In a state of indecision

  • Business
  • Saturday, 02 Apr 2016

Scrapping of Bina Darulaman EGM raises questions about governance and transparency

MAJORITY shareholding has its privileges.

Chief among these is the ability to have a lot of say in how a company is steered. The major shareholder does this primarily by placing representatives on the board of directors and by voting at general meetings.

But there are other ways in which the major shareholder can have a distinct advantage over the other shareholders. A recent example, and a curious one too, was when property and construction player Bina Darulaman Bhd (BDB) announced that it wasn’t going ahead with an EGM because its largest shareholder wants more time to study a proposal.

If such a request had come from another shareholder, the BDB would have probably rejected it because all shareholders had already been given sufficient notice of the meeting and of the matters that will be decided then.

The proposal is for BDB to set up a long-term incentive plan (LTIP) that gives employees free BDB shares if they meet certain criteria, including those based on company and individual performance.

LTIPs are not new to Malaysia. In February 2010, Bursa Malaysia Bhd said it was replacing an employees’ share option scheme (Esos) with a proposed share grant plan that would stretch over 10 years. This could be the first time that a listed company publicly referred to an LTIP. Since then, many other Malaysian companies have come up with LTIPs.

An Esos grants employees the right to buy a certain number of shares at a predetermined price, and it usually applies to all employees regardless of how well they do their work. On the other hand, the number of shares awarded to an employee under an LTIP is typically tied to how much he contributes to the company’s growth and well-being, and ultimately to the rise in shareholder value.

It’s fair to presume that by now, anybody who has a stake in the capital market – a longtime controlling shareholder of a listed company fits that description – shouldn’t have much of a problem figuring out the pros and cons of an LTIP. And in this case, the controlling shareholder is the Kedah State Development Corp, the state’s economic development arm. Better known by the Malay acronym PKNK, it owns two thirds of BDB’s share capital.

And yet, BDB had to scrap its EGM just two days before it was to be convened because PKNK wasn’t ready to vote just yet.

The EGM was scheduled for Thursday, right after the AGM. However, on Tuesday, BDB said PKNK had asked for “additional time to consider and evaluate, in whole, the effects of the proposed LTIP on PKNK’s interest in BDB”.

The BDB board agreed to the request rather than risk the possibility of PKNK torpedoing the two resolutions that were to be tabled at the EGM – one on the proposed establishment of the LTIP and the other on the proposed award of LTIP shares to BDB group managing director Datuk Izham Yusoff.

“PKNK will notify BDB as soon as the management of PKNK has made its decision on the proposed LTIP. A new date on the EGM to re-table the said resolutions will be notified in due course,” said BDB in its announcement through the stock exchange.

BDB however went ahead with the AGM on Thursday. After that, Izham told reporters, “I don’t foresee any issues arising from the plan. Don’t read too much into it. If the majority of the shareholders want this, then so be it. It’s a good thing for the company.”

But it’s hard not to wonder about the story behind the EGM deferment. It’s strange for PKNK to behave as if it’s an outsider who knows little about the proposed LTIP.

Let’s first consider who’s on the BDB seven-man board. Three are independent directors. The rest are chairman Datuk Paduka Rasli Basir, Izham (the group MD), Datuk Abd Rahim Man and Datuk Abdul Rahman Ibrahim.

Izham, who has a lot of experience running GLCs, is what some people would label a professional manager. He’s the company’s only executive director, and is eligible to receive LTIP shares, subject to the plan’s by-laws. Accordingly, he doesn’t take part in any decisions regarding his proposed allocation.

Protecting PKNK’s interest

Rasli was in the Kedah civil service for 37 years, and retired as state secretary in June 2013. Abdul Rahman was the PKNK chief executive from July 2006 to April last year. And the person who took over from him was none other than Abd Rahim. It’s clear that the trio of directors are there to protect PKNK’s interests.

We should next look at the timeline for the proposal. The plan was first announced on Jan 26. That came with this disclosure: “The board, after having considered the rationale and effects of the proposed LTIP, is of the opinion that the proposed LTIP is in the best and long-term interest of the company and its shareholders.”

The notice of EGM came out on March 11. Three days later, the company distributed the circular to shareholders, which contains the directors’ recommendation that the shareholder vote in favour of the resolutions.

Considering that PKNK has strong representation on the BDB board (including the current PKNK chief executive) and had two months to weigh the idea of BDB introducing an LTIP, it’s baffling that the PKNK management remains seemingly unsure about the impact of the plan. What has changed between Jan 26 and March 29?

The most likely factor is the state’s recent political leadership saga, which ended with Datuk Seri Mukhriz Mahathir resigning as Kedah mentri besar on Feb 3. He was replaced by Datuk Seri Ahmad Bashah Md Hanipah, who’s now the PKNK chairman, a position reserved for the mentri besar.

If this is indeed the reason for PKNK’s insistence on more time, it leads to questions about governance and transparency. BDB has followed the disclosure rules and have presented a proposal that the board believes is good for BDB and its shareholders.

It was up to the shareholders to decide, and that should have happened on Thursday. But it didn’t because PKNK appears to have belatedly realised that it wasn’t ready to approve the LTIP.

This doesn’t reflect well on the government corporation. Can a state leadership transition excuse such a lapse?

The inconvenience and extra costs of holding the EGM on another day – that is, if PKNK later says it will support the LTIP resolutions – are minor annoyances compared to the perception that BDB’s governance structure and processes aren’t working the way it should because its major shareholder has somehow had a change of heart.

Executive editor Errol Oh once wrote about a listed company, controlled by another state government, that decided to give allowances to its directors “in conjunction with the celebration of Hari Raya Aidilfitri 2010”.

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