Corporate Governance Failure of CK Tang

8/15/2019 Corporate Governance Failure of CK Tang

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EXECUTIVE SUMMARY

In our economy a good corporate governance has become a crying need now a days. Due to

deviant nature of human being, they are always interested to maximize their own benefit. In this

process of maximizing own benefit, board of directors of a company or the members of

management board of a company may involve in such an activity which may bring positive

result for them but might be harmful for shareholders who are the real owners of the company. In

other words, owners are concern about long term gain while agents are concerned about short

term gain. In this mismatch of objectives, the issues of agency conflict arises. Researcher claims

that, strict corporate governance policy is reuired to solve this problem. !gain this corporate

governance policy vary from industry to industry, economy to economy and country to county.

"o to #now what types of corporate governance policies will be fit for an industry, study mustneed in this field. $his report was assigned to us to gather #nowledge in this aspect. %e have

selected &$he failure of '.( $ang) as our #ey topic. %e have tried to find out the cause and

different areas of issues where corporate governance failed throughout the report.

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'ontents

*xecutive "ummary..........................................................................................................................

'hapter+ 0- Introduction to the Report...........................................................................................

. Introduction-........................................................................................................................... /bjectives of the report-........................................................................................................

. 1ethodology of the report-....................................................................................................

.. Data 'ollection 2rocedure..............................................................................................

.. Data 2rocessing and !nalysis.........................................................................................

.3 4imitation of the report-.........................................................................................................

'hapter+ 0- Review of 4iterature...................................................................................................3

'hapter+ 0- 'ompany /verview....................................................................................................5

. !bout '. (. $!67"-.............................................................................................................5

. *volution of $he 8rand-......................................................................................................0

. 2resent Day-.........................................................................................................................0

'hapter+ 03- 9ailure of '.(. $an7................................................................................................

3. Role of the 8oard of Directors-............................................................................................

3. 9irst 2rivatization !ttempt- "cheme of !rrangement..........................................................

3.. Reasons for failure of 9irst attempt:.............................................................................

3. "econd 2rivatization !ttempt- :nconditional 'ash /ffer...................................................

3.. Reasons for failure of second privatization attempt.....................................................

3.3 $hird 2rivatization !ttempt- ;oluntary Delisting................................................................

3.< '.(.$ang- $he 9ight towards 2rivatization.........................................................................3

3.= (ey !rea of 'ontroversy- $angs 2laza................................................................................3

3.> :nhappiness amongst 1inority "hareholders.....................................................................<

3.5 $he 'apital Reduction *xercise..........................................................................................<

3.? '. (. $ang- 'orporate 7overnance Issues-..........................................................................<

'hapter+ 0


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CHAPTER - 01: INTRODUCTION TO THE R EPORT

1.1 INTRODUCTION:

'orporate governance is the system of rules, practices and processes by which a company is

directed and controlled. 'orporate governance essentially involves balancing the interests of the

many sta#eholders in a company + these include its shareholders, management, customers,

suppliers, financiers, government and the community. "ince corporate governance also provides

the framewor# for attaining a company@s objectives, it encompasses practically every sphere of

management, from action plans and internal controls to performance measurement and

corporate disclosure. "ince business world started to become complex, the importance of

imposing regulation more and more has been felt by the business people. 8ecause this extendedcomplexity brings also scope to ta#e some illegal advantages or doing any corruption.'7

7uideline or 'orporate 7overnance 7uideline is one of the tools imposing a restriction on such

illegal advantages or doing any corruption. 'orporate 7overnance is the control of management

in the best interest of the company. %e have assigned this report with a view to fulfilling the

objective of #nowing about corporate governance issue relating to '.(. $ang 4imited. $o meet

the reuirement of this report we have selected '.(. $ang 4imited.

1.2 OBJECTIVES OF THE REPORT:

Broad Objective: 8road objective of preparing this thesis report is to #now about the overall

scenario of our country regarding corporate governance guidelines.

