Insight - FGV must come clean on excessive remuneration

One recent issue that came into light and has been the talk of the town is none other than the issue surrounding the hike of directors’ fees, more specifically that of the non-independent non-executive chairman (NINEC) of integrated global agri-business organisation FGV Holdings Bhd.

AT a time when the focus on responsible investing is gaining wider acceptance, we should never neglect the “governance” element – “greenwashing” of governance must be avoided at all costs.

Lately, there have been some governance issues that sparked serious concerns among both governance proponents as well the investors’ fraternity which to a certain extent can undermine the integrity of the capital market as well as being not in line with the protection of minority shareholders.

One recent issue that came into light and has been the talk of the town is none other than the issue surrounding the hike of directors’ fees, more specifically that of the non-independent non-executive chairman (NINEC) of integrated global agri-business organisation FGV Holdings Bhd.

Many have expressed views on the issues – spanning from political viewpoints to constructive criticism – given that FGV is a unique listed entity which still needs to shoulder the interest of smallholders, the majority of whom are settlers of numerous land schemes belonging to Federal Land Development Authority (Felda) in rural vicinities.

To re-cap, the resolution on the proposed increase of FGV’s NINEC and other non-executive directors (NEDs) remuneration were passed during the company’s recent AGM.

This is not surprising given that Felda owns more than 80% of FGV and the very fact that the chairman is a board nominee of Felda.

But that doesn’t mean these are acceptable practices. In view of its “unpalatable” financial performance track record, FGV has always been the subject of shareholders unhappiness when it comes to the subject of directors’ remuneration.

The fact that the NINEC decided to waive his RM40,000 yearly fees as chairman of the FGV board’s sustainability committee as well as meeting allowances of RM2,000 per meeting until the next AGM in 2023 following massive public hue and cry over a bump in the remuneration package of the company’s NEDs does not seem to resolve the root cause of the matter.

Even the justification by the Felda chairman citing extraordinary profit due to external circumstances is not seemingly acceptable as this has nothing to do with the performance of the board, hence definitely does not merit any form of reward.

Remuneration policy of NEDs should take into consideration the expected checks and balances role and responsibilities which should relate to business complexity and risks.

The remuneration aspect should also benchmark against other plantation companies and where the directors feel that the proposed remuneration is not in line with the industry practices, a clear justification should be provided. Obviously, the performance of the company should also be looked upon as one of the criteria to justify the increase.

This is unlike remuneration of executive directors which should be linked to individual performance and performance set against agreed key performance indicators (KPIs) – both short-term and long-term – as clearly spelt out in the company’s annual report.

In this case, the remuneration committee should always act in the best interest of the company by recommending a fair and just remuneration rate for both the executive directors and/or chief executive officers and the non-executive directors alike.

It is not an issue of shareholders being confused due to the issue of the remuneration not being clearly explained as reported – the minority shareholders of FGV for sure were well aware of the intended spike in remuneration that were tabled for shareholders’ approval at the recent AGM.

They probably felt that their voices and votes would not change the outcome of the voting as the shareholding of FGV is currently dominated by Felda.

In the spirit of transparency and accountability, the FGV board should perhaps disclose the name of the independent consultant who has advised the board on the fee structure and thus on the review and benchmarking of its NED’s remuneration.

This is given that FGV has stated that it was advised by an independent consultant to provide a company car instead of cash allowance which raises the question of why must the car allowance be converted to cash and added as part of the fees for the NINEC? Is this the advice given by the consultant? Above all else, the NINEC will be provided with a company car with expenses of up to RM180,000 per annum which mean that the NINEC will now get additional benefit of a car with a yearly car expenses of RM180,000? Wouldn’t this be considered a huge jump in the NINEC remuneration?

Surely, questions arise as to how such perks were benchmarked and if they were justified.

Interestingly, another fee that raised eye-brows was introduced – that of “official business allowance” of RM1,000 per day for attending meetings with government representatives or other third parties such as bankers as well as official site visits.

One wonders what is the basis for introducing this new fee and/or how to justify the need for such fee when the so-called “official functions” should be factored in as part of the obligations of the NEDs instead of incurring additional cost to FGV, amid current trying times when financial prudence should be practised across all public listed entities to safeguard the interest of minority shareholders.

All-in-all, it is not that the investing public or minority shareholders are depriving FGV’s chairman and its NEDs from getting what they deserve.

But perhaps the timing itself is a bit awkward given that FGV is still facing so many unresolved predicaments, the most acute of which is the sanction by the US Customs and Border Protection (US CBP) relating to allegations of forced labour practice.

It has also been reported in recent times that the FGV Board is roping in an independent consultant to further advise its board on the remuneration of its NEDs. Isn’t this is rather mind boggling given that the earlier fee hike structure was already based on the advice of an independent consultant?

Lya Rahman is an adviser to the Institutional Investors Council Malaysia (IICM). The views expressed here are the writer’s own.