CDL saga highlights complexities of corporate governance and role of directors, say experts

The ongoing saga between Singapore’s billionaire property tycoon Kwek Leng Beng and his son Sherman has highlighted the complexities of corporate governance and directors’ responsibilities, experts said.

Speaking at a board mentoring event organised by the Institute of Singapore Chartered Accountants (Isca) on March 10, they stressed that the power associated with being a company director comes with significant responsibilities.

A director’s duty is not just to attend meetings, but also to safeguard a company’s future, said Ms Lim Joo Lee, chief financial officer and company secretary of the manager of Aims Apac Reit. 

Mr Tan Chong Huat, senior partner at RHTLaw Asia, said a failure to uphold these duties can result in serious consequences.

“Being a director is fraught with danger. If you are not inquisitive and don’t like to ask questions, then directorship is not for you,” he said.

Aspiring directors should conduct their own due diligence before accepting a position on a board. “The first piece of advice I would offer is to ensure that due diligence has been properly followed by the nominating committee,” Mr Tan said.

The boardroom tussle between Mr Kwek Leng Beng, executive chairman of City Developments Limited (CDL), and his son Sherman, CDL’s chief executive officer, centres on allegations of impropriety over the nomination process for directors.

Aspiring directors should research the company they are looking to join, especially when dealing with family-run operations or controlling shareholders, Mr Tan said. 

They should review the board composition to see if there is a balance of independent and executive directors.

“An overly dominant CEO or controlling shareholder on the board, or a lack of independent directors, may indicate poor governance and insufficient checks and balances,” Mr Tan said.

Other potential red flags include overly restrictive clauses that limit the board’s independence or provisions that give too much power to a single director or shareholder, he said.

These may attract legal liability should any action be taken against the company, he said.

Aspiring directors should stay informed about the company’s financial statements and seek legal advice when necessary. 

Significant losses, inconsistent financial reporting, unresolved accounting issues or qualified audit opinions could indicate problems. 

The role of a director in Singapore is mainly governed by statutory duties under the Companies Act and supplemented by common law. Statutory duties include disclosing one’s interest in transactions and material information; acting honestly and using reasonable diligence; keeping accurate accounting records; and holding annual general meetings, among other things.

Beyond the Companies Act, directors have the duty to act in good faith for the benefit of the company and avoid conflicts of interest. They are expected to exercise skill, care and diligence in their role. A failure to do so could result in them being sued for negligence, Mr Tan said.

In his opening remarks at the plenary session, Mr Cheng Wai Keung, chairman and managing director of property developer Wing Tai Holdings, said a director’s role is increasingly more onerous.

While each director brings along a unique skill set, a collaborative team-player mindset is important for effective decision-making and consensus building for the board to fulfil its core function of shaping a long-term strategy that will drive growth and ensure stability.

“I don’t invite friends to join boards because it defeats the purpose. But if a friend is an expert, I will not be ashamed to invite him to the board,” said Mr Cheng, who is also deputy chairman of Singapore investment company Temasek.  

A key priority for him when selecting a director to serve on the board is their human resource expertise. “We need to offer a robust compensation package to motivate and maintain talent. So HR expertise is one of the first qualities I look for in a board member,” Mr Cheng said.

Next will be expertise on legal and corporate governance matters to act as guard rails. Financial acumen is also critical to ensure the financial health and strategic direction of the company.

Audit expertise helps to provide an independent view of the company’s financial health and internal processes.

Mr Cheng said he typically looks for retired CEOs from the same industry for their domain knowledge of the business.

He stressed that succession planning at the senior management level is key – in particular, the role of the CEO – for any business to be stable. “To effectively plan for leadership succession, the board must have oversight of the performance and remuneration of the first and second levels of management,” he said.

Going forward, boards must be equipped to navigate legal trends in environmental, social and governance issues; artificial intelligence, digital assets and cyber security; and global sanctions and their implications, experts said.

“A director’s role will be more demanding, not less demanding... So be on top of things,” Mr Tan said. 

Source: The Straits Times © SPH Media Limited. Permission required for reproduction.

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