NUS Business School
National University of Singapore
July 2005
Minority Shareholders Acquire More Rights
In Hong Kong
Khoo Sisters Charged $500,000 For NonDisclosure
Institutional Investors’ Group Calls For
Changes In Executive Compensation And
Election Of Directors
Adelphia Founder And Son Receive Prison
Sentences For Fraud
Investigation By British Regulator Finds
Flaws In Audit System
Five Top CAO Officials Charged
Businesses Oppose EU Proposal For
Mandatory Audit Committees
Former HealthSouth CEO Cleared Of Fraud
Charges
Minority Shareholders Acquire More Rights In Hong Kong
(HONG KONG) From July 15 th, minority shareholders in Hong Kong will be given the rights to take action against
a company’s directors, although the courts will have the final say. Until now, Hong Kong has followed the principle
that only a company itself can sue its directors. The courts have been reluctant to change the majority-rule basis
where the approval of 75 per cent of shareholders is required to force the company to sue. From next month
onwards, a shareholder will be able to apply for an order to force a company to hand over its books for inspection
and if evidence of “maladministration” is found, the person can apply for an injunction to prevent the behaviour in
question and start an action against the directors in his own name. ~ Adapted from “Minority owners acquire more
rights”, www.thestandard.com.hk, 21 June 2005.
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Institutional Investors’ Group Calls For Changes In Executive Compensation And Election Of Directors
(TORONTO) The Canadian Coalition for Good Governance, a group consisting of 45 of Canada’s largest
institutional investors that collectively manage $810 billion in assets, has called for changes in the way executive
compensation is reported and director elections are carried out. The coalition wants companies to clearly disclose
the cost of all compensation for their chief executive officers, including the value of pension benefits and longterm incentive grants. The group also wants compensation committees to calculate the total consideration paid to
the company CEOs since their appointment and compare total consideration to corporate performance to see how
well the two are linked. In addition, the coalition is seeking to change the current system of how directors are
elected where shareholders can only express their opposition to a candidate for a board by withholding their vote.
Shareholders are not allowed to vote against a candidate. Hence the group is recommending a system where
shareholders can vote “for” or “against” a candidate and where the director has to get the support of more than
50 per cent of the investors to be on the board. ~ Adapted from “Group wants changes to how Canadian executives are
paid, directors elected”, www.canada.com, 23 June 2005; “Coalition pushes for reform on pay disclosure”, www.
theglobeandmail.com, 24 June 2005.
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Investigation By British Regulator Finds Flaws In Audit System
(UNITED KINGDOM) A 14-month investigation by the Professional Oversight Board for Accountancy (POBA) has
found serious flaws in the way the big four international accounting firms carry out audits of British companies.
According to Paul George, director of POBA, the four firms are “capable of doing very good audits” but the
investigation had identified “some areas where they are not applying their procedures and practices across all
audits”. The Audit Inspection unit of the board had reviewed 27 audits of companies that are among the FTSE
350, an index of Britain’s largest companies. Among some of the problems observed were that the firms were not
sufficiently independent of their clients and that there was inadequate documentation to show how decisions were
arrived at. The board said that two audits, where there was “sufficient doubt” as to whether the company had
applied the correct treatment or made appropriate disclosures, were referred to the financial reporting review
panel. In neither case was there a question about reported profits. ~ Adapted from “Watchdog finds flaws in audit
system”, http://money.guardian.co.uk, 21 June 2005; “New British regulator finds faults in Big Four audits”, www.iht.com, 22
June 2005.
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Businesses Oppose EU Proposal For Mandatory Audit Committees
(EUROPE) A proposed European Union auditing directive, which proposes mandatory audit committees for all
listed companies, has received vehement opposition from business organisations who feel that the EU initiative
would undermine national corporate governance codes and impose too rigid a system. According to the Institute
of Directors (IoD), the introduction of compulsory audit committees could reduce the pool of potential audit
committee members and may lead to directors being reluctant to serve on audit committees. The IoD also said
that the proposal would undermine UK’s “comply or explain” approach to corporate governance.
Opponents of the proposal scored an initial victory when the European Parliament’s legal affairs committee
recently voted for a more flexible approach where the directive’s provisions on audit committees would apply only
where no national rules exist. However, this approach still needs the backing of the entire European Parliament,
the council of member states and the European Commission, which has so far been reluctant to change the
original proposal. ~ Adapted from “IOD- EU rules will make directors steer clear of audit committees”, http://www.politics.co.
uk/, 20 June 2005; “European Parliament softens line on audit directive”, http://moneycentral.msn.com/ , 22 June 2005; “EU
signals ‘pragmatic’ approach to audit reform”, Financial Times, 29 June 2005.
