On the Beat | By Wong Chun Wai

A gentleman knows when to cut losses

On The Beat by WONG CHUN WAI

IT’S pretty straightforward. In any public listed company, it is the board of directors that leads and controls the company but the series of news relating to Sime Darby and Kenmark have put corporate governance in Malaysia in bad light.

It is not just the chief executive officer who must take responsibility but also the executive and non-executive directors for all decisions taken.

In short, all directors have the same fiduciary responsibilities as they are regarded as stewards of the organisation by the shareholders. The shareholders and employees expect them to understand the business operations and bear responsibility for their decisions.

In the case of furniture maker Kenmark Industrial Co, Taiwanese managing director (MD) James Hwang Ding Kuo and executive director (ED) Chang Chin Chuang have disappeared.

For the last five years, the company’s receivables – delivery of goods where payments are still pending – have been increasing with revenue decreasing.

In its quarterly report for 3Q 2010, receivables shot up to RM248.7mil even as revenue continued to drop with its cash balance as at Dec 31 standing at only RM2.2mil while debts totalled RM141.4mil.

It’s really a horror story. The point is this – why didn’t the directors ask what was wrong?

While the MD and ED have packed off, certainly the entire board must take responsibility for the disgraceful event in Kenmark.

Hwang has reportedly said he has been sick and unconscious in the past weeks and recuperating in China. But the company, which has been taken over by new shareholders, needs urgent handling.

In the case of Sime Darby, the overruns of its Bakun project has chalked up to RM1.8bil. It’s more than just a fiasco.

Tun Dr Mahathir Mohamad, who has asked for shared responsibility, has revealed that the Government has made a RM700mil compensation to Sime Darby. We are talking of public money because the Government’s coffers come from taxpayers’ money.

He is right. The departure of chief executive officer Datuk Seri Ahmad Zubir Murshid isn’t enough. The whole board cannot continue to enjoy their directors’ fees and perks while refusing to take responsibility for the massive losses.

After all, the project has been delayed for three years and surely the board should see the cost overruns.

The directors cannot say that they were not aware of the project, the risk factor and the losses. And if they were aware, did they raise the red flag and put on record their reservations as required under the law?

Sime Darby chairman Tun Musa Hitam has said that he would leave it to the shareholders to decide whether the board should resign.

In fact, if the directors have any dignity and any sense of accountability, they should not offer themselves for re-election. There should be no sacred cows; if they have to go, they have to go.

In fact, the shareholders and even the public deserve to see a detailed and full disclosure of Sime’s losses in its energy and utilities divisions.

No project is guaranteed of profits and many profit-making companies have divisions that are still trying to make money but the board is required to conduct regular performance review and query the company’s project management panel.

The core business of Sime Darby is plantation – its problem started when it began to do business in areas it has no business to be involved in.

It is the board’s responsibility to study the risks involved in any venture outside the company’s core business and they must take responsibility for their decisions.

The public buy Sime Darby shares for its plantation concerns and certainly not for its utilities and energy ventures, or rather adventures.

Transparency is obviously missing in the case of Sime Darby and Kenmark. They have given Malaysia a bad name.

The directors of these two companies should just quit if they believe in good corporate governance and accountability.