Chaos at CDL: Crossing the Rubicon

WHEN City Developments Ltd (CDL) announced on Feb 7 that it expanded its board with the appointment of two additional independent directors (IDs) – Jennifer Duong Young and Wong Su-Yen – few market watchers seemed to care.

The company’s subsequent announcement on Feb 21 that it had made changes to its board committees was similarly unnoticed.

Then came CDL executive chairman Kwek Leng Beng’s bombshell statement on Feb 26, which characterised these seemingly mundane corporate developments as a boardroom coup – orchestrated by his own son, CDL chief executive Sherman Kwek.

For me, this still unfolding story has been an education on how power is wielded through corporate boards.

The elder Kwek pointed out that CDL’s expanded board had merged its nominating committee (NC) and remuneration committee (RC), and that as executive chairman he is not allowed to sit on this new combined nominating and remuneration committee (NRC).

This, Kwek Leng Beng said, stripped him of meaningful authority by preventing him from being involved in the nomination process of directors and key management personnel.

He asserted that the majority bloc on CDL’s expanded board now has “unrestricted control” over CDL’s leadership and decision-making, and that these directors will be able to extend their influence deep into the management ranks of the group’s subsidiaries – specifically Millennium and Copthorne Hotels (M&C).

Is this a bad thing for minority investors, though? With the two new appointments last month, seven of CDL’s 11 board members are now IDs – taking the company closer to its target of maintaining two-thirds independence on its board.

The sticking point seems to be that established governance principles were not followed in the appointment of the two new IDs. In particular, their nominations did not go through the NC, said CDL’s executive chairman on Feb 26.

Furthermore, there was no vote on the appointment of the IDs at a board meeting held on Feb 7. Later that night, however, a directors’ resolution in writing to appoint the new IDs was circulated and approved.

This confirmed that CDL’s CEO and a group of directors had pre-planned the move, Kwek Leng Beng said in his Feb 26 statement.

He added: “This situation will set a dangerous precedent unless it is rectified. It is imperative that all boardroom decisions adhere to the principles of transparency, integrity and due process.”

Sherman Kwek did not dispute Kwek Leng Beng’s version of how the two new IDs were appointed in his own statement on Feb 27, but he said the board changes were not to oust his father.

The way the younger Kwek tells it, the cause of the dispute is Catherine Wu, an adviser to the board of M&C. He said Wu had a “long relationship” with his father, and had been interfering in matters well beyond her scope at the group.

To address the issue, Sherman Kwek and some of CDL’s directors proposed a resolution to terminate Wu’s advisory agreement with the board of M&C and another to affirm that she has no authority to influence the directors, management and staff of CDL and M&C.

Both these resolutions were passed by a majority of the board on Feb 21, Sherman Kwek said. “We considered them to be necessary to protect the interests of the shareholders and relevant staff of the CDL Group, and to restore proper corporate governance and accountability.”

Who will quit?

So, what happens next? Kwek Leng Beng and Sherman Kwek, and the various CDL directors aligned to each of them, are now facing off in court.

Whatever the outcome of the case, however, my sense is that the father and son have crossed the Rubicon. In light of the statements each of them has made – notably, that Kwek Leng Beng wants to dismiss Sherman Kwek as CEO – it seems to me that one or the other will eventually step down. Directors who backed the withdrawing party will probably resign too.

Some investors will remember that Kwek Leng Peck quit CDL’s board in late 2020, due to disagreements over the management of the group’s hotel business, and its investment in China’s Sincere Property Group (SPG).

Other directors who had expressed reservations about SPG soon followed him out the door.

CDL took quick remedial action to staunch the fallout from SPG, but it still suffered a S$1.9 billion loss for 2020.

The group also recruited new IDs to beef up its board. They included financial services industry veteran Colin Ong, F&B entrepreneur Daniel Desbaillets, former fund manager Chong Yoon Chou, CGS International CEO Carol Fong, and former KPMG partner Philip Lee.

In a letter to The Business Times in January 2021, Kwek Leng Beng welcomed these new IDs and offered his views on how boards should behave. “Ask tough questions and raise concerns openly and robustly,” he said.

“But once a collective decision is made, unanimously or by a majority vote, a director who may have disagreed should now support its successful implementation,” he added.

After the drama over the past week, it would not surprise me if there is soon a replay of events that unfolded back in 2020.

Unlock value

The big question for investors is whether CDL is run any differently once the dust settles.

Last week, Sherman Kwek was roundly criticised for CDL’s performance during his time as CEO. His father’s statement on Feb 26 reminded everyone about the SPG debacle in 2020, as well as losses in 2023 from investments in the United Kingdom.

Kwek Leng Beng also attributed CDL’s weak share price to “eroded investor confidence and shareholder concerns over strategic missteps”.

Philip Yeo, a non-independent, non-executive director of CDL, said on Feb 28 that Sherman Kwek ought to follow the example of his father Kwek Leng Beng, his late uncle Kwek Leng Joo and his late grandfather Kwek Hong Png – who all dreamed big and worked hard.

“The CDL CEO must learn from them,” Yeo added. “Just pure hard work to serve all shareholders!”

The criticism is not unwarranted. CDL shares last traded at S$5.12, which is a nearly 50 per cent discount to its net asset value (NAV) as at Dec 31 of S$10.17 per share.

By its own estimate, CDL’s revalued NAV as at Dec 31 (including gains on its investment properties and hotels) stood at S$19.86 per share.

While I would never denigrate the value of big dreams and hard work, CDL shares would probably garner a much higher market valuation if the group aggressively monetised parts of its formidable asset portfolio and developed more scalable income-generating businesses.

If Kwek Leng Beng and Sherman Kwek want to win over investors – including members of Kwek clan, which hold nearly 49 per cent of CDL’s shares – they should talk more about the future potential of the group and less about its past glories.