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The yin and yang of corporate governance
ASKED about his philosophy of corporate governance, Global Logistic Properties (GLP) non-executive chairman Seek Ngee Huat brings up the Chinese philosophical concepts of yin and yang. The Chinese speak of finding the right balance through opposite yet complementary forces. To him, corporate governance is a matter of not controlling too much, but setting a framework for managers to work within.
"You want to set very high corporate governance standards. But at the same time, you don't want to set it such that everybody is too scared to do everything," said Dr Seek, who has a doctorate in urban research and was previously the president of GIC Real Estate.
"You want to make sure there's enough yang that staff and management are out there generating returns. But at the same time, you don't want them to go wild about it."
At GLP, Dr Seek, 66, oversees a board of 10 directors where eight members, including himself, are independent.
The company builds and invests in US$36 billion of warehouse facilities around the world. More than half of its portfolio by net asset value comes from China, with a quarter in Japan and smaller portions in the US and Brazil. The company also runs a fund management business.
As a property investor, one of the biggest risks GLP faces is if investments turn out to be in bad locations, or that it takes excessive leverage. Risk management is thus important - not to eliminate risk, but to have a framework within which entrepreneurship can flourish.
Investments above a certain size have to be approved by the board. Those below a certain size, such as smaller industrial properties, do not require board approval to purchase. This is so that some nimbleness in investing can be achieved. For all investments, the board has set clear criteria such as hurdle rates depending on countries and projects. Assumptions also need to be supported by evidence, Dr Seek said.
He said that the board makes it a point to know the business heads of the firm. For example, different business heads have to make presentations at board meetings. Board members also have dinner with them.
"When it comes to succession planning, we can then put a face to a name. We had some interaction with them, so we have a view as to whether this guy is the right person for the next senior job."
Dr Seek himself has "at least one or two phone conversations a week" with CEO Ming Mei. Topics discussed can be updates on deals in progress or advice on matters such as fund-raising.
"We encourage management to seek help from the board . . . The board has to be interactive, to guide the business wherever we can. But there is a line you don't cross. You're not the executive, and should be aware that the executive should be driving the business at the ground level."
He said he advises the CEO to think long term, not to pursue short-term gains, and guard the firm's reputation above all. Sometimes, there are deals that might seem profitable on the surface but might contain a "can of worms".
Another key point he emphasises is not to be too leveraged. "It might be the best deal in the world, but if we don't have equity, don't go and be over-leveraged. It's not just taking too much financial risk, but also about reputation.
"Because once you get hit by over-leveraging, it can be very hard to turn around. It will affect banks' views of you. We want to maintain our trust," he said.
BOARD RENEWAL, OTHER CHALLENGES
Dr Seek said he runs the board in an open, collegial style where directors are encouraged to speak up. Where chairing a board is concerned, however, one delicate issue that crops up is renewal.
Having worked with many directors for a long time and having built up a good working relationship, "it's not so easy to tell someone that it's time to go", Dr Seek said.
He said the renewal process should not be abrupt. Evaluations are done on an annual basis and the right signals can be sent. "Hopefully in the process, people will know that it's time, I've done enough, and they volunteer to step away," he said.
Yet the issue is complicated by how the pool of talent available to be board members is small.
When GLP was getting listed, it was not easy to find people available for the commitment, Dr Seek noted. "Especially on the gender side, female directors were even more difficult to find. I tried, there were two, but their plates were full," he said. GLP currently has an all-male board.
The firm was listed in 2010 when GIC Real Estate, the property investment arm of GIC, spun off the China and Japan assets it bought from warehouse giant ProLogis during the financial crisis.
Ultimately, the board must be able to deal with day-to-day business issues that crop up, especially crisis management.
He counts himself lucky that there has not been any major crises at the company since its listing. The ongoing China slowdown, which had depressed GLP's valuations, is not a crisis, he said.
As China moved from an export-focused economy to one emphasising domestic consumption, GLP's customer profile has changed accordingly. "We've been able to adapt and find more and more customers," he said.
It remains a worry that global growth is anaemic. But GLP's business is less affected by cyclical swings given that it is in the business of providing space to people to store things needed on a daily basis, he said.
And with the right people and the right values, the board can do its job to create long term, sustainable returns for shareholders. "The value system has to permeate throughout the company. You can then steer this ship," he said.