Specific Objective: %ithout meeting above single line broad objective, this report will help me to

fulfill a list of sub ordinate objectives, those are-

$o #now about 'orporate 7overnance and to #now its importance.

$o analyze the necessity of having a structured and detailed corporate governance

$o find out should independent directors be primarily concerned with the interests of the

minority shareholdersA


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$o evaluate the independence of '.(. $angBs board during the third privatization attempt.

$o find out whether the basis of valuation was fair.

$o suggest improvements that would help protect minority shareholders in the future.

$o explain three different privatization methods

$o explain how these different methods wor# and the pros and cons of these different

methods from the viewpoints of the shareholderCs.

1.3 METHODOLOGY OF THE REPORT:

$his report is a descriptive in type which does not include any uantitative data rather itincludes pure ualitative data. "o this paper only reuires ualitative techniues of the research

methodology. $he study is performed based on the information extracted from different sources

collected by using specific methodology. $otal methodology is divided into two major parts-

.. D!$! '/44*'$I/6 2R/'*D:R*

$o complete this research, secondary sources of data might deem appropriate. $o some extent

published journal, research paper, and journal or newspaper article, reference boo#s were used to

gather theoretical and practical information.

Sec!"#$% "#: $he secondary data were collected from internet. "ources of secondary

information can be defined as follows-

'orporate 7overnance 7uideline

/fficial website of the company

2ublished journal, article, research paper, references boo#

.. D!$! 2R/'*""I67 !6D ! 6!4E"I"

'ollected data have then processed and complied with the aid of 1" %ord.


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1.' LIMITATION OF THE REPORT:

/n the way of preparing this report, we have faced following problems that may be termed as the

limitation of the study-

L()(&(! * Sc+e: 2olicy of not disclosing some sensitive data and information for

obvious reasons posed an obstacle.

Pe$,!# L()(&(!: $his includes inability to understand some official term, decorum etc.

T()e L()(&(!: It was one of the main constraints to ma#e the report more informative.

Despite these limitations we have tried our best to meet the entire reuirement to prepare a

complete report.


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CHAPTER - 02: R EVIE OF LITERATURE

'orporate governance importance arises in modern corporations due to the separation of

management and ownership control in the organizations. $he interests of shareholders areconflicting with the interests of managers. $he principal agent problem is reflected in the

management and direction related problems due to the differential interests of firmBs

sta#eholders. $here is not a single definition of corporate governance rather it might be viewed

from different angles.

Be$e #!" Me#!, /132 and the even earlier "mith C>>=. Fingales C??5 defines corporate

governance as &allocation of ownership, capital structure, managerial incentive schemes,

ta#eovers, board of directors, pressure from institutional investors, product mar#et competition,

labor mar#et competition, organizational structure, etc., can all be thought of as institutions that

affect the process through which uasi+rents are distributed).

Se(*e$ #!" V(,!% /1 define corporate governance as &the ways in which suppliers of

finance to corporations assure themselves of getting a return on their investment). /*'D in

??? defined corporate governance as G'orporate governance is the system by which business

corporations are directed and controlled. $he corporate governance structure specifies the

distribution of rights and responsibilities among different participants in the corporation, such as,

the board, managers, shareholders and other sta#eholders, and spells out the rules and procedures

for ma#ing decisions on corporate affairs. 8y doing this, it also provides the structure through

which the company objectives are set, and the means of attaining those objectives and

monitoring performance.) $he 1inistry of 9inance, "ingapore C'/R2/R!$*

7/;*R6!6'*' 00 defines corporate governance as &the processes and structure by which

the business and affairs of the company are directed and managed, in order to enhance long term

shareholder value through enhancing corporate performance and accountability, whilst ta#inginto account the interests of other sta#eholders. 7ood corporate governance therefore embodies

both enterprise Cperformance and accountability Cconformance.) ! number of studies on the

state of corporate governance were underta#en. "tudies have discovered number of reasons for

malpractices of corporate governance C'7 in companies listed with the "toc# *xchange. /ne of

the principal reasons for poor corporate governance C'7 is that most of the listed companies are


