Frankly Speaking: Exorbitant fees raise concerns about governance

This article first appeared in The Edge Malaysia Weekly, on June 27, 2022 - July 03, 2022.
Frankly Speaking: Exorbitant fees raise concerns about governance
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The 60% jump in directors’ fees for FGV Holdings Bhd’s non-executive chairman Datuk Dzulkifli Abd Wahab and 25% increase for the company’s seven non-executive directors last week has drawn criticism.

At FGV’s annual general meeting, an overwhelming majority of its shareholders approved the resolution to increase the director fees. The Federal Land Development Authority (FELDA) is the largest shareholder of FGV, with a 79.9% stake following a failed mandatory takeover.

With the resolution passed, Dzulkifli will receive RM480,000 in directors’ fees, up from RM300,000 previously, from June 24 until the next AGM.

What is the rationale for the huge increase in remuneration at a time of rising costs? While crude palm oil (CPO) prices have rallied, is there a need for the move as commodity prices are cyclical? Furthermore, four of the eight non-executive directors are new.

Prior to the surge in commodity prices, FGV had been loss-making for two financial years. It turned around in FY2020 and last year, managed to post a net profit of RM1.17 billion, mainly driven by stronger CPO prices.

Comparing FGV with another government-linked plantation group, the latter pays its non-executive chairman RM600,000 in directors’ fees. While this is higher than what FGV is paying its chairman, the latter is a much more profitable group.

Looking at its operational matrix, FGV is still behind many other listed plantation companies. Its fresh fruit bunch yield in 2021 was 15.69 tonnes per hectare, compared with Sime Darby Plantation Bhd’s 18.49 tonnes and Hap Seng Plantations Holdings Bhd’s 18.29 tonnes. FGV’s oil extraction rate of 20.54% is lower than Sime Darby Plantation’s 21.59%.

In addition, Dzulkifli was only appointed to the board in April 2021. It remains to be seen whether he and the rest of the board can move FGV up the value chain and increase its profitability to match the 60% increase in his remuneration package.

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