Hsien Yang's corporate comeback

Ah, we finally have another corporate intrigue in Singapore. The Singapore press has been playing up stories about the corporate comeback of Lee Hsien Yang, the ex-CEO of Singapore Telecommunications.

His appointment as chairman of and consultant to soft-drinks bottler Fraser & Neave has definitely raised eyebrows in Singapore.

The Today tabloid dissected the issue rather well, but I can't help feeling that some of the corporate governance gurus seem to be pulling their punches. Would they have pulled their punches if it had been a lesser mortal?

Hsien Yang is, after all, the younger brother of PM Lee Hsien Loong, the son of Singapore's first PM Lee Kuan Yew, and the brother-in-law of Temasek Holdings boss Ho Ching. Incidentally, Temasek is a major shareholder of F&N, which is the subject of this rather brave article in Today newspaper.

What they say about Hsien Yang appointment
F&N's new CEO a good catch, despite what the doubters say
Weekend • September 8, 2007

Christie Loh
christie@mediacorp.com.sg

WHEN that expensive consultant you hired presents a plan, chances are you'll want to make sure his ideas deliver bang for your buck — especially if it involves big money. If you disagree with him, there is little to stop you from sending him back to the drawing board.

The relationship between paymaster and payee is therefore clear.

But how would you behave if the dynamics were not so black-and-white? What if the consultant also happens to be the company chairman?

That's a thought for Fraser and Neave's (F&N) staff and directors to chew on in the month leading up to Oct 15. On that day, corporate hotshot Lee Hsien Yang, 49, will take his seat at the head of the conglomerate's boardroom, succeeding long-time chieftain Michael Fam, 79.

Apart from his fees as a non-executive chairman, Mr Lee will receive $1 million a year as a "consultant to assist with the overall strategic planning for the group", F&N said on Wednesday.

The consultancy contract, dependent on Mr Lee remaining a director or chairman, is for three years and will be automatically renewed for another three years.

Seldom seen in corporate circles here, this dual appointment raises some questions. Is the move good corporate governance? Are there potential conflicts of interests — actual or perceived? And was there no other candidate suitable to be either chairman or consultant?

While not taking "much issue" with F&N's moves, corporate governance observer Mak Yuen Teen, said: "Strictly speaking, as he is consultant, the board will need to ensure objective evaluation of his services."

Dr Mak, who is regional research director of consultancy Watson Wyatt, added it would be "useful to have a lead independent director in this case to help ensure that possible conflicts are well managed".

Small investor champion David Gerald called for more disclosure. He said directors had an obligation to ensure all appointments stand up to scrutiny by shareholders.

"I am confident that F&N's board would have carefully considered its duty to shareholders and the company before making the decision.

"Therefore, the necessary disclosure on the nature of consultancy and the need to appoint a chairman also as consultant, we hope, would be forthcoming in the interest of good corporate governance," said Mr Gerald, president of the Securities Investors Association of Singapore.

When contacted, F&N declined to go into Mr Lee's consultancy work in strategic planning. Neither would it reveal the chairman's yearly fees.

"That is put up during the general meeting every year and determined by shareholders," a spokesman said. The next annual general meeting is in January.

He also disagreed with the perceived governance concerns.

"How can there be a conflict of interest? Anytime someone is the subject of some evaluation or the discussion on compensation, the person does not participate in that discussion because clearly, yes, that person would be conflicted," said the spokesman.

What does the Singapore Exchange (SGX), regulator of listed companies here, think about F&N's latest appointment?

"The remuneration of directors, including that of the chairman, is the responsibility of the board. Listed companies are obliged to observe and adhere to the code of corporate governance, and when they deviate, they will have to explain and provide reasons," said a spokeswoman.

She added: "The chairman, whether executive or otherwise, has the same responsibilities as directors, to 'act honestly and use reasonable diligence in the discharge' of their fiduciary duties as stated in Section 157 (1) of the Companies Act."

While there may be issues about F&N's latest board appointment, observers also pointed out some positives in the firm's manner of dealing with the announcement.