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family oriented C!hmed and Eusuf, 00


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S#$9#$ #!" A)e" /200 depicted the scenario of corporate governance disclosure by listed

public limited companies in 8angladesh. $hey identified some information items which

companies tend to disclose much such as Hdisclosure of remunerations committeeB. $hey

observed that there are some information items, which companies tend to disclose less or try

conceal purposively, such as Hstoc# codeB. $hey observed that < companies out of total

companies as listed on D"* up to une 0, 00< reported 'orporate 7overnance Report in

the annual reports voluntarily. $he mean disclosure of corporate governance items is 30.53

percent. S#$9#$7 #! #!" A#) /200 studied the response rate of different companies

Cindustry+wise with a special reference to the "*' corporate governance guidelines and the

compliance rate for corporate governance guidelines by the companies who have reported the

compliance with such guidelines in 00


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Discrepancy between I!&e$!#&(!# Acc5!&(!4 S!"#$", /IAS and 8angladesh !ccounting

"tandards C8!" and inconsistency between the 'ompanies !ct, ??3 and I!" are other factors,

which have been found to be responsible for poor '7 practices. $he Institute of 'hartered

!ccountants of 8angladesh CI'!8 adopted 0 I!" as 8!" but subseuent amendments of

these 8!" were not made and conseuently, 8!" significantly differ from I!" in material

aspects. $he situation aggravates when provisions regarding preparation and presentation of

financial statements, disclosures and auditing that are mentioned in the 'ompanies !ct, ??3 are

incompatible with I!", which are reuired by the "*'. $he 'ompanies !ct, ??3, for example,

does not reuire the preparation and presentation of a consolidated 8alance "heet for a holding

company, but it is reuired under the I!".

In order to improve the present situation and to raise the awareness of the need for good '7

practices, a number of initiatives have been ta#en at the non+governmental level. $he

establishment of the 'enter for 'orporate 7overnance and 9inance "tudies C''79" at the

:niversity of Dha#a is one of the examples of the most recent initiatives. $he ''79", D"*, the

/*'D and the !sia 9oundation jointly organized an international conference on corporate

governance on uly 0 and uly , 00< for the first time in 8angladesh. $he 9ederation of

8angladesh 'hambers of 'ommerce and Industry C98''I organized another conference on the

same topic. $he $as# 9orce on 'orporate 7overnance of 8angladesh *nterprise Institute C8*I

undertoo# a project supported by Department for International Development, %orld 8an# and

the /*'DD and developed the &'ode of 'orporate 7overnance for 8angladesh) in !pril,

003.8utat the government level, the "*' has made the most important move by issuing the

corporate governance guidelines on 9ebruary 0, 00= and ma#ing them mandatory on the listed

companies on &comply or explain) basis.

Te D#9# C#);e$ * C))e$ce #!" I!"5,&$% /DCCI has been implementing a project,

entitled *conomic Reform and Research *nterprise, in co+operation with $he 'enter for

International 2rivate *nterprise C'I2* + an affiliate of the :" 'hamber of 'ommerce,

%ashington D.'. Jaue, alil and 6az C00> studied that one of the objectives of this project is

to prepare economic policy papers on selected business sectors. D''I reuested to prepare a

paper on &2rinciples of 'orporate 7overnance for 2ublic and 2rivate *nterprise in 8angladesh.

&!ccording to the $erm of Reference C$/R the scope of the study was limited to analyze the


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situation of corporate governance in the three types of *nterprises- 2ublic limited companies+

9inancial and 6on+9inancial institutions and "tate /wned *nterprises C"/*.

CHAPTER - 03: COMPANY OVERVIE

$ang 4imited is a company that specializes within "ingaporeBs retail mar#et, with its flagship

store $!67" located on /rchard Road, "ingapore. 9or many, $!67" is regarded as a principal

shopping destination in the city, comparable to 8loomingdale@s in 6ew Eor# 'ity and

"elfridges in 4ondon. $he oldest home+bred department store in "ingapore, $!67" was

founded by $ang 'hoon (eng, popularly #nown as '( $ang, in ?.

