Shareholders must speak up
It is up to investors, especially the institutions, to ensure that CEOs and directors are paid according to performance.
CEOs are under scrutiny of late. Never before have their salaries, bonuses and emoluments been analysed as much as they are now. There has been a debate on how much is too much to pay them.
In the Dewan Rakyat, MPs are questioning the prudence and judgment of CEOs of government-linked companies (GLCs). The man on the street, who is struggling to make ends meet, wants to know too.
I believe in performance-based remuneration for CEOs and board members; compensate them well for a job well done. Companies set KPIs for them. Shareholders have the right to judge them.
For listed companies, profitability and returns on investment matter. And of course, it is expected there is good governance and transparency in these companies’ dealings.
As a former chairman of a listed company and a board member of a few listed companies, I have encountered tough questioning by shareholders at annual general meetings (AGMs). It could be nightmarish when we are not performing well.
Then again, the shareholders have that one day out of 365 days to question us. It is their right to torment us for our mistakes or to show appreciation for our achievements.
Tan Sri Shahril Shamsuddin, group CEO of Sapura Energy Bhd, had a tough time at his company’s AGM last month. In particular, the institutional investors among the shareholders were unhappy about his compensation package of almost RM72mil for financial year 2018.
The argument here was that the company had incurred a net loss of RM2.5bil on revenue of RM5.9bil that year. The loss, according to Sapura Energy’s annual report, is largely attributed to a RM2.1bil impairment provision for one of its business activities.
There are concerns too that the company’s bankers have a covenant on a RM16bil refinancing package that requires Shahril to retain his shareholding up to a certain percentage and for him to remain as CEO, or the loan will be in default. To the critics, this is tantamount to holding the board and shareholders to ransom.
To be fair to Shahril, he helped build the company to where it is now. He is an entrepreneur first and last. He wasn’t parachuted in to run an already successful company.
As at December 2013, the company had a market capitalisation of RM29bil, placing it among the world’s top five oil and gas service providers. However, that figure is now hovering at RM3.5bil.
We are living in a different world now. Shahril should know better. It doesn’t matter if he is not one of the best compensated CEOs in the land. Corporate Malaysia must wake up to the new realities. After all, a new government is in place and the people are watching.
The dramatic resignation of the entire Khazanah Nasional Bhd board is a rare moment in the normally placid and boring corporate Malaysia.
Again, to be fair, as the nation’s sovereign wealth fund, Khazanah has performed remarkably well over the years since its inception in 1993. There are some less stellar investments though. It invested RM80mil in an online lingerie business in India and has since fully provided for the amount in its accounts. It was also reported that Khazanah had to write off a RM3bil investment via a private equity outfit to take over a bank.
Some of these details were revealed by Economic Affairs Minister Datuk Seri Mohamed Azmin Ali in the Dewan Rakyat. There are perhaps other questionable investments to be unearthed but that is a different story.
(Former Khazanah head Tan Sri Azman Mokhtar believes that Khazanah can recover all or almost all of its investments in the Indian online retailer. He also pointed out that the losses via the private equity firm were RM1.7bil and not RM3bil.)
The good news is, according to reports, since 2004, Khazanah has made accumulative profits before tax of RM28bil and paid billions in dividends to MoF Inc.
However, its detractors argue that you don’t need a genius to manage valuable assets handed over by the government. The Prime Minister did not mince words when he criticised Khazanah for “deviating from its original objectives”. Again, how much the CEO and board members have been paid is being scrutinised.
And, of course, the compensation paid to Arul Kanda Kandasamy, the former CEO of 1Malaysia Development Bhd, has been much debated. Was the RM5mil for six months’ work a fair deal considering the litany of lies he allegedly was responsible for?
Wasn’t he the one who famously said that 1MDB’s debt reduction programme was on track and that 1MDB was capable of repaying its dues? Even the man on the street understands that the fund’s low-capital, high-debt business model was outrageously unworkable.
We need clear and responsible voices, especially among institutional investors, to check companies at AGMs. In the case of a company like 1MDB, the directors should have sounded the alarm.
Government-linked investment companies (GLICs) have invested in many companies on the local bourse. Permodalan Nasional Bhd, for instance has a total investment of RM198bil in local listed entities or a full 10% of Bursa Malaysia’s total market capitalisation.
Similarly, the Employees Provident Fund, Kumpulan Wang Amanah Pencen, Lembaga Tabung Angkatan Tentera and Lembaga Urusan Tabung Haji have substantial interests in many listed companies.
Together with the Minority Shareholders Watchdog Group, these institutional investors can be the best checks and balances and the voice of conscience. (Sadly, some of the GLICs too have their own credibility problems.) Excessive remuneration for CEOs and board members is only one of the problems facing corporate Malaysia now.