MSWG: “All is not lost but Serba must address three issues expeditiously”

WHAT’S next is probably the question lingering in the mind of every Serba Dinamik Holdings Bhd investor following the latest event chain which saw the resignation of five independent non-executive directors (INEDs) yesterday.

The company’s newly-appointed chairman Datuk Mohamed Ilyas Pakeer Mohamed told FocusM that the global integrated oil & gas (O&G) service provider is in the midst of identifying new INEDs with credibility and experience as replacements.

“These new independent directors shall command relevant strength in matters concerning regulations, law, banking and finance,” he noted, pointing out that the company’s board is considering “senior members of government authorities and agencies”.

While replacement of the INEDs who quit is imminent, what then are other areas that the company needs to urgently look into to swiftly restore investor confidence amid a 75% erosion of the company’s market capitalisaton from RM6 bil (prior to its resumption of trading on May 31) to RM1.53 bil (as of yesterday)?

Below are viewpoints of two shareholder activism groups on what should be the next course of action for Serba Dinamik:

Devanesan Evanson

Minority Shareholder Watch Group (MSWG) CEO Devanesan Evanson

There are three things that must be addressed expeditiously, and not in any particular order.

Firstly, the matters highlighted by external auditor KPMG must be resolved. We have the company’s point of view on these matters.

We need to hear what an independent competent party has to say about it. This loop needs to be closed. As such, the mooted appointed of an independent reviewer is a means to resolve these matters.

Secondly, the external auditors must be appointed soonest. This is because as new auditors, there will be a learning curve and they may take more time to audit the financial statements; given the matters raised by the resigning auditors.

The deadline to publish the audited financial statements is Oct 31. There is nothing like audited financial statements to soothe the frayed nerves of minority shareholders.

Thirdly, the company needs to restore the balance of independent directors on the board. Five independent directors resigned from the board yesterday. The Malaysian Code on Corporate Governance (MCCG) advocates the practice of having more than 50% independent directors for large companies and at least 50% for other companies.

Four of the resigning directors gave granular reasons for their resignation and that is commendable on their part. The definition of an independent director is in the Listing Requirements.

Independent directors may satisfy this definition in form – but they must also be perceived as independent in substance. Independent directors are seen by minority shareholders as the last bastion of protection for them at the board level.

Minority shareholders are advised to make informed investment decisions. Often, information is never complete and information is evolving. Nevertheless, minority shareholders should be able to make their informed investment decisions based on the information available at any point of time; information is never ever complete.

The choice of whether to wait for more information or not is a choice guided by the minority shareholders’ risk appetite.

Lya Rahman

Institutional Investors Council (IIC) adviser Lya Rahman

The resignation of the four independent directors from the old team is not surprising. But it is worthy to note that they have stated the actual reasons for their resignation which was not common in corporate Malaysia.

Most of the independent directors would normally state “personal reasons”, “other commitment”, etc. Of course, even if they didn’t state the real reasons that pushed them to resign, the market would have guessed the reasons behind it.

Even when the previous chairman who was also an INED resigned, he cited his decision as “personal reason” although the market can roughly guess the reasons.

It is timely for independent directors to speak out whenever they feel compel to resign due to certain issues in the company which they feel would compromise their independence or detrimental to the best interest of the company.

The culture of politeness and the mindset of “not wanting to rock the boat’ should now be stopped.

After all investors, especially the minority shareholders, deserve to know the real reason behind such resignation.

And it is also hoped that Bursa Malaysia as the frontline regulator would also conduct comprehensive exit interview with the independent directors on the reasons for their resignation especially when there are issues surrounding their company.

It is also mind boggling to see the newly appointed INED Masleena Zaid who has been the talk of the town in view of her connection with the other two newly-appointed INEDs, namely chairman Datuk Mohamed Ilyas Pakeer Mohamed and Johan Mohamed Ishak, had tendered her resignation citing “personal commitment”.

She was only appointed less than two weeks ago. – June 26, 2021

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