NUS Business School
National University of Singapore
December 2004
Survey Shows An Increasing Number Of Boards
Outside U.S. Exclude CEO From Some Meetings
(LONDON) A recent survey conducted by executive
recruitment firm Korn/Ferry on nearly 1,000 directors
of major companies around the world has shown that
there is a growing trend of corporate boards outside U.
S. to exclude the company’s chief executive from
meetings. Even though this practice has been common
in the U.S. during the past two years due to the spate
Tokyo To Toughen
of corporate scandals, it remains unusual (but
Disclosure Rules
increasing) in Europe and Asia. Such meetings, which
might occur only once a year, give directors the
opportunity to discuss anything ranging from
Calpers Is At It Again:
administrative matters to the company’s strategy. In
This Time, Focus Is On
Europe, France had 19% of directors meeting without
Executive Pay
the presence of the CEO while in U.K., where corporate
governance standards were perceived to be stricter,
SEC Proposes More
the figure stood at 23%. In Asia, outside Japan, 27%
Disclosure At Exchanges
of directors meet without the CEO present and in
Japan, 12% of directors do so. In comparison, in the U.
Sarbanes Takes Its Toll On S., 93% of boards meet without the CEO as part of
Companies
their regular meetings. ~ Adapted from “Europe's Boards
Survey Shows An
Increasing Number Of
Boards Outside U.S.
Exclude CEO From Some
Meetings
China Raises Disclosure
Requirements
South Korea To Limit
Number Of Foreigners On
Bank Boards
Failure Of Disclosure
Raises Governance Issues
At China Aviation
Independent Directors Of
New Lakeside Calls For
Ouster Of MD And CFO;
MD Reinstated After
Appeal
Get More Assertive --- After Corporate Scandals, Panels
Increasingly Exclude CEOs From Some Meetings”, The Wall
Street Journal Europe, 12 November 2004.
Back to the top
Tokyo To Toughen Disclosure Rules
(TOKYO) In response to an increase in reporting
scandals, the Tokyo Stock Exchange is planning to
have tougher disclosure rules by forcing executives to
certify company financial statements. The initiative,
which is expected to be finalised soon, will bring
Japan’s reporting requirements in line with those in the
U.S. Japanese exchange officials have been spurred
into action in recent weeks due to allegations that two
well-known companies, Seibu Railway and Nippon
Television, had reported false information on major
shareholders in order to disguise apparent breaches of
ownership rules. Under the latest plan, from early next
year, executives of the 2,200 firms listed on the
exchange will have to submit certified statements on
the authenticity of the financial statements or face
delisting. At present, reports are being certified by
auditors. ~ Adapted from “Tokyo plans tougher disclosure
rules”, The Financial Times, 12 November 2004.
Back to the top
Calpers Is At It Again: This Time, Focus Is On
Executive Pay
Vice President of Credit
Suisse First Boston’s
Compliance Department
Charged With Insider
Trading
Court Rules That Director
Was Unfairly Dismissed:
Expat Awarded RM500,000
SEC Files Lawsuit Against
Newspaper Tycoon
Ex-Chairman Of Allied
Group Gets One Year Jail
Sentence
(SACRAMENTO) Board members of the biggest U.S.
fund, Calpers, have voted unanimously to support a
staff plan targeted at carrying out a nation-wide effort
to pressure companies to “align compensation
practices with shareholder interests”. Over the next
three years, Calpers expects to urge companies it
invests in to control excessive pay and to base
executive pay on company performance. The Calpers
plan proposes to use some of the largest companies in
its portfolio as targets for reform so as to influence
smaller companies. The plan also proposes the hiring
of compensation consultants in order to identify
directors and compensation committee members who
approve “poor” executive compensation. If it is verified
that “shareowner value has been eroded as a result of
egregious compensation packages”, Calpers could
withhold its proxy votes from directors. On the other
hand, recognition will be given to companies with
“superior” pay-for-performance practices and
significant improvement in compensation practices. ~
Adapted from “Calpers declares war on firms’ excessive pay”,
The Business Times Singapore, 17 November 2004.
Back to the top
SEC Proposes More Disclosure At Exchanges
(WASHINGTON) Following the controversy over exNYSE chairman Richard Grasso’s $188 million pay
package, the Securities and Exchange Commission
(SEC) has proposed new rules to toughen corporate
governance at the self-regulatory organisations (SROs)
that run markets listing public companies. The new
SRO proposals call for disclosure of financial details to
the public, a board with a majority of independent
directors, separation of regulatory and business
operations and audit, compensation, governance,
nominating and regulatory oversight committees
composed of independent members. The proposals
also require the SROs to disclose remuneration
packages of their top five officers and explain the roles
of the top executives and the chairman. "After a period
of intense focus on public-company governance, we
would be remiss if we did not seek to apply the lessons
learned to the governance of SROs," said SEC
Chairman, William Donaldson. ~ Adapted from “SEC
wants more disclosure for markets”, www.reuters.com, 9
November 2004.
