By Linnert Hoo
BERJAYA Corporation Bhd (BCorp) and its founder Tan Sri Vincent Tan (TSVT) have been in the limelight recently, following a series of announcements lately.
On March 16, 2021, BCorp announced the appointment of Abdul Jalil Abdul Rasheed as the new Group CEO of BCorp effective from March 16 onwards.
Jalil took over the position from TSVT’s eldest son, Datuk Sri Robin Tan (DSRT) who was re-designated as deputy executive chairman of BCorp effective the same day. The BCorp’s appointment of the first non-family member to helm a family-controlled conglomerate is a welcome surprise to corporate Malaysia.
According to the Malaysian Code on Corporate Governance, it is a good corporate governance (CG) practice when the positions of chairman and CEO are held by different individuals.
In the press release issued by BCorp, it was stated that the new appointments were made to transform BCorp into an institutionalised corporation managed by professionals.
In line with this, BCorp announced the redesignation of its executive chairman, TSVT, to non-executive Chairman, effective April 5, 2021. DSRT has also indicated that he will be relinquishing his executive position once the Group’s transformation process and plan have stabilised.
This augurs well as there will not be any confusion as to who holds the highest executive position (which may be tantamount to the de facto CEO); whether it is the executive deputy chairman or CEO.
On March 27, BCorp founder and executive chairman TSVT announced that he does not wish any of his children to be involved in the group’s listed companies and wishes to let professional managers run them. “We need to have a clear demarcation of listed and private entities”, he stressed.
The share price of BCorp closed at 18 sen on March 16 and it jumped 16.7% to close at 21 sen on the following day after the announcement of Jalil’s appointment. On March 31, the stock reached its five-year high of 45.5 sen, representing a jump of 153% from March 16.
Listed vs private entity
While the above announcements seem to be well-accepted by the market and the investing fraternity, what has caught our attention is the comment from the tycoon TSVT that “we need to have a clear demarcation of listed and private entities”.
The importance of having clear demarcation of listed and private entities should never be underestimated.
A private entity is owned by private investors, while a public listed company (PLC) is owned by the general public who own shares in the company.
The key difference between the two is – the change in “control and accountability” when a private entity is converted to a public listed company (PLC).
Investors who buy shares in a PLC get their partial ownership in the company. That ownership translates into a voting right to have a say in the navigation of the company.
A PLC may have tens of thousands of shareholders, but private companies may have only a handful of shareholders who are usually family members. Usually, these shareholders wear multiple hats, they are the board members and the decision makers as well.
Drawbacks of family-controlled lister companies
When a private / public company become a PLC, one of the things that the owners find it hardest to let go is the “control” of the entity.
Often, the original founders and owners strive to keep their “control” of the PLC by dominating the board and/or key management positions. It is not uncommon for the owner to be the chairman of the board and for his children to hold key management positions in the company.
“Accountability” is another challenge for these family-controlled listed companies. It is challenging for the owners to acknowledge that they must be accountable to so many stakeholders and shareholders, especially since their business have done well in the past without such “interference”.
The lack of accountability may lead to the abuse of minority shareholders’ rights by compromising transparency, fairness and adequacy of disclosure.
Some other common drawbacks of a family-controlled PLC include: –
- Large board size and family dominated board
There are small and mid-cap family-controlled listed issuers with eight directors, of whom, half of the directors are family members who hold executive directorships.
- Excessive remuneration, especially for the founder
The Securities Commission in its Corporate Governance Monitor 2020 (CG Monitor 2020) revealed that, the top 10 highest paid boards in 2019 were from family-controlled companies. This finding was similar to the CG Monitor 2019 – where the top 10 highest paid CEOs in 2018 were also from family-controlled companies.
- Significant related party transactions (RPTs)
There tends to be a significant number of RPTs (of larger values) in family-controlled companies. Investors should be vigilant of such related party transactions, especially transactions with companies which have common directors and/or common ownership.
- Succession planning
Leadership succession could be a challenge for family-owned businesses. Family issues tend to get in the way. A common challenge is the unwillingness to let go and to pass the reins onto a successor.
Considering the above drawbacks of family-controlled PLCs, it is good if there is a clear dichotomy between ownership and management; and to this end, allowing professional managers to run the listed company is a virtue.
Good corporate governance for family-controlled companies can also be enhanced by appointing sufficient number of independent directors on the Board; this is crucial to ensure that the interests of minority shareholders are recognised and protected. – April 12, 2021
Linnert Hoo is the head of research & development for the Minority Shareholders Watch Group (MSWG).
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.