3.1 ABOUT C. . TANGS:

!n icon of "ingapore, $!67" is a leading player in the retail industry that has its fingers

constantly on the pulse of the ever+changing consumer wants and trends. %ith the flagship

$!67" at $ang 2laza@s transformation completed, "ingapore@s most distinctive and beloved

shopping destination raises the bar in retail, stepping up its role as a curator of a spectrum of

exciting !sian as well as international brands, and redefining the shopping experience with a

refreshed store concept. $!67" is present in "ingapore and 1alaysia with six stores, namely,

$!67" at $ang 2laza, $!67" ;ivo 'ity, $!67" :tama, $!67" *mpire "ubang, and

$!67" 7entling and $!67" the "hore, 1ela#a.

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'.(. $!67"B founder, '( $ang, was born in a town in the 'hinese province of "watow to a

2resbyterian pastor and his wife. !s an itinerant pastor, '( $angBs father freuently travelled the

region, leaving his wife to run the household with his meager income. $o get out of the cycle of

poverty and struggle, '( $ang journeyed to "ingapore in ?, which was then under colonial

administration. !rmed with two trun#s K one tin and one leather case filled with lace and linen K

'( $ang set off on his arduous journey. :pon his arrival, he hired a ric#shaw puller and peddled

his wares to the resident expatriates with tenacity and uncompromising principles.


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132

6early a decade after his arrival, '( $ang decided to shift from door+to+door selling to opening a

store, renting a shop unit on River ;alley Road. $his was a bold move, considering his customers

were used to his coming to them. $he gamble paid off K his loyal customers followed and

brought new customers with them. $he retail business was good for him, after gradual expansion

'( $ang was able to buy a piece of land in ?? on River ;alley Road and build a three+storied

structure as both a business and a dwelling. %ith this additional space, he expanded his product

offerings to include other merchandise from 'hina such as jeweler, bas#ets and assorted 'hinese

curios.

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9rom his time as an uneducated +year+old, '( $ang showed great vision. 8ut perhaps the most

famous of his visionary decisions was expanding his store on River ;alley Road and buying the

land on /rchard Road. $hen, /rchard Road was relatively uiet, and faced a 'hinese cemetery.

&2eople used to tell me this is not a nice place to start a business. %hy buy such a deserted place,

and one in front of the graveyardA I would tell them, H/ne day this place will boom. &Jis

decision to buy the land stemmed from a vision he could clearly see and articulate K a thriving

/rchard Road, with $!67" at its center. Je was rightL it was the perfect location as the

expatriate community had to pass his store when travelling from their homes to the financial

center. /ver time, other stores sprouted around and outwards, ma#ing /rchard Road a thriving

shopping destination and one of the busiest, most well+#nown shopping streets in the world.

$!67" itself grew from strength to strength, becoming the store of choice for %estern brands

entering "ingapore and a purveyor of uality 'hinese crafts, offering something for everyone

and earning '( $ang the moni#er &$he 'urio (ing).

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$!67" repositioned itself as a hip destination for modern, international shopping, creating a

space filed with international brands. $he superstore created so much attention in the retail scene

that international brands paid attention to "ingapore, with the li#es of *stee 4auder, 2aloma

2icasso, Isabella Rossellini and $yson 8ec#ford headlining launches and events. !t the same

time, $!67" began its legacy of supporting local talent, showcasing the wor#s of multiple local

designers through the "ociety of Designing !rts "ingapore C"/D!. $his retail revolution

brought $!67" to a new territory K fashion K and brought the store to new heights.

3.2 EVOLUTION OF THE BRAND:

In the ?50s, $!67" launched the tag line G!ll the 8est under /ne RoofG to showcase their

diversification of products.

$he company was #nown as a fair employer and was closed on "undays Ca rare thing in !sia as

'.(. $ang himself was a staunch 'hristian. $his was implemented so that so his family and

'hristian staff could attend church services.