Back to the top
Sarbanes Takes Its Toll On Companies
(LONDON) In a sign of growing international backlash
against "excessive costs and regulatory burden"
imposed by the U.S. Sarbanes-Oxley legislation, British
and German business groups are hoping to launch a
joint campaign to urge the U.S. Securities and
Exchange Commission (SEC) to make changes, which
include making it easier for firms to delist from
American stock exchanges. "UK and German business
feels very strongly over this issue," said Mr. Digby
Jones, director-general of UK’s employer group CBI.
"Sarbanes-Oxley is endangering New York's role as an
international location to raise capital," he added. Big
German companies have estimated their cost of
maintaining their U.S. listings at 30 million to 80
million euros and BDI, the German industry federation,
had recently revealed that all German companies with
a U.S. listing had at least considered delisting from the
U.S. exchanges due to the cost and hassle of
complying with the regulatory regime set forth by
Sarbanes Oxley. ~ Adapted from “Most German firms rue
listing in US”, The Straits Times, 20 November 2004; “AngloGerman action against Sarbanes-Oxley”, Financial Times, 27
November 2004.
Back to the top
China Raises Disclosure Requirements
(BEIJING) In a bid to boost investor protection,
disclosure requirements of China’s stock exchanges
have been raised and major shareholders of newlylisted companies have been barred from selling their
stakes within a year. The new rules have been put
forth as a result of a fall in the Shanghai and Shenzhen
indexes to five year lows in September, which arose
from low investor confidence due to corruption
scandals, brokerage failures and regulatory probes of
companies. The new rules state that the chairman and
senior management of listed companies must sign
statements to disclose their stake in the company and
provide personal details such as their employment
history for the previous five years. They should also
disclose whether they have been punished for
breaching securities laws and whether they hold any
citizenship in other countries. Exchange rules, which
require companies to halt trading for an hour when the
quarterly reports are published, has been scrapped
with the halting of trading to be carried out only when
yearly and half-yearly earnings reports are posted. ~
Adapted from “China bourses tighten listing rules to protect
investors”, The Business Times, 30 November 2004.
Back to the top
South Korea To Limit Number Of Foreigners On Bank
Boards
(SEOUL) South Korea is considering imposing
residency requirements on foreign directors of
domestic banks by requiring them to have their
principal home in South Korea, the result of which
could have significant tax implications. Mr. Yoon Jeun
Hyun, the new head of both the Financial Supervisory
Service (FSS) and Financial Supervisory Commission
(FSC), said that he also wants to limit the number of
foreigners allowed to sit on the boards of domestic
banks because “there is a concern that foreigndominated boards of directors of domestic banks may
lack the necessary local expertise, knowledge and
understanding to perform effectively”. Mr. Yoon also
added that even though foreign investors own about
60 per cent of the shares in domestic banks and South
Korea can benefit from their international experience,
“there are uniquely local regulatory and business
characteristics and considerations to banking that
must be respected by foreign investors”. The new rules
could create difficulties for Citibank Korea, Korea First
Bank and Korea Exchange Bank, all of which have
foreign-dominated boards. ~ Adapted from “South Korea
moves to control foreign bank directors”, The Business
Times, 30 November 2004.
Back to the top
Failure Of Disclosure Raises Governance Issues At
China Aviation
(SINGAPORE) Investor weariness with regard to poor
corporate governance at China-based firms listed in
Singapore was reinforced recently when a move by
China Aviation Oil (CAO) to purchase a 20.6 percent
stake in Singapore Petroleum Company (SPC) was
opposed by its China-based parent, China Aviation Oil
Holding Company (CAOHC). CAOHC had given an
“irrevocable undertaking” to support the purchase and
it had been expected to “rubber-stamp” the deal at a
recent shareholders’ meeting. A further bombshell
awaited investors when in response to Singapore
Exchange’s queries regarding the turn of events, CAO’s
chief executive officer, Mr. Chen Jiulin, revealed that
they had known on the night prior to the meeting that
CAOHC would vote against the deal. Investors are
questioning the reasoning behind the company holding
the meeting, knowing that the deal would not go
through. During the shareholders’ meeting, Mr. Chen
had brushed off many questions such as what would
be done to restore investor confidence, as “irrelevant”.