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Khoo Sisters Charged $500,000 For Non-Disclosure
(SINGAPORE) In a landmark case for corporate governance in Singapore, Jacqueline and Elizabeth Khoo,
daughters of late property tycoon Khoo Teck Puat, were fined $500,000 for not disclosing their father’s stakes in
Goodwood Park Hotel, Central Properties and Hotel Malaysia. Jacqueline, who pleaded guilty to six charges
including failure to discharge her duties as a director, failure to maintain a proper register showing her father’s
stake and failing to notify Singapore Exchange of his interest, was fined $320,000, with the highest penalties
coming under the Securities and Futures Act (SFA). Elizabeth, who faced similar charges, pleaded guilty to five
charges and was fined $180,000. The Khoo case had received widespread attention in the corporate world in
recent times as the Khoo sisters are the first people prosecuted for non-disclosure under Singapore’s new
disclosure-based regime. ~ Adapted from “Khoo sisters fined $500,000, escape jail”, Business Times Singapore, 21 June
2005.
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Adelphia Founder And Son Receive Prison Sentences For Fraud
(NEW YORK) John Rigas, founder of Adelphia Communications Corp., was sentenced to 15 years in prison nearly a
year after he was convicted for his role in the multi-billion dollar fraud that led to the collapse of the country’s fifth
largest cable company. His son Timothy, who was also convicted last year of bank fraud, securities fraud and
conspiracy, was sentenced to 20 years in prison. At a five-month trial last year, Adelphia prosecutors had accused
the Rigases of conspiring to hide US$2.3 billion in Adelphia debt, stealing $100 million for themselves and
spending the money on a lengthy list of personal luxuries, ranging from luxury condos and golf courses to buying
3,600 acres of timberland costing US$26 million to preserve the view outside John Rigas’ Pennsylvania home.
Raising the possibility that the 80-year-old Rigas might die behind bars, U.S. District Court Judge Leonard Sand
said that his sentence might be altered after two years if prison doctors believed he had less than three months to
live. ~ Adapted from “Adelphia founder sentenced to 15 years”, http://money.cnn.com/, 20 June 2005; “Adelphia founder and
son receive prison sentences”, http://www.etaiwannews.com/, 22 June 2005.
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Five Top CAO Officials Charged
(SINGAPORE) Chen Jiulin, suspended chief executive officer of China Aviation Oil (CAO), and four other senior
officials have been charged in court for offences ranging from insider-trading to forgery to making false and
misleading statements. Singapore authorities began investigating CAO when the company revealed that it had lost
over US$550 million in derivatives trading. A PricewaterhouseCoopers (PwC) report released in March this year
said that CAO’s problems were due to “failure at every level of the company” and blamed the company’s directors
for lapses that pushed the company to the edge of bankruptcy.
Along with Chen, the other officials who have been charged are: Peter Lim, finance head of CAO; Gu Yanfei, nonexecutive director of CAO and general manager of its parent company China Aviation Oil Holding Company
(CAOHC); Jia Changbin, chairman of CAO and president of CAOHC and Li Yongji, non-executive director on CAO’s
audit committee. Gu, Jia and Li were released on bail of $500,000, $250,000 and $120,000 respectively while
Chen and Peter remain in custody for their pretrial hearing on July 7. Bail for Gu was increased to $1 million and a
sum of $500,000 each was set for the other two directors after they were granted permission to take specific trips
out of Singapore. Gu, Jia and Li, who appeared in court on June 23, have been given a three-week extension to
prepare for their pretrial hearing which has now been set for July 14. The lawyers representing the three directors
have asked for a full version of the PwC report, as only the executive summary of the report has been released to
the public so far. ~ Adapted from “Chen and four other top CAO officials charged”, Business Times Singapore, 10 June 2005;
“Singapore court gives China Aviation Oil directors three weeks to prepare cases”, http://biz.thestar.com.my/, 23 June 2005;
“Non-exec directors’ lawyers seek full PwC report”, Business Times Singapore, 24 June 2005.
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Former HealthSouth CEO Cleared Of Fraud Charges
(ALABAMA) The series of convictions in high-profile business scandals since the collapse of Enron in 2001 came to
an end recently when Richard Scrushy, former chief executive of the HealthSouth national hospital chain, was
cleared of overseeing a US$2.7 billion accounting fraud which nearly led the company to bankruptcy. After
deliberating for 21 days, the jury found Scrushy innocent of all 36 charges accusing him of inflating company
profits from 1996 to 2002 due to “the lack of substantial evidence and witnesses’ credibility”. The verdict was a
massive defeat for US prosecutors who had secured the cooperation of 15 HealthSouth executives, including five
former finance chiefs, who pleaded guilty to their own roles in the fraud and implicated their boss. Even secretly
recorded conversations on balance sheet problems between Scrushy and a former finance chief, William Owens,
did not convince the jury of Scrushy’s guilt. ~ Adapted from “HealthSouth chief found not guilty; Scrushy acquitted
despite testimony by former aides”, http://www.sfgate.com/, 29 June 2005; “Former CEO of HealthSouth cleared of fraud”, 30
June 2005.
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