In the late ?50s and early ??0s one of '( $ang@s sons, $ang %ee "ung too# control of the

store. Je went on to become chairman of the company in 000 after his fatherBs death, and his

appointment gave rise to changed operating policies, such as permitting the store to remain open

on "undays and introducing mar#eting strategies to increase consumer choice.

In 0, $!67" announced an "M3< million, +year transformation plan to its flagship store on

/rchard Road.

3.3 PRESENT DAY:

:pon its 50th !nniversary, $!67" began a large+scale transformation of $!67" at $ang 2laza,

its flagship store along /rchard Road, across all concepts to reinforce its position as a leading

retailer and "ingaporeBs iconic, world+class shopping destination. 2resenting a mix of carefully

curated international and "ingaporean brands across all concepts of 8eauty, Jome, 9ashion and

even 9ood N 8everages, $!67" appeals to the modern shopper who see#s to distinguish

themselves with our blend of international, modern heritage, exclusive and uality offerings.


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Designed to offer the best of brands in the intimacy of a department store, the revamp also

provides a truly immersive customer experience, with services and flourishes available at every

corner, dining and rest spots on almost every floor, a comprehensive loyalty rewards programme,

3+hour shopping via www.tangs.com, and even an exclusive members+only rest in the form of

the 2referred 4ounge at "*;II6 !$ $!67". $he result K an updated $!67", rooted in its

heritage and commitment to its customers, with its sights set firmly in the future.

CHAPTER- 04: FAILURE OF C.K. TANG

In ?>


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'.1 R OLE OF THE BOARD OF DIRECTORS:

During the third and successful privatization attempt, the board of '.(. $ang was chaired by

*rnest "eow, a former 2ricewaterhouse'oopers C2w' partner. !part from "eow, there were

three other directors with experience in accounting, business management and the retail industry.!mong the four directors, three of them were serving as non+executive independent directors.

During the companyBs history, there was at least one $ang family member on the board.

Jowever, in 005, $ang %ee "ung, '*/ and the majority shareholder of the company since

?5>, stepped down from the board, after he was alleged to be involved in an illegal organ

trading scandal.

%ith this development, for the first time in the companyBs history, there was no $ang family

member on the board. !ccording to '.(. $angBs 'orporate 7overnance Report in 00?, the

board would be responsible for enhancing long+term shareholder value and the overall

management of the 7roup. $his includes reviewing the 7roupBs performance, approval of

corporate strategies and promoting high standards of corporate governance. $he board delegated

some of its functions to the board committees, namely the audit committee, nominating

committee and remuneration committee.

'.2 FIRST PRIVATI=ATION ATTEMPT: SCHEME OF ARRANGEMENT

/n ? /ctober 00, $ang %ee "ung offered minority shareholders "M0.3 per share via a

scheme of arrangement. $his represented a premium of about < per cent above the average

closing price over the last five trading days. $his price also meant a ?. per cent discount

against the companyBs net tangible assets as at 0 "eptember 00. Jowever, the resolution

failed to pass, as the shareholders felt the offer price was too low and wanted more information

on the companyBs prospects.

'.2.1 R EASONS FOR FAILURE OF FIRST ATTEMPT:Jowever, the resolution failed to pass as the shareholders oppose this.

• $he shareholders felt the offer price was too low.

• $hey wanted more information on the companyBs prospects.


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'.3 SECOND PRIVATI=ATION ATTEMPT: UNCONDITIONAL CASH OFFER

In December 00=, $ang %ee "ung and his brother $ang %ee (it, offered shareholders "M0.=<

per share through (erith Joldings, a company eually controlled by the brothers. $his second

attempt was in the form of a voluntary unconditional cash offer. $he "M0.=< per share offer reflected a =. per cent premium to '.(. $angBs latest closing price at that time. It also

represented a ?.3 per cent premium to the companyBs net asset value, based on its annual report

for the financial year ending 1arch 00=. %hen the offer deadline expired, insufficient

acceptances had been received. $he reason was widely believed to be the undervaluation of the

commercial property $angs 2laza. !s a result, the company continued its listing on "7O.

