Soul-searching beckons for FGV

  • Analyst Reports
  • Monday, 16 Dec 2019

Lya Rahman is currently the Adviser to the Institutional Investors Council of Malaysia (IIC) and is the former general manager of the Minority Shareholders Watch Group

THE FGV Holdings Bhd’s EGM held on Nov 27 can be best likened to an “all’s well that ends well” saga.

In a twist of fate, the company’s shareholders gave a resounding nod to all six resolutions relating to the payment of fees and benefits of its chairman and non-executive directors – with an approval rate of 99.96% – after having vehemently voted against resolutions entailing RM2.55mil in directors’ fees for the financial year ended Dec 31,2018 and RM1.18mil for non-executive directors for the period from June 26,2019 until the company’s next AGM, five months earlier.

Taking the brunt of the latest development is that the chairman’s fee will be slashed from RM600,000 per annum to RM300,000. In addition, he will also receive fewer perks with the removal of entitlement to home security, escort and one escort vehicle as well as the entitlement to leave passage of RM50,000 annually.

Based on FGV’s annual report 2018, the fee payable to the chairman amounted to RM1.95mil. The remuneration package included a salary of RM415,483.90, chairman’s fee of RM600,000, an annual fee from subsidiaries of RM315,000 and benefits in kind of RM313,244.35.

Meanwhile, fees for non-executive directors will remain unchanged at RM120,000 annually. The new amount came into effect from Jan 1,2019 until the next AGM in 2020.

In all fairness, the board should be commended for finally revising the benefits for the chairman. Excessive benefits to previous chairman and other non-executive directors have always been a matter of utmost concern to FGV’s shareholders. Recall that FGV’s major shareholders comprising the Federal Land Development Authority (Felda), the Armed Forces Fund Board (LTAT) and Koperasi Permodalan Felda Malaysia Bhd (KPF) had gunned down resolutions pertaining to the fee payment of its board members in an unprecedented move during the company’s five-hour long annual general meeting (AGM) on June 25.

Though voted against resolutions related to the directors’ remuneration, shareholders of FGV had ironically re-elected the board of directors. Felda owns a 33.7% stake in FGV, followed by KPF with 5% and LTAT (1.25%).

In my opinion piece entitled “Unmasking the FGV remuneration saga” (StarBiz, June 29,2019), I chided the freeze on remuneration payout as having that tinge of irony resembling “a father/mother disciplining his/her child in public” although such action is understandable from the perspective of financial performance.

While I fully agree that directors’ remuneration should be linked to performance, I also argued that a little leeway should be considered for a turnaround company in the likes of FGV.

Even though some of shareholders who attended the EGM were visibly upset and unhappy with the performance of the FGV, I believe the current directors should not be deprived of fee, meeting allowances and other critical benefits when a herculean task is expected of them to turn around FGV which is in an atrocious financial situation.

After all, shareholders would want to see some positive results in the near future.

Fast forward to the present day, I deem strongly that the recent EGM as unnecessary or rather a waste of company’s resources and fund as well as board’s time which could be better channeled to beef up FGV’s financial artillery.

This is not about crying over spilt milk but more of a post-mortem feedback to prevent a repeat of the remuneration fracas which in my view, stemmed from the failure of the Felda nominee within the FGV board in executing his fiduciary duty.

As a conduit for communication, the Felda nominee director should have engaged the FGV board by raising his objection on remuneration-related matters prior to the company’s AGM in June. Notably, concerns were raised at the last AGM on his time commitment by virtue of having clocked an attendance rate of only 66.7% in his capacity as a board member of FGV.

It is important for all directors to fulfil their role by being able to add value rather than just making up numbers while at the same time absorbing the fees and other fringe benefits that come their way.

Insofar as government-linked entities are concerned, my personal view is that the time is ripe for a board reform to be initiated with an emphasis for major shareholders or even the special shareholder, to consider a pool of professional people to be their nominee directors.

This is an ideal solution considering that many a time, appointed nominee directors tend to be someone at a very senior level, thus are very likely to be overloaded with work matters and unable to prioritise their time to sit on company boards.

Notwithstanding the above concerns, there is no denial that nominee directors are walking on a thin line given the very purpose of their appointment is to act as representatives to protect the interest of their appointors.

In so doing, the onus will be on them to refrain from being perceived as bias, most notably they shouldn’t go overboard to sacrifice the interests of the company (or other shareholders) in favour of protecting the interests of their principals.

In essence, Section 217 of the Companies Act 2016 stipulates that a nominee director shall act in the best interest of the company and in the event of any conflict between his duty to act in the best interest of the company and his duty to his nominator, he shall not subordinate his duty to act in the best interest of the company to his nominator.

In its 2018 report entitled Professionalising Boards of Directors of State-Owned Enterprises: Stocktaking of National Practices, the Organisation for Economic Co-operation and Development proposed that boards of state-owned enterprises (SOEs) should be assigned a clear mandate and have ultimate responsibility for the company’s performance.

The report further noted that it is equally important that the government or its ownership unit sets objectives and communicates them to SOE boards to make the entire board aware of these objectives.

In this regard, centralisation of the ownership function can help reinforce and mobilise relevant competencies as it will require organising pools of experts (e.g. external recruitment consultants or establishing databases of pools of directors) on key matters such as board composition and board nomination.

On the longer term, this will enable the board to fulfill its basic role of ensuring the company’s success by directing its affairs, while meeting the appropriate interests of its shareholders.

In addition to business and financial issues, boards of directors must deal with challenges and issues relating to corporate governance, corporate social responsibility and corporate ethics, to name a few vital areas.

Lya Rahman is the adviser to the Institutional Investors Council of Malaysia and was the former general manager of the Minority Shareholders Watch Group. The views expressed in the article represent the views of the writer.

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