Unmasking the FGV remuneration saga


  • Business
  • Saturday, 29 Jun 2019

At 5pm yesterday, the stock ended five sen up to RM1.31, with 31.5 million shares done.

THE recent freeze on the remuneration payout of FGV Holdings Bhd (FGV) directors by its three major and substantial shareholders especially Felda – while is understandable from the perspective of financial performance – also has that tinge of irony resembling “a father/mother disciplining his/her child in public”.

At FGV’s marathon annual general meeting which lasted five hours on June 25, the Federal Land Development Authority (Felda) which is FGV’s biggest shareholder with a 33.67% stake – alongside Koperasi Permodalan Felda Malaysia Bhd (5%) and the Armed Forces Fund Board (1.25%) – had voted against three resolutions pertaining to the remuneration of FGV’s directors.

Under resolution one, FGV sought its shareholders’ approval for payment of directors’ fees amounting to RM2.55 million in respect of financial year ended Dec 31, 2018 (FY2018).

Resolution two involves payment of a portion of directors’ fees to non-executive directors up to an amount of RM1.18 million from June 26, 2019 until the company’s next AGM while resolution three sought shareholders’ approval for the payment of benefits to non-executive directors from June 26, 2019 until the company’s next AGM.

While I respect the voices of shareholders – and I very much expect the FGV Board to also respect those voices – I am deeply puzzled by the failure of the Felda board nominee within FGV in carrying out his duty.

As a conduit for communication, I wonder if he had ever engaged the FGV board to raise his objection on the remuneration issue prior to the AGM.

If yes, did the FGV board provide satisfactory explanation or justification over the quantum? Assuming that the FGV board had stated its stance on the matter, shouldn’t he initiate an engagement between both the Felda and FGV boards to reach an understanding, thus resolving any impending concerns beforehand?

Otherwise, one cannot be blamed to think that the board nominee could not have chosen a better timing to drop a bombshell. This is given, it is a rarity for shareholders to re-elect the board of directors but voted against resolutions related to the directors’ remuneration.

Writing is on the wall

After all, tell-tale signs of a friction within the Felda family has become more visible to the public of late which FGV Chairman Datuk Wira Azhar Abdul Hamid has vehemently denied at the recently concluded AGM.

Media reports have surfaced in recent times that Felda is reviewing its land lease agreement (LLA) with FGV.

In retrospect, Felda handed over the management of some 355,000ha of its plantations via a 99-year LLA to FGV as part of the latter’s flotation exercise in 2012. In return, Felda was to receive payments of RM248 million annually as leasing fee in addition to a share of profits at a quantum of 15% per annum.

However, in view of a dip in crude palm oil (CPO) prices, FGV is only able to fork out an average of RM400mil a year in contrast to Felda’s minimum requirement of RM800mil per annum to manage and ensure the well-being of land settlers.

The recent stepping down of Felda chairman Tan Sri Megat Zaharuddin Megat Mohd Nor after barely 11 months appointed to the post is perhaps a harbinger of worsening discord within the Felda family although Prime Minister Tun Dr Mahathir Mohamad has played down the resignation by pointing to “health reasons”.Back to the drawing board

Given that both communication and engagement are crucial tools to strengthen rapport with shareholders, perhaps the FGV board should in the future be more proactive in engaging with their major and substantial shareholders as well as the various institutional investors.

After all, engagement with relevant stakeholders is very crucial for better understanding of the company’s operations apart from being a perfect avenue for the company to update its performance which is very much under public scrutiny of late.

This applies to engagements at both external level and even those with internal link. A case in point was the very fact that the proxy of Koperasi Permodalan Felda Malaysia raised certain concerns which struck the mind as if the FGV Board has turned a deaf ear or not interested in addressing the grievances raised by the members of the cooperative.

Now that shareholders had voted against the remuneration package at the AGM, the only option to “unfreeze” the directors’ remuneration package is to call for an extraordinary general meeting (EGM) to seek a fresh mandate.

But this can be seen as a waste of money and resources, which can be better used to manage the array of challenges on the business front that FGV is facing.

At the end of the day, while I agree that directors’ remuneration should be linked to performance, perhaps a little leeway can be considered for a turnaround company in the likes of FGV. Perhaps a reasonable degree of appreciation should be accorded to the new board members as a form of motivation for their efforts and commitment.

Give them time

My humble view is to give them a year to bring about a desired degree of turnaround bearing in mind the atrocious financial situation FGV is in right now. After all, the FGV board members are all newly appointed.

Having been duly re-elected, it will be unfair to deny the directors meeting allowances and other critical benefits when a herculean task is expected of them all. Moving forward, my reckoning is that the chief concern should not just centre on the quantum of remuneration but how to engage major and substantial shareholders to foster better understanding and acceptance of the issues at hand and how to tackle them effectively.

An outright rejection as per the outcome of FGV’s recent AGM may be too harsh on the directors who are all expected to commit and work hard to provide directions to turnaround the company.

Worst still, this can invite repercussion given that the directors – unhappy that they are deprived of their fees and other perks – might simply decide to resign en masse. This can then be a major blow to FGV which will have to waste more time and resources to recruit new directors.

Surely, in this age and time, we cannot longer expect people to render national service without being duly compensated for their efforts and commitments. Even our athletes who excel at world stage are conferred monetary rewards as a form of appreciating their sacrifices to the country.

What is done is done but looking back, I cannot help thinking that the current impasse could be avoided at all cost if the board of FGV has done the necessary shareholder engagements (especially with major shareholders and institutional investors) while not take things for granted.

This is itself an invaluable lesson to other companies on never undermining the importance of shareholder engagements and their voices.

The views expressed in the article represent the views of the writer and do not necessarily represent the official views of the Institutional Investors Council of Malaysia (IIC).

Lya Rahman is currently the adviser/secretary to the IIC. She was formerly general manager of the Minority Shareholders Watch Group.

She can be reached at lyarahman@me.com.


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