/n < uly 005, at an !nnual 7eneral 1eeting C!71, minority shareholders uestioned the

board about the companyBs financial losses, as well as its plans to delist the company from "7O.$he board declared that a privatization exercise is solely the decision of the majority shareholder.

$he board said it owed a fiduciary duty to shareholders, which is to loo# after the business of the

company. !ttempts to vote against standard resolutions such as advance payment of directorsB

fees were defeated, because of the $ang familyBs majority holdings.

'.3.1 R EASONS FOR FAILURE OF SECOND PRIVATI=ATION ATTEMPT

• $he reason was widely believed to be the undervaluation of the commercial property

$angs 2laza.

'.' THIRD PRIVATI=ATION ATTEMPT: VOLUNTARY DELISTING

/n 5 1ay 00?, the $ang brothers made their third privatization attempt through an investment

holding vehicle, $ang :nity $hree, which submitted a delisting proposal to the company.

;oluntary Delisting occurs when a company decides that it would li#e to purchase all of its

shares or move to an /$' mar#et while in full compliance with the exchanges. $he remaining

shareholders were offered "M0.5 per share, which represented a per cent premium over thecompanyBs last traded share price of "M0.=5 prior to the offer, and a per cent discount to the

firmBs net asset per share price of "M.0< as of December 005. $he board recommended that

the minority shareholders accept the offer, based on an evaluation of the offer provided by the

independent financial adviser 2w'. !t an *xtraordinary 7eneral 1eeting C*71 held on uly

00?, minority shareholders uestioned if the offer was reasonable, given that the shares had


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closed at a price above the offer at that point in time. 6onetheless, the board retained its

recommendation, saying that mar#et prices typically varied. $his was despite earlier statements

by the $angs saying that the privatization offer was to allow shareholders to monetize the value

of their investments at a premium over its historical trading prices. "hareholders also reproached

the directors for failing to clarify with the $angs about their redevelopment plans for $angs 2laza

after its privatization. $hey expressed disappointment with the independent directors, saying that

they had insufficiently analyzed the issue.

'.8 C..TANG: THE FIGHT TOARDS PRIVATI=ATION

Doubts were raised about the independence and neutrality of the '*/ of the company at the

time, 9oo $iang "ooi, because he was personally related to $ang %ee "ung. 9oo had wor#ed

under $ang from ??? to 00=. Je and $ang were also former schoolmates. Jowever, he

dismissed these facts as irrelevant. 9oo also added that he was related to the shareholder who

posed the uestion, but this fact was irrelevant as well.

!nother shareholder called for a vote of no+confidence against the board chairman. !fter

consulting with legal advisors, the board rejected the motion, with the chairman saying that the

action was an attempt to frustrate the meeting. *ven as shareholders tried to probe further, the

chairman called for the vote to be ta#en. $he resolution to privatize the company was passed

with ?=.< per cent of votes in favor of the proposal.

'.> EY AREA OF CONTROVERSY: TANGS PLA=A

$he "ingapore 'ode on $a#eovers and 1ergers Cthe 'ode governs all ta#eover activity in

"ingapore involving public companies. :nder Rule =.Ca of the 'ode, &a property which is

occupied for purposes of the business must be valued at the open mar#et value for its existing

use). Jowever, Rule =.Cc provides for the case in which &such a property is valued for an

alternative use. 9or such a case, the costs of conversion andQor adaptation should be estimated

and shown). During all three privatization attempts by the $ang brothers, the offer price reflected

an undervaluation of $angs 2laza. $he board stood by its stand of valuing the property according

to its &existing use), as there was no intention of deviating from it. /ne investor had brought up

the fact that in '.(. $angBs 00> annual report, a property valuation report had ta#en into


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consideration the redevelopment potential of $angs 2laza. In response, the boardBs legal adviser,

Eeo %ee (iong, said it was not legally reuired to put a redevelopment valuation on the report.