CAO has called for a suspension in the trading of its
shares.
In shocking news, China Aviation has announced that
it made a US$550 million loss from speculative
activities, which is an amount equivalent to its entire
market worth. The statement also said that Mr. Chen
Jiulin has been suspended. In a later statement, the
company implied that it had been aware of the
speculative trading losses earlier. “The directors
believe that the interest of the shareholders of the
company would be better served if the company could
put together at least a potential rescue plan when the
trading losses is disclosed, as opposed to an
immediate disclosure as and when the losses were
realized without any solution at hand for the creditor
problem”, the statement said. Due to a request from
Singapore Exchange, PricewaterhouseCoopers has
been tasked to conduct a special investigation on
CAO’s affairs. In order to restructure the company,
CAOHC has also sent a task force to Singapore.
Meanwhile, trading of CAO shares has been suspended
until an arrangement is worked out.
~ Adapted from “China Aviation fiasco raises issues of
corporate governance”, The Straits Times, 26 November
2004; “Suspension sparks talk of CAO shake-up”, The
Business Times, 30 November 2004;“CAO’s US$550m
derivatives shocker”, The Business Times, 1 December 2004.
Back to the top
Independent Directors Of New Lakeside Calls For
Ouster Of MD And CFO; MD Reinstated After Appeal
(SINGAPORE) Alan Yeo, Hwang Soo Chin and Leong
Siew Loon, independent directors of recently listed
China-based New Lakeside Holdings, have called for
the ouster of managing director Sun Ji Wei and chief
financial officer Xu Li Xin for alleged failure to carry out
their duties. At a board of directors’ meeting called by
the independent directors, they also proposed to
replace all the directors of New Lakeside’s subsidiaries
Sanmenxia Lakeside Fruit Juice Company (SLFJ) and
New Lakeside (Sanmenxia) Company with their
nominees. The shake-up came after a special audit
carried out by China-based auditors Chenghe found
irregularities in relation to sales revenue and costs of
goods and receivables. The audit had been
commissioned by the three independent directors, who
also form the company’s audit committee, after New
Lakeside reported a surprise half-year loss earlier this
year. The audit committee believed that Mr. Xu had
failed to keep proper accounts of SLFJ and Mr. Sun had
failed to supervise Xu’s work.
Even though the company had stated earlier that the
service agreements of Mr. Sun and Mr. Xu have been
terminated and that shareholders will determine at an
extraordinary general meeting to be held in the future
whether they should be kept on the board, a recent
statement released by New Lakeside said that it has
reinstated Mr. Sun as managing director after appeals
from the firm’s deputy managing director, Mr. Duan
Hongfu, executive director Professor Wang Sixin and
Mr. Sun himself. Meanwhile, Mr. Xu has resigned from
all company positions and Mr. Go Twan Heng, major
shareholder of the company, has been appointed as
joint managing director with Mr. Sun.
~ Adapted from “Call to remove New Lakeside MD and CFO”,
The Business Times, 2 November 2004; “New Lakeside
independent directors lauded”, The Business Times, 3
November 2004; “New Lakeside reinstates ousted MD”, The
Straits Times, 26 November 2004.
Back to the top
Vice President of Credit Suisse First Boston’s
Compliance Department Charged With Insider Trading
(UK) Asif Butt, vice president of Credit Suisse First
Boston’s (CSFB) compliance department, has been
charged for betraying his “position of privilege and
trust” in order to gain “serious riches” by providing
valuable commercial secrets to some of his friends on
the outside who, in turn, had used this information to
trade in shares and “bet” on their performance. “In
this way the various defendants succeeded in enriching
themselves quite seriously, quite substantially ... with
the lion’s share of between 50%-80% per cent of the
winnings going to Butt. And by securing that unlawful
and unfair advantage over the general public, who did
not have the specialists’ knowledge he had and used,
the sanctity, the reputation of the highly-regulated
London Stock Market was damaged,” said prosecutor
James Curtis, QC. Butt and his friends had denied one
count of conspiracy to commit insider trading between
July 31, 1998 and January 17, 2002 and had variously
pleaded not guilty to four similarly worded
alternatives, each naming one of his “confederates”. ~
Adapted from “Bank Chief ‘Gave Friends Insider Trading
Tips’”, “PA” News, 8 November 2004.