For instance, Dr Mak felt F&N was "more transparent than most" in disclosing it was paying separate consultancy fees to the chairman, whereas some companies have actually been known to have done so without informing shareholders.

Plus, there is no governance problem since F&N is not claiming that Mr Lee is an independent director, said Mr Jamie Allen, secretary-general of the Asian Corporate Governance Association in Hong Kong.

He added that regardless of whether a chairman is executive or non-executive, every board's independent directors still have to exercise their independent judgment.

For F&N, this is not the first time it is roping in a new director as a consultant at the same time.

In November 2000, Dr Han Cheng Fong joined F&N's listed property arm — Centrepoint Properties now known as Frasers Centrepoint — as a non-executive director and project consultant.

Six months later, in May 2001, Dr Han rose to take over as Centrepoint's chief executive officer from Mr Jeffrey Heng, who retired — but only temporarily. Mr Heng returned to the helm in April 2002, when Dr Han hopped over to F&N to become joint managing director with Mr Tam Yam Pin.

Again, within months, Dr Han the high-flier ascended to the post of deputy CEO, second to Dr Fam, who was executive chairman at the time.

In January last year, when Dr Fam semi-retired to become non-executive chairman, Dr Han — now 64 — stepped into F&N's newly created post of group CEO.

The similar way in which Mr Lee is being ushered into F&N invites speculation on whether he is slated for an even deeper commitment to the business.

However, Mr Lee is already going into the topmost position. Making him executive chairman would vest more power in his hands, but that would be a reversal of F&N's steps towards stronger corporate governance by separating the chairmanship from the CEO post last year.

Perhaps, Mr Lee's key role is to push F&N onto a fast-track expansion path. Just like how he turned SingTel into a telco with annual revenue of some $13 billion, up four-fold from about $3.5 billion at the start of his leadership in 1995.

When Temasek Holdings injected $900 million late last year for a 14.9-per-cent stake, F&N flagged plans to use the cash to make acquisitions in the food and beverage business including Tiger Beer.

Given his experience in investing overseas, the appointment of the former SingTel chief is a "coup" for F&N, said Citi analyst Lim Jit Soon in a research report dated Sept 5.

It's easy to see why Mr Lee is a good catch in talent-scarce Singapore.

As CEO, he led the transformation of local-centric SingTel into a giant telecoms outfit with an Asia-wide network during his 12-year leadership — a feat that is particularly commendable as Mr Lee had forged ahead despite hitting wall after wall in places such as Hong Kong and Malaysia.

Braving scepticism, he proceeded to capture targets in places like Australia, India, Indonesia, and the Philippines. These overseas operations proved to be much-needed boosters, especially after SingTel lost its domestic telco monopoly in 2000.

Accolades were aplenty when Mr Lee retired from SingTel in April. So was speculation about his next move.

Media reports linked him to leadership positions at big names such as Hong Kong telecom giant PCCW – bigger fish that would be more challenging for the man, since SingTel's market capitalisation of S$57.6 billion is already the largest in Singapore.

Yet, Mr Lee appears to have settled for a relatively smaller fish at home.

In size, F&N's sales came to $3.8 billion in the year ended Sep 30, 2006, a pale shade of SingTel's.

In terms of compensation, Mr Lee is unlikely to receive as much as the $2.14 million pay packet in his final year as group CEO of SingTel. His predecessors at F&N cannot be taken as a guide because Dr Fam's remuneration of "between $2.75 million and $3 million" last year included four months as executive chairman. Exactly how much is uncertain, as F&N discloses remuneration only in bands, not dollars and cents.

Based on F&N's fees for non-executive and independent directors, Mr Lee might receive "below $250,000".

Add on the annual consultancy fee of $1 million and Mr Lee could get below $1.25 million a year.

Whether that is a commensurate compensation for a consultant cum chairman is an issue for F&N's shareholders to decide. But can they wait till January's AGM for answers to remuneration questions and more?

F&N could help itself and the talent it has snared by offering more information on the nature of Mr Lee's consultancy.

Still, one wonders if the current scrutiny is due to Mr Lee's connections to one of Singapore's founding fathers. If he were not a Lee, would anyone raise eyebrows at the corporate move?