By Mak Yuen Teen
A few days ago, when I was in the US and on my way back, I received several missed calls and finally messages from someone who said there was a problematic company which I may be interested in writing about. I replied “Very busy and too many problem companies at the moment to write about”. When he persisted, I said: “I have almost given up on SGX. I think it’s pretty hopeless now. Investors should just quit investing here except in larger companies unless the regulators really step up. Look at what the regulators have done in the many companies I have written about.”
Copyright for cartoon belongs to Mak Yuen Teen
How I reacted to the messages was not the result of jet lag. Lately, I have found myself having to apologise to investors who have taken the trouble to write to me, often with extensive evidence of apparent breaches. I have told them that there are just too many problematic companies for me to write about. In some cases, I have forwarded the information to the regulators because I feel that it is ultimately their responsibility, not mine, to address the ills in our market. When so many choose to write to me rather than the regulators, I do not see this as an endorsement of any success on my part as a corporate governance advocate – I see it more as an indication that investors feel that regulators will not take their concerns seriously. Often, investors who wrote to me have in fact told me that they have received either no replies or boilerplate replies from the regulators. It seems that, once again, the Hong Kong market has stolen a march on us in investor protection with the recent launch of a formal reporting (“whistleblowing”) mechanism by the Securities and Futures Commission (SFC) there which allows investors and other stakeholders to readily make complaints to the SFC.
I have increasingly felt disheartened by the response of regulators. Somehow, I feel that they have a rather high tolerance for questionable conduct. When I see the amount of effort I have put in to lay out in great detail possible breaches of listing rules and regulations, only to be followed by queries that scratch the surface and farcical third party reviews, I feel that I should take stock of what I am doing and consider doing something more productive.
It may be that the regulators are doing something but it is such a black box and often such a slow process that it gives the impression that nothing is being done. And occasionally, one gets some confirmatory evidence that in fact little is being done. An example is a recent announcement by a company that the former director of a Chinese company listed here who was reported to a statutory regulator by that company nearly two years ago had not been interviewed by that regulator. I have often seen companies say that they have made reports to a statutory regulator and not seen anything happen at all after many years.
This director has now being appointed to another company and has also claimed that he was not aware that he had been issued a warning letter by ACRA at his previous company because, according to him, he had already left that company and that company did not inform him about the regulatory action. In any case, the real consequences of such a warning letter are unclear. Further, based on the experience at Datapulse Technology and other companies where omissions of regulatory actions at the time of appointment can be corrected by merely issuing “clarifications”, a clarification would seem to have been good enough in any case. Regulatory actions must be consistent to be fair – so if a clarification will suffice in one case, it must also suffice in other similar cases. Regulatory action – or lack of it – sets precedent that either promote good conduct or perpetuate questionable conduct.
Regulators like to talk about the role that different stakeholders in the corporate governance ecosystem can play to improve corporate governance. The ecosystem may be withering. Emphasising the role of different stakeholders is starting to sound like an excuse for the regulators to not do more. There comes a time when people like myself will feel that what we do is all in vain.
It is very discouraging when regulators see issuing superficial queries and notices of compliance as the main regulatory tools when rules are clearly breached or highly questionable transactions are being undertaken, or when they allow and accept superficial reviews by so-called independent third parties that do not get to the bottom of issues.
If a company engages in transactions involving questionable valuations or undisclosed third parties, it is highly disappointing if the regulator does not challenge the valuations and when it allows the company to hide behind confidentiality agreements for not disclosing the identity of the third parties. Relying on the board of directors to ensure the right thing is done is often futile because the board is controlled by those engaging in such transactions in the first place. Companies have found it rather easy to destroy shareholder value through questionable transactions without being held accountable.
I would like to apologise to those who take the time to write to me. I am frankly overwhelmed by the sheer number of cases of bad behaviour by companies and discouraged by the nature and timeliness of the regulatory responses.
I will still write about corporate governance lapses by specific companies and directors from time to time, but intend to dial back on investing massive amounts of my time to write about specific companies. Investors should consider avoiding those companies for which I have pointed out specific corporate governance lapses. Those lapses are often symptoms of something much more serious. Sadly, there are many of such companies. Regulators must take some responsibility for this.