Back to the top
Court Rules That Director Was Unfairly Dismissed:
Expat Awarded RM500,000
(KUALA LUMPUR) Franz Josef Marie Schefman, an
expatriate who had worked as director of marketing
and sales at Jacobs Construction Management (M) Sdn
Bhd, was awarded with over RM500,000 in back wages
and compensation when the Industrial Court ruled that
he had been unfairly dismissed on the grounds of
redundancy. “In fact there is ample evidence to show
that he had in fact contributed in bringing in contracts
for the company”, said Chairman Amelia Tee Abdullah.
“The company’s alleged strategy of reducing the
number of expatriates to be replaced with Malaysian
employees is commendable from the viewpoint of
Malaysia’s interest but this should not be done at the
expense of the rights of expatriate employees”, she
added. Schefman had originally been awarded
RM822,562 but the amount had been scaled down to
RM534,665.30 after taking into consideration that he
had found employment in another company with a
monthly salary of RM13,000 since November 2001. His
last drawn salary with Jacobs Construction had been
RM24,193 per month and his service with the company
had been terminated with effect from May 11, 2001. ~
Adapted from “Expat wins award”, The Star, 28 October
2004.
Back to the top
SEC Files Lawsuit Against Newspaper Tycoon
(NEW YORK) The Securities and Exchange Commission
has filed a lawsuit against newspaper tycoon Conrad
Black, former CEO and chairman of the publishing
company Hollinger International Inc., and his top
deputy David Radler for diverting money from the
company to themselves and then deceiving the
company’s board regarding the transactions. The
lawsuit is seeking civil penalties against Black and an
order barring him and Radler from serving as directors
or officers of public companies. SEC’s head of
enforcement, Stephen Cutler, said that Black and
Radler had “abused their control of a public company
and treated it as their personal piggy bank”. Black is
already being sued by Hollinger International, accusing
him of causing more than $500 million in damages to
the company. Black continues to be Hollinger’s
controlling shareholder and the SEC is seeking for his
voting shares in Hollinger to be placed in a trust. ~
Adapted from “US SEC files fraud charges against tycoon
Conrad Black”, The Star Online, 16 November 2004.
Back to the top
Ex-Chairman Of Allied Group Gets One Year Jail
Sentence
(HONG KONG) The long-running legal battle
concerning Malaysian tycoon Lee Ting Mee ended
recently, with the former chairman of Allied Group
being given a one-year jail sentence for his role in
allowing his subordinates to publish misleading
accounts to deceive the company’s creditors. Lee had
pleaded guilty to two charges of publishing a false
statement or account under the Theft Ordinance and
deceived members or creditors of the Allied Group by
publishing false consolidated accounts in the
company’s annual reports for 1990 and 1991. Justice
Michael Burrell described the case as “an extraordinary
piece of criminal litigation” and noted the serious
nature of the offences, which had affected public
confidence in the market and international confidence
in Hong Kong’s reputation as a financial centre. ~
Adapted from “Lee Ming Tee saga ends with a year's jail for
tycoon”, South China Morning Post, 6 November 2004.
Back to the top
This newsletter is prepared by the Corporate Governance & Financial Reporting Centre, NUS Business School, National University of Singapore and sponsored by
Federal Insurance Company (FIC), Singapore. Federal Insurance Company is the largest writing company of the Chubb Group of Insurance Companies, and as
at 1st April 2004, carries a financial rating of AA by S&P and A++ by AM Best. Federal Insurance Company is a leading insurer for Directors and Officers Liability
Insurance. For more information, please contact your insurance brokers or agent or Federal Insurance Company, 18 Cross Street, #11-08 China Square
Central, Singapore 048423. Telephone: +(65) 6333 8113, Facsimile: +(65) 6333 8112.
To unsubscribe from this newsletter service, please send us an email stating your email address at which this e-newsletter was sent.
The news summaries are based on original reports in various media including newspapers, publications, websites and other sources. The views, opinions and content expressed herein
are those of the authors and do not necessarily represent the views of National University of Singapore, NUS Business School, Corporate Governance and Financial Reporting Centre, or
any insurer within the Chubb Group of Insurance Companies. The information should not be relied on as legal or other professional advice or a definitive statement of the law in any
jurisdiction. For such advice, an applicant, insured, listener or reader should consult their own legal counsel or other professional adviser. It is not our intention to infringe on any
copyrights in any way. Should we have done so unintentionally, please let us know by email with the necessary guidelines. Thank you.
Corporate Governance and Financial Reporting Centre, NUS Business School, 1 Business Link, Singapore 117592.
Telephone: +(65) 6874 3101, Fax: +(65) 6778 4275, Email: bizss@nus.edu.sg & bizymc@nus.edu.sg