews, email exchanges and minutes of meetings but the report did not explain how some of the evidence was obtained or the basis of selection or non-selection of individuals who were interviewed. For example, at various points in the report, reference is made to email exchanges. Were the emails obtained through a forensic investigation or were they only emails produced by those concerned? This is important because if only selected emails were available, they may not provide a full picture of what had transpired.

With regards to the acquisition of Famous Holdings Pte Ltd (FHPL), the report quoted interviews, email exchanges, and meetings involving various persons, including the seller Quincy Tan, Stirling Coleman Capital Ltd (SCCL)’s managing director Ang Kay Tiong, SingPost director Keith Tay and various members of SingPost management. Page 6 of the report lists a David Wong as a consultant of FHPL and senior adviser to SCCL but the report’s account of the FHPL’s acquisition did not include a single reference to any comments made by him. Was he interviewed for the special audit? If not, why not, given that his roles in FHPL and SCCL mean that he was likely involved in the discussions? If he was interviewed, why was there no mention of his comments in the report?

The report also makes several references to minutes of meetings that confirmed instances of failure on Mr Tay’s part to disclose his interest on a timely basis or a failure to recuse himself. It was also mentioned several times that the minutes did not record Mr Tay’s participation in deliberations or that his participation was minimal, suggesting that he did not influence the acquisitions.

There may be significant limitations in drawing inferences from minutes. First, there is considerable variation in the practice of recording of minutes. In some cases, minutes are extremely brief and do not record discussions that take place in any meaningful detail. What kind of minutes did SingPost and FHPL keep? Did the minutes record any comments by other directors or was there a similar absence of comments? This may also be relevant to ascertaining the robustness of the discussions on acquisitions, which may give some indication of the oversight provided by the board over them.

Second, directors would sometimes specifically request that their comments not be recorded. Did the special auditors establish whether this happened? More information on this would allow the reader to determine the weight they can place on the evidence obtained from minutes.

Notwithstanding the possible limitations in the minutes, the report cites certain instances of participation by Mr Tay in board and executive committee (Exco) discussions surrounding the acquisitions, which arguably indicated at least tacit support for them. For example, paragraph 18 of the report states:

“Mr Tay did not step out of the meeting when the deal was discussed, but neither Mr Tay nor the other interviewees recalled that he actively participated in it. The minutes of the Jan 8, 2013 SingPost Board Meeting recorded that Mr Tay made the following comment: Mr Keith Tay informed that he had the opportunity to meet Mr Quincy Tan after the Chairman had met with Mr Quincy Tan. His impression was positive. Mr Keith Tay was particularly impressed with the fact that Mr Quincy Tan had chosen from the very beginning to appoint Ernst and Young as the accountants for Famous Holdings. This was most unusual.” Para 24 states that at the SingPost Exco meeting on Jan 7, 2014 to consider the acquisition of FS MacKenzie (FSM), Mr Tay “shared the view that for logistics, SingPost needs to be global. So if the right opportunity arises for SingPost to gain a foothold, SingPost should seize the opportunity. He inquired on the price of the acquisition and was informed by Mr Chan Kiat that the price for (FSM) with earnout potential was S$11 million, and the price for a one-third share in FS Mackenzie International was S$6 million, totalling S$17 million”.

We should not underestimate the impact that the mere presence, body language or tacit support of a director can have on a decision, especially if the director is influential in the boardroom, and this is an important reason why not having a conflicted director present during the discussion can be so important. In this case, Mr Tay is chairman of FHPL and a long-standing director, lead independent director, member of the Exco, chairman of the nominating committee and former chairman of the audit committee of SingPost.

Let us also be clear that while the special auditors have concluded that Mr Tay’s actions did not appear to have influenced the transactions, something that may be difficult to conclusively determine without full access to all information and evidence, the special auditors are of the view that Mr Tay did breach his duties as a director. It is important for the regulators, who have access to the full report and who may be able to undertake further investigations, to determine if further action is needed.

Finally, I am astounded by the poor corporate governance in SingPost in the areas of evaluation and approval of mergers and acquisitions, disclosure of interest and announcements. The responsibility for this rests with the entire board. Perhaps the board of SingPost became so focused on doing business that it forgot that this must be underpinned by good corporate governance. This should serve as a wake-up call to all boards.

Mak Yuen Teen




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