22 December 2018
Bully-free movement?

06 October 2018
Child labour literally at our doorstep

07 July 2018
Ratification – get out of jail card?

09 June 2018
No-small-gift policy, please

18 May 2018
KL mayor should be elected


The curse of self-serving directors

19 November 2016 / The Star

When shareholders invest in a company, it is their hard-earned money going into this company, so you can bet that they will be keeping a close eye on their investments to ensure that the company delivers on its promises.

Generally speaking, investors will receive feedback from the directors and management on the company’s strategies for the next couple of years and how these are expected to boost profits for the company and for all those who invested in it.

In fact, investors depend on the board of directors to safeguard their interests when it comes to the execution of these management strategies.

However, in recent times, we have seen companies whose investors get impatient and almost fed up with the board as well as the management over their implementation of the promised strategy.

When the frustration builds, investors will come to a burning point where they will no longer tolerate the noise and chatter from the board. When they have come to this decision, investors can – and do – use their votes to make that much-needed change in the board. But it is not as easy as simply getting rid of the existing directors – the issue is how to get the right candidate nominated for the post.

There have been cases when a person was nominated to a board because it was thought that he/she would do a good job – but once in the post, he/she actually turned out to be a nightmare and even worse than the previous director.

What originally began as a takeover move to initiate change in a company becomes a farce, as the new directors suddenly reveal that they only possess self-interest at heart.

You may have heard of shareholders who do give new directors the leeway to prioritise their own interests, as they believe that this “self interest” will drive the directors to perform. To these shareholders, we ask: Is this something that you can say and still look at yourself in the mirror?

Do we want directors who say, “I am elected to represent shareholders for the greater good of the company, but instead I will focus on a couple of items on the agenda that benefit me first.”

We strongly believe that this is not why directors should be elected to a post. Directors are elected to ensure that their personal interests are put aside. They are appointed to ensure that they implement policies that are in the best interests of the company and the shareholders, not for their own personal interests.

We recently witnessed an instance of a company that had violated safety and health regulation for their staff. The shareholders made a motion to protect the employees of the company by voting for change in the board.

The directors were changed and the expectation was that with fresh blood on the board, the safety and health regulations would be sorted out.

However, these new directors implemented policies that, in fact, created an even more hazardous work environment, causing danger to another group of workers within the company.

We wondered: How is this even possible? This group of new directors had been aggressively engaging in, and campaigning for, a clean and safe workplace environment. While they did indeed clean up the original problem by ensuring that the rules were adhered to, an unanticipated consequence was that, there was a complete reversal in the personalities of the newly-appointed directors.

What happened was that the new directors suddenly made side deals with external contractors, which was, of course, driven primarily by self-interests. These side deals compromised the entire foundation for change and the desire for full adherence to governance and regulations.

Sadly, we could see the old adage “absolute power corrupts absolutely” at play in this case. Our biggest bête noire is when self-interests dictate how corporate policies are implemented – not even discussed, and suddenly put into practice.

There have been discussions highlighting that promotion of self-interest may be a good strategy as it ensures that issues will be addressed. We do not concur with this flawed reasoning.

Putting self-interests ahead of shareholders’ interests is the beginning of a very slippery slope. Where does one even begin to distinguish between self-interests and conflict of interest?

If a director is implementing policies based on self-interest, how sure are you that there isn’t a conflict of interest.

Takeovers are supposed to add value and enhance earnings, among other objectives, but when a takeover creates new problems and compromises the change process due to the self-interest of a few new directors, one wonders if the company would be better off with keeping the poor performing team of the past.