Note : This article appeared in the STAR on 29th of Jan 2010. It is posted here for my personal reference.
Resignation is no refuge
By ERROL OH
Directors can walk away from companies but not from duties.
IT has long been a sore point – for this columnist, at least – that independent directors of listed companies have an easy option of quietly walking away from the companies when things turn hairy. The Oct 3, 2009, instalment of Optimistically Cautious had some numbers that reflected a potentially troubling trend.
Up to that point, 15 companies had last year triggered the criteria under PN17 or GN3 (the Ace Market equivalent of PN17) of Bursa Malaysia’s listing requirements.
Of these, 12 have seen the departure of at least one independent director within six months before or after the companies’ announcements that they had slipped into PN17/GN3 status.
Should we believe that each and every resignation has nothing to do with the respective company’s financial troubles? We can’t answer that because these directors have said little, if at all, about why they had left.
Independent directors are supposed to represent the interests of minority shareholders and yet, they are not obliged to explain their departure.
Who can blame us for feeling abandoned by these directors? And isn’t it natural to wonder whether these directors had done their job to the fullest extent?
Perhaps, it’s not yet time to despair. Judging by how hard Bursa has come down on the directors of some listed companies lately, it appears that directors can no longer wash their hands off the affairs of a company in distress merely by stepping down.
The exchange has shown that it is likely to hold directors accountable for any breach of the listing requirements that occurred when the directors were still on boardroom duty.
The latest example came on Thursday, when Bursa publicly reprimanded Axis Inc Bhd for a list of infringements – failure to disclose information, delays in submitting financial statements and a large deviation between the audited and unaudited 2008 results.
In addition, Bursa has ruled that the Axis directors at the time had failed to discharge their duties as directors because they did not prevent the company from committing these breaches. Apart from being publicly remanded, the seven directors were imposed total fines of RM647,200.
What is interesting is that four of them are no longer on the Axis board. Of these, three were independent directors at the point of resignation or retirement.
On the day of Bursa’s action against Axis and the directors, Ekran Bhd was delisted. But before that, on Nov 24, the exchange also publicly reprimanded and fined Ekran’s seven directors, including three independent directors, for several breaches of listing requirements relating to related-party transactions (RPTs).
The fines amounted to RM630,000. On top of the penalties, Bursa ordered Ekran to ensure that its directors and relevant personnel attended training on compliance with the listing requirements, particularly those on RPTs, within three months.
On Oct 29, two other companies – Energreen Corp Bhd and Kosmo Technology Industrial Bhd – were also reprimanded and their directors fined, including those who had already stepped down. Some of the ex-directors had exited in 2008.
The Kosmo case is noteworthy because of the 12 directors who were penalised, only four were still board members when Bursa announced the enforcement measures.
And before this, there had been several more cases in 2009 – involving companies such as LFE Corp Bhd, Satang Holdings Bhd, Gold Bridge Engineering & Construction Bhd, Englotechs Holding Bhd and Concrete Engineering Products Bhd – in which independent directors did not escape Bursa’s attention despite having resigned months earlier.
The recent string of public reprimands and fines reflect Bursa’s willingness to punish directors who have not done enough to ensure that their companies comply with the listing requirements.
This should help overturn the notion that directors, particularly independent directors, who do nothing to halt the mismanagement of listed companies, can simply quit when the going gets tough and not worry about the consequences of their inaction and ineffectiveness.
They can resign from the boards but they can’t erase the fact that they were still duty-bound to look out for the interests of minority shareholders when the companies started going down the slippery slope.
And for those who believe that they can ignore or resist Bursa’s penalties, they ought to consider that the exchange has gone to court to see its enforcement actions through.
For example, it took legal action against two directors of both Datuk Keramat Holdings Bhd and George Town Holdings Bhd to recover the RM604,250 in fines imposed on the duo. Last September, the Kuala Lumpur High Court ordered the two men to pay their fines and the legal costs incurred. In October 2005, Bursa publicly reprimanded and fined several former directors of Cepatwawasan Group Bhd over breaches of the listing requirements.
The men sought a judicial review of the enforcement actions but on Jan 18 this year, the Kuala Lumpur High Court dismissed the application and ordered them to pay costs to Bursa.
Clearly, it is wiser for independent directors to be serious about their duties and responsibilities. If they can’t do that, they have no business accepting the appointments in the first place.
Deputy business editor Errol Oh believes that there’s no place for independent directors who prefer anonymity and acquiescence.RESIGNATION – RE