Sias urges Great Eastern to address minority investors’ concerns instead of dismissing them on legal technicality

THE Securities Investors Association (Singapore) or Sias has urged the board of Great Eastern to “seriously and objectively consider the true purpose of the shareholders’ requests”, instead of avoiding them on a legal ground.

The statement on Thursday (Mar 7) is in response to the insurer’s dismissal of minority shareholders’ request to table three proposed resolutions at its upcoming annual general meeting (AGM).

Great Eastern’s board said on Wednesday that it has sought legal advice and understands that the request “does not satisfy all of the requirements” for a requisition to be moved at the AGM.

Led by a former remisier named Ong Chin Woo, the minority investor group put forward three resolutions last Friday to address the undervaluation of Great Eastern’s shares: to withhold directors’ fees, to replace OCBC shares in the share option schemes of executives with Great Eastern shares, and to appoint an independent financial adviser to explore options to enhance shareholders’ value.

“It is however surprising that Great Eastern has adopted a somewhat legalistic response to the tabling of resolutions by minority shareholders, a move which appears to sidestep the substantive concerns raised by the minority shareholders,” said Sias.

While the investor association agreed with OCBC’s insurance arm on its share price movement depending on many factors including those beyond management control, the association highlighted that it is imperative to address any persistent underperformance.

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“Such discrepancies often signal a deeper misalignment between the company’s fundamentals and its market perception, posing long-term risks to all shareholders.”

Sias noted that it has met with representatives of the minority shareholder group on Wednesday, and understands that these shareholders are “advocating for measures they believe will enhance shareholder value”.

Since the proposed resolutions seek to align directors’ interests with those of all shareholders, Sias highlighted the “significant value” in getting a shareholder vote on the three resolutions at the AGM.

“We believe it would be premature for the company to dismiss the tabling of these resolutions outright, especially based on a legal technicality.

“Instead, we encourage the board to exercise its discretion based on the spirit of the law to include these resolutions on the agenda for the upcoming AGM,” said Sias.

It also encouraged the board to consider absorbing the marginal cost associated with including the resolutions proposed by the minority shareholders at the AGM, to promote good corporate governance practices “beyond mere box-ticking exercises”.

Additionally, Sias suggested that the remuneration committee consider paying 30 per cent of the existing director fees in Great Eastern shares to directors in lieu of cash.

Meanwhile, it posed eight questions on the insurer’s financial position and performance metric.

It asked the management to clarify the primary impact of SFRS(I) 17 adoption on its profit and loss, financial position, as well as embedded value.

Sias also requested the company to disclose the total shareholder return (TSR) trends over the past three years, five years, and since 2015, which also roughly correlated with the tenure of the current group chief executive officer.

It asked if the board benchmarked the company’s performance against peer insurance companies, and what the key performance criteria used in the formal assessment of the board are, including the weightages assigned to TSR and return on equity.

“Similarly, how are TSR and embedded value factored into the performance assessment of the group CEO and key senior management executives, and what are their respective weightages?”

The investor body noted that the group CEO in FY2022 received S$1.9 million in bonuses and S$1.4 million in long-term incentives, out of the total remuneration package of S$4.9 million. Since Great Eastern pays its executives with OCBC shares instead of its own shares, Sias requested the remuneration committee to disclose the total value of OCBC shares and OCBC share options received by the group CEO since his appointment in November 2015.

It also highlighted a significant divergence observed in share prices between Great Eastern and OCBC over the past three years, and questioned the board if it is viewed as a concern.

The association furthered questioned the board if it is actively exploring measures to strengthen the group’s remuneration and incentive practices. This is particularly regarding the allocation of OCBC shares to the group CEO, considering the role primarily focuses on the business of the insurer instead of its parent company.

“While activism from minority shareholders may be perceived as uncommon or even unwelcome, it is imperative for boards to assess the merits of proposed resolutions from the standpoint of the issuer and its shareholders as a collective.

“We echo SGX RegCo’s stance and encourage the Great Eastern board to proactively engage with shareholders to address their concerns, regardless of any differences in perspective, thereby facilitating a more transparent and responsive decision-making process,” said Sias.

Shares of Great Eastern : G07 0% were trading down 0.3 per cent, or S$0.05, to S$18.15 as at 1.44 pm on Thursday.