2w' stated that the property was valued at "M30 million on < 1ay 00?. $his was much lower

than other nearby sites. In contrast, minority shareholders contested that the site was easily worthat least "M300 million, according to an independent valuer. $his value did not ta#e into account

the potential value arising from redeveloping the site, and did not consider the potential value

from sub+dividing the site into small retail units and leasing them to specialty tenants. $he board,

however, stated that regulators had told the directors that any such redevelopment was not

applicable

'. UNHAPPINESS AMONGST MINORITY SHAREHOLDERS

"everal shareholders were unhappy about the perceived undervaluation of the $angs 2laza site,

as well as the fact that the offer price was less than the companyBs net asset per share. $hus, they

met with the "ecurities Investors !ssociation C"ingapore C"I!". "I!" stated that it objected to

the exit price and that the minority shareholders had been treated with no dignity. "I!" had also

called for regulators to intervene. $en shareholders had also signed a petition to "7O and the

1inistry of 9inance uestioning the basis of the valuation on the propertyBs &existing use), in a

bid to convince the regulators to allow them to obtain an alternative valuation report. "7OBs

reply was that '.(. $angBs move to delist was purely commercial, and that the company had

complied with the listing and delisting rules.

'.< THE CAPITAL R EDUCTION E?ERCISE

/n ? !ugust 0, '.(. $ang embar#ed on a capital reduction exercise to cancel out all

remaining shares held by minority shareholders. '.(. $ang would pay each investor "M.0 per

share, which represents an increase of


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undervaluation of the $angs 2laza property as the reason for rejecting the offer. '.(. $ang would

have to do more to convince these shareholders for the buyout to succeed.

'. C. . TANG: CORPORATE GOVERNANCE ISSUES:

!fter successfully operating for more than >0 years, '.(. $ang had multiple corporate

governance issues to have been risen up. 1ost of these issues related to the privatization attempts

made by the board of directors, the activities of the '*/, 1r. 9oo $iang "ooi and to some extent

the role of the board of directors were also not cleared whether they are protecting the minor

shareholders or not.

Te 5!#@*5 V#5#&(! Me&":

*very business entity that is established and operated in a particular country needs to follow therules and directions provided by the regulators in terms of its business operation and the

management of that entity. '.(. $ang is one of the most renowned firm in "ingapore in retailing

business. !ccording to $he "ingapore 'ode on $a#eovers and 1ergers Cthe 'ode governs all

ta#eover activity in "ingapore involving companies. :nder Rule =.Ca of the 'ode, &a property

which is occupied for purposes of the business must be valued at the open mar#et value for its

existing use). Jowever, Rule =.Cc provides for the case in which &such a property is valued

for an alternative use. 9or such a case, the costs of conversion andQor adaptation should be

estimated and shown)

'.(. $ang did not comply with the 'ode enforced by authority, $he "ingapore 'ode on

$a#eovers and 1ergers, and directly overturned the code for their own purpose. 9or valuing the

most important property, &$angs 2laza), the board always use &existing use) method to value the

plaza during its three attempts on privatization. $he only purpose was to undervalue the $angs

2laza so that board can offer lower price per share to minority shareholders. Different minority

shareholders uestioned the valuation method as the method was a clear violation of code

provided by regulators. 9urthermore, the management of '.(. $ang did not show the costs of

conversion andQor adaptation procedure in the annual report as reuired by the code. !ccording

to the 2w', the holding company assigned by the '.(. $ang to value the $angs 2laza was "M30

milllion but minority shareholders claimed that the value of the plaza site was easily worth at

least "M300 million, according to an independent valuer. $he minor shareholders stated that the


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2w' valuation did not consider the potential value arising from the redeveloping the site. $he

board, however, defended itself by stating that regulators had told the directors that any such

redevelopment was not applicable.

