By Mak Yuen Teen

On 1 June 2021, Sinostar PEC appointed Dr Chen Seow Phun, John, as lead independent director (ID). He replaced the former lead ID who resigned on 21 May 2021 due to “personal and health reasons”. Dr Chen was also appointed as the Chairman of the Remuneration Committee (RC) and a member of the Audit Committee (AC) and Nominating Committee (NC).

The appointment template listed 16 other current directorships for Dr Chen, including 8 other listed companies. The non-listed companies include SAC Capital Private Limited, which is a full sponsor for the Catalist board.

Under (j) in the appointment template, it asks: “Whether he has ever, to his knowledge, been concerned with the management or conduct, in Singapore or elsewhere, of the affairs of (i) any corporation which has been investigated for a breach of any law or regulatory requirement governing corporations in Singapore or elsewhere…”.

The answer was stated as “No”.  Dr Chen is the lead ID, AC chair and NC and RC member of OKP Holdings. On 12 May 2021, OKP announced that its wholly-owned subsidiary, Or Kim Peow Contractors (Pte) Ltd (OKPCPL),  was fined $1 million  for its role in the worksite accident at PIE in 2017, when a section of the viaduct from Tampines Expressway collapsed, killing one worker and injuring 10 others. OKPCPL was prosecuted under the  Workplace Safety and Health Act. Shouldn’t the answer to the question be “Yes”, notwithstanding that it was the wholly-owned subsidiary which was fined? It cannot be the intent of the rules that legal or regulatory breaches committed by subsidiaries are not covered by (j)(i).

Another of the listed companies is Hiap Seng Engineering. On 28 July 2020, the company and its subsidiary filed applications in the High Court for orders that the two companies be placed under judicial management. For the financial year ended 31 March 2020, Hiap Seng had seen its accumulated losses ballooned from $29.1 million to $49.1 million, and had cash of only $1.9 million. On 15 September 2020, the Court granted the applications.

Under (b) of the appointment template, it states: “Whether at any time during the last 10 years, an application or a petition under any law of any jurisdiction was filed against an entity (not being a partnership) of which he was a director or an equivalent person or a key executive, at the time when he was a director or an equivalent person or a key executive of that entity or at any time within 2 years from the date he ceased to be a director or an equivalent person or a key executive of that entity, for the winding up or dissolution of that entity….on the ground of insolvency?”

The answer was again stated as “No”. In this case, item (b) of the appointment template refers to an application or a petition filed “against” an entity and “winding up or dissolution”. Therefore, if a company itself applies to be placed under judicial management or liquidation when it is facing insolvency, this question would arguably not apply. However, if the intent is for the appointment template to provide shareholders a means to assess the track record of a director who is appointed, then I would argue that  when companies facing financial difficulties are placed into judicial management or liquidation, they should be disclosed in the appointment template. I suggest that SGX considers requiring disclosure in such cases.

For the 9 listed companies where Dr Chen is now a director, he is executive chairman in one (Pavillon Holdings), independent board chairman in 2 (Fu Yu Holdings and Matex International), deputy independent chairman in 2 (Hanwell Holdings and Tat Seng Packaging), and lead ID in 3 (Hiap Seng Engineering, OKP and Sinostar PEC). He is also the AC chair for 5 of these companies, NC chair for 3 companies, RC chair for 3 companies, acting risk management committee chair for one company, and a member of 12 ACs, NCs or RCs. Based on the number of board and committee meetings held by these 9 companies as disclosed in their latest annual reports, Dr Chen would be attending 68 meetings a year.

All the 9 companies, except Hiap Seng, has a 31 December year end, which means their reporting and AGM deadlines will be bunched together at around the same time. Other than Hiap Seng which is under judicial management, 3 of the other 8 companies have swung from making a profit to making a loss between the previous financial year and the most recent financial year. This would likely require directors to commit even more time.

To be fair, for the 8 companies where he has been a director during the most recent financial year, he attended all the board and committee meetings – and even attended some others on an ex-officio basis.

However, what is interesting is that the boards and committees of most of the companies are not particularly active. Of the 9 companies – based on the latest annual reports – 7 of their boards met only twice a year.  At Hiap Seng, which was clearly in trouble, the board met five times in FY2019, the last year for which an annual report is available. Sinostar PEC’s board, which Dr Chen has just joined, met four times.

Six of the 9 ACs met just twice, with another meeting 3 times, one meeting 4 times and another (Hiap Seng) meeting five times. For the NCs and RCs, only 1 out of the 18 committees – the NC at Sinostar PEC – met twice. All the others met just once.

We do not know how long the board and board committee meetings last.

For the 8 companies other than Sinostar PEC where he has just been appointed, Dr Chen has served on the board for periods ranging from 13 to 20 years. As he is an ID on all except Pavillon where he is executive chairman, he will have to go for two-tier voting to continue as ID on all the other 7 boards. Dr Chen has gone for two-tier voting in 5 of the companies and received 0% of votes against for the second-tier vote in 2 companies, 7.87% in one company, 24.11% in one company, and 24.89% in another company.

As pointed out earlier, Dr Chen is Chairman of SAC Capital, one of the most active sponsors for Catalist. The Compliance Guidelines issued by SGX on 20 July 2018 provide guidance to Catalist sponsors for assessing suitability of directors and executive officers. They cover the appointment of a director who already holds multiple directorships and state:

“Sponsors need to assess if a proposed director is able to devote sufficient time and resources to all the boards he is sitting on/being proposed on. Factors to consider include, but are not limited to:

  • whether the proposed director has other commitments (such as full-time employment; other board representation on listed or non-listed companies, committee-related work, external consultancy work);
  • whether the proposed director has obtained the relevant approval from his current employer, where relevant;
  • his attendance at board and committee meetings of existing boards;
  • the financial year-ends of the companies he is a board member of (as an indication of whether the director is able to discharge his duties particularly if there are competing demands from overlapping financial reporting periods in many of the companies); and
  • understand the reason(s) for his proposed appointment (for instance, relevant industry knowledge).

Demands on a director will increase significantly when a company is undergoing a crisis, such as financial distress or major non-compliances…”

Dr Chen’s situation would raise questions on some of the above items, and when a director serves on the boards of 9 different companies in diverse sectors, it is difficult to argue that he is appointed because of “relevant industry knowledge”.

The guidelines do provide a box that is rather easy  to tick – that “the sponsor should consider whether it is necessary for the proposed director to seek approvals or confirmations from the nominating committees of the existing companies he is a board member of before taking on a new board appointment” if “the sponsor has concerns about the individual’s ability to devote sufficient time in view of his multiple commitments”. It would be hardly surprising if they all said yes – especially  since most of their boards and committees do not meet much anyway.

In Dr Chen’s case, only one of the 9 companies where he is a director is listed on Catalist. However, I would imagine it may be difficult for Catalist sponsor, SAC Capital, to advise one of the companies under its purview to consider if a proposed director is serving on too many boards when its chairman serves on 9 and holds key roles in many of them.