Pity that nobody noticed red flags at Oriental Century
Business Times 17 March 2009
I refer to the reports, ‘Accounting scandal rocks another S-chip’ and ‘Raffles Edu needs to tighten checks on investments’ (BT, March 13).
There were a number of red flags in Oriental Century, as is often the case in such situations. Oriental Century’s board comprises a chairman-CEO, a non-executive director and two independent directors. The chairman-CEO is also the second largest shareholder, after Raffles Education.
This is a significant concentration of power in one individual, who runs the company, leads the board in overseeing the running, and has considerable influence over the appointment of directors.
The board has only four directors, One should ask whether the board is too small to have the necessary diversity of expertise and viewpoints, and more importantly, whether the board is seen more as an unnecessary inconvenience required to meet minimum regulatory requirements.
For the new Governance and Transparency Index (GTI) developed by BT and the Corporate Governance and Financial Reporting Centre, we recognise the problem with exceptionally small (and large) boards by giving points to companies with between six and 11 directors.
Given that there are only two independent directors, it is not surprising that all three board committees - audit, nomination and remuneration - consist of the same non-executive and independent directors. They just share the committee chair responsibilities among them. It might just as well be a super 3-in-1, all purpose, committee.
Saying that there are the three board committees is no more than just ticking the box. Again, the GTI will include penalties for such a situation where the same directors sit on all the committees.
Incidentally, the nomination committee, which performs the important role of recruiting directors among other responsibilities, is chaired by the non-executive director, not an independent director as recommended by the Code of Corporate Governance. The company did not comply and did not explain this non-compliance with the Code.
Perhaps the biggest red flag of all was waved on April 26, 2007. That day, three directors resigned from Oriental Century’s board, including one of the independent directors, while another independent director did not seek re-election. One of these independent directors was appointed on Sept 1, 2006 and the other was appointed on March 29, 2006.
Why did they leave the board so soon after joining? Did the new independent directors who subsequently joined the board ask the departing directors or ask themselves why, as part of their due diligence before joining the board? In such a situation where several directors leave the board before their terms are up, should the Singapore Exchange not ask?
Shareholders and regulators need to pay more attention to companies where directors leave en masse, or where directors leave before their terms are up and they do not leave other boards. Independent directors who are forced off boards when they try to discharge their responsibilities need to be upfront and disclose the facts surrounding their departures.
If all they are concerned about are themselves - for example, that being upfront about the facts may reduce their opportunities for future directorships or lead to possible threats of legal action from the company - then they lack the necessary moral fibre to be good independent directors.
I was also surprised to read that Raffles Education did not ask for board representation. Tan Teck Meng is an independent director of Raffles Education and also an independent director of Oriental Century. If Raffles Education did not nominate him onto the Oriental Century board, did the Oriental Century nominating committee conduct a search for independent directors and happen to find Prof Tan as the best candidate? In other words, was the fact that Prof Tan is on both the boards a coincidence?
Of course, it is possible that this was in fact the case, given Prof Tan’s experience in the education industry and both Raffles Education and Oriental Century are in the education business. Nevertheless, there are many other potential candidates with such experience, although perhaps some might have assessed the risks carefully and avoided joining the board.
Minority shareholders in Oriental Century may well have inferred that Prof Tan was in fact nominated by Raffles Education given the shareholding relationship and common directorships. Hopefully, more information will be forthcoming as to how Prof Tan was appointed to the Oriental Century board.
Finally, I hope that the regulators will investigate this thoroughly and hold those individuals who are responsible for this debacle fully accountable. Unfortunately, for the chairman-CEO who is reportedly in China, that may be very difficult indeed.
Mak Yuen Teen Co-Director Corporate Governance and Financial Reporting Centre
1 comment:
Pity that nobody noticed red flags at Oriental Century
Business Times
17 March 2009
I refer to the reports, ‘Accounting scandal rocks another S-chip’ and ‘Raffles Edu needs to tighten checks on investments’ (BT, March 13).
There were a number of red flags in Oriental Century, as is often the case in such situations. Oriental Century’s board comprises a chairman-CEO, a non-executive director and two independent directors. The chairman-CEO is also the second largest shareholder, after Raffles Education.
This is a significant concentration of power in one individual, who runs the company, leads the board in overseeing the running, and has considerable influence over the appointment of directors.
The board has only four directors, One should ask whether the board is too small to have the necessary diversity of expertise and viewpoints, and more importantly, whether the board is seen more as an unnecessary inconvenience required to meet minimum regulatory requirements.
For the new Governance and Transparency Index (GTI) developed by BT and the Corporate Governance and Financial Reporting Centre, we recognise the problem with exceptionally small (and large) boards by giving points to companies with between six and 11 directors.
Given that there are only two independent directors, it is not surprising that all three board committees - audit, nomination and remuneration - consist of the same non-executive and independent directors. They just share the committee chair responsibilities among them. It might just as well be a super 3-in-1, all purpose, committee.
Saying that there are the three board committees is no more than just ticking the box. Again, the GTI will include penalties for such a situation where the same directors sit on all the committees.
Incidentally, the nomination committee, which performs the important role of recruiting directors among other responsibilities, is chaired by the non-executive director, not an independent director as recommended by the Code of Corporate Governance. The company did not comply and did not explain this non-compliance with the Code.
Perhaps the biggest red flag of all was waved on April 26, 2007. That day, three directors resigned from Oriental Century’s board, including one of the independent directors, while another independent director did not seek re-election. One of these independent directors was appointed on Sept 1, 2006 and the other was appointed on March 29, 2006.
Why did they leave the board so soon after joining? Did the new independent directors who subsequently joined the board ask the departing directors or ask themselves why, as part of their due diligence before joining the board? In such a situation where several directors leave the board before their terms are up, should the Singapore Exchange not ask?
Shareholders and regulators need to pay more attention to companies where directors leave en masse, or where directors leave before their terms are up and they do not leave other boards. Independent directors who are forced off boards when they try to discharge their responsibilities need to be upfront and disclose the facts surrounding their departures.
If all they are concerned about are themselves - for example, that being upfront about the facts may reduce their opportunities for future directorships or lead to possible threats of legal action from the company - then they lack the necessary moral fibre to be good independent directors.
I was also surprised to read that Raffles Education did not ask for board representation. Tan Teck Meng is an independent director of Raffles Education and also an independent director of Oriental Century. If Raffles Education did not nominate him onto the Oriental Century board, did the Oriental Century nominating committee conduct a search for independent directors and happen to find Prof Tan as the best candidate? In other words, was the fact that Prof Tan is on both the boards a coincidence?
Of course, it is possible that this was in fact the case, given Prof Tan’s experience in the education industry and both Raffles Education and Oriental Century are in the education business. Nevertheless, there are many other potential candidates with such experience, although perhaps some might have assessed the risks carefully and avoided joining the board.
Minority shareholders in Oriental Century may well have inferred that Prof Tan was in fact nominated by Raffles Education given the shareholding relationship and common directorships. Hopefully, more information will be forthcoming as to how Prof Tan was appointed to the Oriental Century board.
Finally, I hope that the regulators will investigate this thoroughly and hold those individuals who are responsible for this debacle fully accountable. Unfortunately, for the chairman-CEO who is reportedly in China, that may be very difficult indeed.
Mak Yuen Teen
Co-Director
Corporate Governance and Financial
Reporting Centre
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