Te B(#, $e * I!"e+e!"e!& "($ec&$, #!" C(e* Eec5&(e O**(ce$ /CEO:

$he board of Director of '.(. $ang was consist of '*/ and three other directors with experience

in accounting, business management and the retail industry. !mong the four directors, three of

them were serving as non+executive independent directors. It is one of the core principles of

corporate governance is that the independent directors will be acting on behalf of the

shareholders especially for the interest of the minor shareholders but doubt was raised among the

shareholders that the independent directors and '*/ overloo#ed the minor shareholders interest

and they were concerned to the interest of the $angBs family. 9urther claim had been made by theshareholders that the directors failed to clarify with the $angs about their redevelopment plans

for $angs 2laza after its privatization. "hareholders expressed disappointment with the

independent directors, saying that they had insufficiently analyzed the issue.

L@ **e$e" $#&e:

$he $ang family who is the major shareholders of '.(. $ang since its inception made three

attempts to privatize the $ang and tried to delist the company from "ingapore *xchange C"7O.

$he rate they offered to the minority shareholder through board meeting were lower than the

actual price of each share. $he '.(. $ang management followed defective valuation method that

undervalued firmBs property and tried deceive the minority shareholders showing that, they were

given higher than the actual price. In 00?, though $ang family successfully delist the firm from

"7O, many of the shareholders were dissatisfied for the poor offered rate of the management.

A;,e!ce * +$+e$ "(,c,5$e:

! public company reuires to follow the disclosure guidelines provided by the regulatory

authority. $he adeuate disclosure of financial and non+financial data helps an investor to ta#e

decision whether sQhe will invest into the company or not. 2roper disclosure is not only important

for creating an efficient mar#et with symmetric information, disclosure provides important info

to the regulators about the management and financial condition of the business entity. '.(. $ang

did not properly disclose the information of its own in annual reports especially information


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5

relating to the valuation of the assets during the privatization attempts. $hough, $angBs 00>

annual report included the detail property valuation procedure, this practice was discontinued by

the management of $ang.

L#c9 * #cc5!((&% & ,#$e"e$,:

$he management is responsible to board of directors and board of directors is responsible to

shareholders. $he board of directors always need to act for the interest of the shareholders of the

firm. $hings are not same in $ang, the board of directors always tried here to maximize their

benefit sacrificing the fair payable of the shareholders. $hey tried to show their asset

undervalued to pay less to the shareholders. $hey have set a minimum exit price for the

shareholders. ! call for non+confidence to the members of the directors by one of the

shareholders had been diverted into irrelevant matters to protect their own interest.

9inally, it is the best example of having poor relationship between shareholders and board of

directors. $he eternal conflict between manager and the owner of the company was the main

theme in the '.(. $ang.


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CHAPTER- 0/. CONCLUSION

It is very common phenomenon that owner has a different feeling for the company and thus have

a very different viewpoint for the company compared to the board of directors. $his different

viewpoint leads to different objectives. "o while difference of objective rises, it results a conflict

of interest. $his conflict can be resolved by formulating proper corporate governance guidelines.

8ut merely formulating a corporate governance guideline cannot be a tool to resolve this

problem. !pplication of this rules must be ensured. 9orm this analysis of $ang, we see that

sometimes controlling authority become indifferent to solve the problem. $hey can easily be

manipulated by bribery or involving them into benefit. If this problem of corruption in highest

level cannot be eliminated, no fair and sophisticated corporate governance guidelines can solvethe agency conflict regardless of the standard and uality of the rules and regulation. Jowever,

proper corporate governance should be practiced from the root level to top tier hierarchy in a

corporation so resolve the problem of agency conflict.


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REFERENCES

!lternet. C0. 6 Reasons Privatization Often Ends in Disaster . onlineS !vailable at-

http-QQwww.alternet.orgQcivil+libertiesQ=+reasons+privatization+often+ends+disaster

!ccessed !pr. 0=S. *conomicshelp.org. C0. Advantages and Problems of Privatisation | Economics Help.

onlineS !vailable at- http-QQwww.economicshelp.orgQblogQ

Corporate Governance Failure of CK Tang

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