Letter to the Editor

First published in Business Times on 31 December, 2015

RECENT news media reports following the announcement of the special audit by Singapore Post (SingPost) have focused much attention on the so-called “administrative oversight” relating to the failure to disclose the interest of SingPost’s lead independent director, Mr Keith Tay, in its announcement of the acquisition of FS MacKenzie.

The special audit was considered necessary by SingPost because of the issues raised in my letter (“More questions about corporate governance at SingPost” and the report “SingPost made ‘administrative oversight’ in 2014 deal disclosure”, BT, Dec 23).

The fact that the “administrative oversight” has occurred is now not in doubt. There is, however, a need to establish how the disclosure breach occurred, whether this indicates systemic weaknesses in SingPost’s compliance controls, and the role of the board in reviewing and approving important announcements.

While the “administrative oversight” relating to the announcement of the FS MacKenzie deal is important, what is more troubling to me is the apparent involvement of Stirling Coleman as a financial adviser to the seller in SingPost’s acquisition of FS MacKenzie and Famous Pacific Shipping (NZ), since Mr Tay is the non-executive chairman and a major shareholder of Stirling Coleman.

Such a potential conflict of interest casts doubt in my mind as to whether SingPost paid a fair price for these acquisitions and led me to review the premia paid, and the accounting for goodwill and other intangible assets arising from these acquisitions in the financial statements.

While acquisitions are generally a matter of business judgment of the board, and I would under normal circumstances not be inclined to question the board’s judgment on such matters, investors can hardly be blamed for being sceptical under the current circumstances. Stirling Coleman was also disclosed as the arranger when SingPost announced the acquisition of another company, Famous Holdings.

So far, SingPost has only confirmed that Mr Tay has disclosed his interest and abstained from voting in the three acquisitions involving Famous Holdings, FS MacKenzie and Famous Pacific Shipping (NZ). I hope that SingPost does not only comply with these minimum legal requirements in dealing with conflicts of interest.

The Statement of Good Practice on Conflicts of Interest (SGP No 5/2006) issued by the Singapore Institute of Directors is relevant in this regard. According to paras 2.2.5 and 2.2.6, although whether a conflicted director is allowed to be present in meetings and participate in discussions depends on the company’s articles, good practice requires that the board consents to his presence and participation.

Even where participation is permitted, it is good practice for a conflicted director to excuse himself “for an appropriate period during the discussion so as to facilitate a full and frank discussion of the matter by the other directors”. It was with such good practice in mind that led to my questions as to whether Mr Tay had recused himself from the discussions.

In my first commentary on SingPost’s corporate governance published in BT on Dec 15 (“Corporate governance concerns at SingPost”), I had raised issues about its board composition, including the long tenure of some of the independent directors, board renewal and the relevance of the skills and competencies of some of the long-serving independent directors given the changes in SingPost’s business.

In addition, SingPost’s executive committee, which has a primary role in approving acquisitions, consists mostly of long-tenure directors and appears lacking in independent directors with recent experience in the areas of e-commerce and logistics where SingPost is active in acquisitions.

The process used in determining the independence of directors may also need to be reviewed. In my view, it is also important that these issues are addressed if SingPost is truly serious about improving its corporate governance.

Mak Yuen Teen