Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on October 16, 2017 - October 22, 2017

THE reinstatement of Datuk Zakaria Arshad as the group president and CEO of Felda Global Ventures Holdings Bhd, effective Oct 16, has turned the spotlight on the powers of the company’s special shareholder — the Minister of Finance Inc.

In an announcement to Bursa Malaysia last Monday, FGV said MoF Inc, which holds a golden share in the company, asked for Zakaria to be reinstated. The board was not mentioned in the announcement.

Does this mean the decision was made solely by the special shareholder and that the board has distanced itself from it?

To be fair, the press release on the matter includes a statement by chairman Datuk Wira Azhar Abdul Hamid.

FGV declined to comment on the story.

The fact that a shareholder with just one share in a public-listed company can dictate terms raises corporate governance concerns, say fund managers and investors.

“The European Union has outlawed this class of shares because of the unfair power vested in the shareholder. Once a company has assumed public listed status, it cannot justify the power given to a special shareholder,” says Malaysian Investors’ Association president Datin Ho Choy Meng in an email response to The Edge’s questions last Friday.

To recap, Zakaria, FGV chief financial officer Ahmad Tilfi Mohd Talhar and two other senior members of the management team were given leave of absence on June 6 following allegations of impropriety and breach of fiduciary duty.

The allegations were about FGV subsidiary Delima Oil Product Sdn Bhd’s (DOP) transactions with Safitex Trading LLC — a Dubai-based company that supplies palm oil products to Afghanistan.

It was alleged that Zakaria breached his fiduciary duty as FGV’s CEO when he allowed the sale of palm oil products to Safitex without requiring letters of credit. Safitex has outstanding debt with DOP.

What followed next was a series of investigations and raids over two months that saw former FGV chairman Tan Sri Isa Samad, his aide Zahid Md Arip and former CEO of Felda Investment Corporation (FIC), Zaid Abdul Jalil, being remanded by the Malaysian Anti-Corruption Commission for five days.

Zakaria had maintained his innocence when accused of wrongdoings by Isa and had refused to step down. Now, with the endorsement of MoF Inc, he has strengthened his position at FGV.

Ahmad Tilfi was also reinstated in his post, effective Oct 4 while the other two senior executives who were suspended, too, are believed to be back on the board. While it seems that the reinstatement of these three was made by FGV’s board of directors, Zakaria’s return was at the behest of the special shareholder.

The Oct 9 announcement by FGV states that the domestic inquiry (DI) into the alleged wrongdoings of Zakaria and the other three with regard to Safitex had ended and the findings submitted to MoF Inc.

The findings were not made known to the public. Though this is not compulsory, fund managers and investors opine that public-listed companies should maintain transparency to improve investor confidence.

“There is nothing in the law that says a DI must be made public. I think the key decision-maker is the board. Therefore, they must make the decision with regard to the operations of the company with full impartiality,” says a former fund manager. “It goes beyond what is necessary for the DI to be made public. But if you look at FGV as a politically connected vehicle, it is good for it to project transparency.”

Meanwhile, the Minority Shareholders Watchdog Group (MSWG) says if the investigation was conducted properly and did not find Zakaria to have committed any abuse or governance-related misfeasance, it is not improper to reinstate him in his post.

“More importantly, we are glad that this matter has been concluded and we hope that Datuk Zakaria will now focus his efforts on continuing FGV’s transformation programme,” says its general manager Lya Rahman.

Zakaria’s return to FGV’s top post was well received by the market. As at last Friday, the stock had appreciated more than 7% from its closing price of RM1.71 on Oct 6, before the announcement was made.

It ended trading at RM1.83 on Friday — its highest level since June 19 — giving the company a market capitalisation of RM6.68 billion. It peaked at RM2.38 on Oct 18 last year.

Analysts tracking the stock are also positive on Zakaria’s reinstatement, which they say signifies certainty over the group’s direction.

“His reappointment is positive for the shares because when he was made CEO, his task was to transform FGV. He commanded the confidence of the market at the time but, unfortunately, his term was short,” says a fund manager. “Now that he has returned, investors will need to see the implementation of his plans to turn around FGV. Intentions will remain intentions as long as they are not put into action.”

Investors also do not see Zakaria as a man whose integrity has been compromised. MIA’s Ho says as long as the internal investigation has absolved him of misdemeanour in FGV’s affairs during his tenure, he is innocent of the alleged wrongdoings.

Nevertheless, some investors see a special shareholder interfering with the appointment and dismissal of key officials in a public-listed company as a red flag that will deter them from investing in it. “There’s lack of transparency in the running of such companies, and as an investor, you have to assign a premium to the shares. Why not invest in companies that have better transparency?” says a fund manager.

Apart from FGV, other companies listed on Bursa Malaysia that have MoF Inc as a special shareholder are Bintulu Port Holdings Bhd, Malaysia Airports Holdings Bhd, Tenaga Nasional Bhd, MISC Bhd, Pos Malaysia Bhd, Telekom Malaysia Bhd and Westports Holdings Bhd.

However, the authority that the special shareholder exerts on these companies may differ from one to the other. For example, in FGV, MoF Inc has the power to make major decisions that would align its operations with government policies. It can also appoint existing members of the board as government-appointed directors and fill the positions of chairman, CEO, managing director and executive director. In Westports, MoF Inc can only nominate one director to the port operator’s board.

While a government’s right of veto might be needed in an emergency, such as war or natural disasters, investors do not see the need for the government to use it to appoint the CEO of a public-listed company or decide the company’s direction.

“In a democracy, it is the majority that holds sway. Similarly, if you are the majority shareholder, you are able to garner enough votes to pass any resolutions put forth at the company’s boardroom meetings or AGM,” says Ho. “In normal practice, chairmen cast the deciding vote in case of a deadlock. The all-important consideration here is that the resolutions must pass the litmus test of adhering to a high standard of corporate governance and transparency.”

The MIA and MSWG are looking forward to Zakaria continuing his efforts to return FGV to profitability, resolving the issues that have been plaguing the group in recent years and improving shareholder value.

“With the closure of this episode, we hope FGV will be able to improve its shareholder value, which has been eroded since its listing,” says MSWG’s Lya.

 

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