CDL bypass of nominating committee may seem ‘unusual’ but current rules open to interpretation: observers

THE appointment process for two of City Developments Ltd’s (CDL) directors as well as the dismantling of the company’s nominating committee (NC) are “unusual” and against the spirit of corporate governance rules, said industry observers. 

They were referring to the board tussle between CDL’s executive chairman Kwek Leng Beng and his son and group chief executive, Sherman Kwek.

The crux of the disagreement lies in the nomination of two new directors at CDL – Jennifer Duong Young and Wong Su-Yen – as independent non-executive directors on Feb 7.

Executive chairman Kwek claims that his son, Sherman, had bypassed the NC – which recommends all director appointments to the board – in the approval of their nominations. Instead, he claims they were “hastily appointed” through a written resolution.

The elder Kwek also claims that the younger Kwek had replaced the NC with a combined nominating and remuneration committee.

These moves are “contrary to established corporate governance principles” such as the Singapore Exchanges (SGX) Listing Rules and the Code of Corporate Governance, claimed the executive chairman in a media statement on Feb 26.

The Code is a voluntary set of guidelines which aim to promote high levels of corporate governance in Singapore. It is a part of the listing rules.

Kwek also filed court papers to deal with the “attempted coup” by his son.

Against ‘spirit’ of governance code

Several observers, including Robson Lee, a partner at law firm Kennedys, said that bypassing the NC to appoint a director is “not in compliance with the spirit and wording” of the Code.

According to the Code, the NC must assess and establish the suitability of directorship candidates before making its recommendations to the board. The board must also explain its nomination process in the company’s annual report.

However, Terence Quek, the chief executive officer of the Singapore Institute of Directors, pointed out that while NCs typically propose their director appointments to the board for approval, this practice may vary depending on the individual company’s constitution and policies.

Lee also called the merger of the nominating and remuneration committees “unusual” as both committees serve separate functions.

While Professor Mak Yuen Teen, a corporate governance advocate, also agrees there are lapses in governance, he pointed out that SGX’s listing rules are vague in their requirements.

The rules specify that the issuer must establish “one or more committees as may be necessary to perform the functions of an audit committee, a nominating committee and a remuneration committee”.

Prof Mak, who founded the Centre for Investor Protection at NUS Business School, said that the phrasing can be interpreted to mean that only one committee is required to perform the functions of nomination, audit and remuneration. He suggested that listing rules be re-written for clarity.

However, Professor Lawrence Loh, the director for Centre for Governance and Sustainability at NUS Business School, felt that a combined committee “may be fine” so long as the functions of nominating and remuneration are performed with proper terms of reference.

Overturning directorships

As board chairman, the elder Kwek does not have the power to veto director appointments. CDL’s constitution also does not give the chairman veto power, said observers.

However, shareholders can overturn board decisions on director appointments at the company’s Annual General Meeting. Directors appointed by the board will have to win a majority of the shareholders’ votes to stay on as director, said observers.

Regulator’s role

On Feb 28, the senior Kwek said that the two new directors have undertaken not to exercise any powers in their role until further notice by the Singapore court.

As the SGX listing rules, including the Code, are not laws, it is not a legal requirement for companies to comply with them.

Nevertheless, Lee said that the court can determine if the directors’ appointments are in accordance with CDL’s constitution.

However, the court cannot interfere on the matter of whether the incumbent chief executive, Sherman Kwek, can be dismissed. So long as the younger Kwek has the support of the board majority, the court is unlikely to override the board’s decision, said Lee.

Several observers felt that the bourse regulator, SGX RegCo, could step in to ensure that CDL enforces listing rules.

Lee said that SGX RegCo has the power to get the board to comply with the Code. This includes the due process for the NC to assess the qualifications and suitability of the director candidates and to make its recommendations on their appointments.

Prof Mak said that most companies disclose their nomination process, but not their search process, for directors. He suggested that SGX enforce its rules requiring companies to disclose both processes.

In response to queries from The Business Times, a spokesperson from SGX Group said that it was unable to comment on specifics about a listed issuer.

“In general, SGX RegCo expects issuers to have in place a proper process for the appointment of directors and to disclose any material development,” added the spokesperson.