By Mak Yuen Teen
Corporate governance and transparency awards in Singapore have become controversial of late, due to several instances of companies winning such awards and then running into serious corporate governance problems not long after. Several companies which have found themselves named among the Forbes Best Under a Billion list of Asia companies in recent years have also later turned out to be more suited for the Worst Heading For Under a Few Million list, due to financial difficulties, accounting irregularities and corporate governance failures. To be fair, the latter is less surprising because the Forbes list focuses on companies that have grown fast, and growing fast can be at the expense of good corporate governance and sound risk management.
The latest Singapore Corporate Awards, announced last week, threw up a few surprises for me, none bigger than Frencken Group winning the Best Managed Board and Best Investor Relations awards for the small cap category. I have never paid much attention to the Frencken Group (which could be a good thing). However, it caught my attention when the company announced on 16 August 2016 that Tan Sri Larry Low Hock Peng had resigned as its Non-Executive Non-Independent Chairman for “medical reason”. Tan Sri Low happens to be the father of Jho Low – a key figure in the 1MDB scandal. Tan Sri Low received quite prominent mention in the book “Billion Dollar Whale” and some other reports on the scandal. Following his resignation as Chairman, Tan Sri Low transferred 8 million (1.19 percent) of his shares to two other individuals with the surname “Low” in April 2018. On 29 August 2018, the company announced that Tan Sri Low had ceased to be a substantial shareholder, after paring his stake from 8.14 percent to 4.74 percent. A report in the Edge Singapore on 31 August 2018 titled “Fugitive Larry Low pares stake in Frencken Group” said that Tan Sri Low is wanted by the Malaysian authorities on a charge of money-laundering. One of Tan Sri Low’s brothers remains a substantial shareholder of Frencken.
Perhaps I am unreasonably strict, but to me, this would have been sufficient to eliminate Frencken Group from consideration for any corporate governance-related awards. After all, Tan Sri Low was chairman until about three years ago and was a substantial shareholder, had resigned for “medical reason” but is reportedly a fugitive (which may raise questions about the accuracy of the reason given for his cessation).
However, I was even more surprised when I looked more closely at Frencken’s corporate governance. It has an all-male six-member board led by a non-independent non-executive chairman. I can perhaps accept the all-male board given its business (although substantive diversity is beneficial for all industries in my view), and even a non-independent chairman. However, it also has two independent directors who have served more than 9 years (one having served for 14 and the other for 15 years), with the company giving the usual explanations as to why they should still be considered to be independent.
One of these long-serving independent directors, Ling Yong Wah, is also the lead independent director and audit committee chairman. He has a degree in Economics and is a member of an international professional accountancy body but there is little indication that he has recent and relevant accounting expertise. In fact, none of the four members of the audit committee appear to have strong accounting expertise based on their backgrounds disclosed in the annual report.
Mr Ling is also the CEO of Vallianz Holdings, an associate company of Swiber Holdings, which has of course been in deep financial trouble. It turns out that another independent director of Frencken, Yeo Jeu Nam, is also an independent director of Vallianz, and was also an independent director of Swiber. There is therefore an interlocking relationship between Mr Ling and Mr Yeo. In essence, at Frencken, Ling as lead independent director has a more senior role in the corporate governance of the company, while at Vallianz, Mr Yeo as an independent director is supposed to provide oversight over Mr Ling who is the CEO. In some codes of corporate governance, such interlocking relationships are considered a threat to independence.
It also seems there is some shareholder unhappiness at Frencken. At the AGM held in April 2019, 15.46 percent voted against the resolution authorising directors to issue shares, 15.71 percent voted against the re-election of Mr Ling, and 9.98 percent voted against the re-election of Mr Yeo. While this by no means clearly suggest a shareholder revolt, there are some signs of discontent, perhaps among one of the substantial shareholders and/or other minority shareholders.
In terms of remuneration, Frencken discloses in bands of $250,000 for its executive director and key management personnel on a named basis, and discloses the remuneration of the non-executive directors as “below $250,000”. Clearly, its remuneration disclosures do not meet the recommendations in the Singapore Code of Corporate Governance, and are inadequate from a corporate governance standpoint and in terms of communicating with investors.
All in all, it is difficult to see why Frencken was given the top accolade for its market cap category for awards that are supposed to be based on good corporate governance. Frencken has performed well financially – and I hope the organisers did not confuse this with good corporate governance.
