By Mak Yuen Teen
Over the past days, I have been quoted in the media about Hyflux.
From a corporate governance and management standpoint, Hyflux has its flaws, like many other companies. For one, the founder Olivia Lum is also the executive chairman and CEO. By all accounts, she is an outstanding entrepreneur who has built a good business with real fundamentals. And I did not see bad traits like extracting excessive remuneration for herself while giving little to shareholders. Her skills could probably be better utilised for what she is really good at – in the engineering and technical aspects of the business – and she should probably have left the “CEO” role of managing the growing company to someone else with better skills fit. Founders sometimes find it hard to let go of total control of a company – but sometimes they have to in order for the company to really grow and succeed.
There are certain other aspects of its corporate governance I did not like. I thought some of the independent directors have stayed for far too long, and some are terribly busy. Some are former employees who have technically passed the “cooling off” periods to be considered “independent” under the Code. Some have nice-looking cv’s whose value add is far from clear.
Ms Lum also chairs the investment committee, which is rather odd to me considering her skill set, especially as Hyflux has another independent director with considerable investment experience – but he’s instead chairing the risk management committee which met only once, which seems a waste of his expertise and also raises questions about whether it is actually effective.
As an outsider looking at this, I see a board that the founder is very comfortable with, who is not really going to challenge her decisions. Boards need people who will constructively challenge decisions.
Hyflux also has the practice of giving share options to its independent directors, something which I think is a bad idea. The payoff from share options is asymmetrical with unlimited upside gain and limited downside risk, and could promote a risk-taking attitude amongst independent directors. Hyflux has continued to grant share options even during its most recent financial year. Of course, they would be worthless now. I wonder whether any of the independent directors had thought it wasn’t a good idea to give share options to themselves.
However, that being said, I would like to see Hyflux come through this. This is fundamentally a case of a highly promising company which has taken on too much too quickly, without sufficient attention to proper risk management. It is as far as I can see not a case of egregious behaviour or outrageously bad governance – unlike Noble and some other companies. If it does come through this and addresses the issues with its corporate governance and management, then this need not be the end or the beginning of the end. It could be a new beginning.
