EPF wants boardroom leverage


  • Business
  • Saturday, 22 Feb 2003

BY ANITA GABRIEL

 

THE Employees Provident Fund (EPF) wants to exert greater control and influence over companies in which it has a substantial stake. It plans to do so by seeking board seats in selected companies. 

EPF is currently seeking to have board seats in several more companies,says Roslan

“It is a recent development. Generally, we do not ask for board representation, as we would like to emphasise on managing our money rather than the companies. If a company is well-run, we will leave them alone. But in some companies, where we feel it useful to have board representation, we will put them there,” EPF deputy chief executive officer (investment) Dr Roslan Ghaffar tells BizWeek

The move, believed to be initiated by EPF chief executive officer Datuk Azlan Zainol in fact has already taken off. In early January, Azlan was appointed to the board of Rashid Hussain Bhd. He is a nominee director of EPF that, as at October 2002, had a 8.99 per cent interest in RHB.  

Two weeks ago, Rita Benoy Bushon, was appointed to the board of KFC Holdings (M) Bhd as a director. Rita is EPF's general manager of Industry & Securities Division (Investment Research and Supervision Department). As at May 14, 2002, EPF had a 14.82 per cent interest in KFC. She is also a board director of Land & General Bhd, in which EPF has a 13.94 per cent interest as at Apr 26, 2002. 

The other companies the fund has board seats include CYCLE & CARRIAGE BINTANG BHD (with a 21.03 per cent interest) and Malaysian Building Society Bhd (63.02 per cent). It is currently seeking to have board seats in several more companies, says Roslan. 

The shift by EPF to seek board seats is a significant move and a break away from its standard practice over the years. What motivated the move is not clear but it is believed that it could be related to corporate governance issues. 

On the other hand, Permodalan Nasional Bhd, a government-controlled fund frequently compared to EPF, has mostly always sought board seats where it has substantial interests.  

Says an industry observer: “PNB's nominee director concept is excellent. Whether or not it’s working is a different issue but PNB realises that there is so much more it can do with a board seat. “ 

While the criteria to select the companies remain unclear at this point, Roslan says there is really no hard and fast rule. “It will be very selective. We will have our representatives in the board for a limited period of perhaps two years. It's difficult to pinpoint which companies. At our end, if we feel we can help ourselves and the company to have a representation at the board level, whether in terms of profile or performance, then we will do so.” 

“They (directors) will be put there to take care of our interest in the company. It is also good for corporate governance. It is for the benefit of EPF. Definitely, by putting people there, the directors could be privy to things happening in these companies,” says Roslan. 

The move by EPF, with over RM40 billion in the equity market, should generally be regarded as positive. However, given that nothing is quite so simple in the realms of the corporate world, it brings to rise several pertinent issues. 

The divide between a company and its shareholders is clear yet murky. In other words, what may be of interest to the company may not always be attuned to the interests of shareholders. In this instance, EPF, by seeking board representations would have to walk that fine line. That may be tough going. 

As board member, one's priority should be to act in the interests of the company. On the other hand, as a shareholder, the stance may differ. “So, the Fund's representative may agree to a certain move at board level, but at shareholder level, it may not deem fit to vote in favour of the proposal. Then, what happens?” asks a market observer. Such a scenario clearly signals that a situation of conflict of interest could arise. 

“There will be this problem but most of the time both their interests will be in sync. Otherwise, it's a matter of how EPF balances it.  

“But I agree with the idea for EPF to have board seats. It gives it an additional line of defence to put its views across, and that too at board level. If that does not go through, then EPF will have a second line of defence at the annual general meetings (AGM)/extraordinary general meetings (EGM) to mount another campaign to dissuade or persuade others to follow its thinking. We are talking about shareholder activism at its most vocal,” says Minority Shareholders Watchdog Group chief executive officer Yusof Abu Othman. 

Incidentally, an example of such a scenario arose over the week, although as it turned out, it seemed much ado about nothing. 

It had been reported that Tan Sri Abdul Halim Ali, chairman of Malakoff, had voted against the company's proposal to issue up to 10 per cent of its paid-up capital at an AGM. 

There was nothing unusual about it. Halim was clearly acting as proxy nominee for some other party. A merchant banker clarifies that as chairman of agm, Halim can be appointed by anyone as proxy for his or her vote. 

“Halim was not exercising his own judgement. He was doing so on behalf of another party, as proxy. Before he raised the rejection, he would have had to explain to the floor that he is merely acting on instruction of shareholder as a proxy,” says the merchant banker. 

That is standard practice, but clearly not common knowledge.  

It has also been clarified that EPF had voted for the resolution at the agm through its proxy, an officer of the EPF who had attended the meeting. “At the meeting, Tan Sri Halim Ali did not represent the EPF but presided as chairman of the meeting. There was an undisclosed proxy who did not attend the meeting and who gave the vote to the Chairman of the session,” EPF clarified in a statement late Friday.  

Still, the issue has raised a pertinent question. What if EPF had reservations about the proposal and had nominated the chairman of the session, in this instance Halim, to show its dissent? 

A merchant banker clarifies that if such an instance arose, then Halim, as chairman of Malakoff and also that of EPF, is required to wear two hats – one as chairman of Malakoff and the other as representative of one of its largest investors. And in doing so, he walks that fine line between the expectations and rationale of a company and a shareholder.  

To put things in perspective, however, Yusof says the issue of conflict of interest is not likely to crop up often. “I would say, in 95 out of 100 companies, there should not be such a conflict.” If he is right, then the move to accord one of the country's largest investors direct and immediate access to the board should be viewed as a good thing.  

Moreover, in pursuit of better corporate governance, the old model where EPF had been unrepresented in the board of certain companies has perhaps ceased to be relevant. 


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