questions for corporate law

Case overview

On 3 September 2013, GRP Ltd (GRP), a company listed on the Singapore Exchange (SGX) Mainboard, announced the appointment of Peter Moe as an independent non-executive director of the group. Soon after the announcement, the SGX queried the company for appointing an independent director who had been previously disqualified while being a director of another company also listed on the SGX Mainboard. Moe had also received a complaint regarding alleged professional misconduct. A letter in the business newspaper questioned the companys response to the SGX query and sought further clarification. The objective of this case is to allow a discussion of issues such as the selection and appointment of directors; role of the Nominating Committee; the influence of controlling shareholders in the appointment of independent directors; and the role of minority shareholders and regulators in the appointment of directors.

Background

GRP is a Singapore-based company listed on the Mainboard of the SGX. The company has been serving the onshore and offshore, marine, pharmaceutical and petrochemical markets for over 30 years. In October 2013, GRP obtained the approval of its shareholders to expand its business to include property development1. They intended to acquire and develop overseas properties including those in countries such as Myanmar, Malaysia and China.

Reconstitution of the Board and Board Committees

GRP announced a reconstitution of its Board and Board Committees on 4 March 20132. Kwan Chee Seng (Kwan) was appointed as an executive director on 1 March and was mainly responsible for the groups business development. William Teo (Teo) resigned as an independent director. After the appointment of Kwan and resignation of Teo, the board consisted of two executive directors, two independent directors and one non-independent non-executive director. The other executive director was Iris Sim (Sim). Goh Lik Kok (Goh) and Roger Stuart Mitchell (Mitchell) were the independent directors and Chen Wei (Chen) was the non-executive director. The Nominating Committee (NC) was chaired by Goh, with Sim and Mitchell making up the other members.

The catch

After the resignation of Teo as an independent director, the company sought potential candidates to fill the vacancy, bearing in mind GRPs plan to diversify into property investment and development.

Peter Moe (Moe) was officially appointed as an independent director of GRP on 1 September 20133. The announcement of his appointment dated 3 September 2013 included disclosure of a number of enforcement and legal actions against him. Following the announcement, SGX issued a query to the company, which responded in an announcement on 9 September4. In its response, the company said that the Board and NC were fully aware that Moe had been convicted under the Companies Act and had been fined S$5,000 and disqualified for failing to use reasonable diligence in the discharge of his duties as an independent director of Chuan Soon Huat Industrial Group Ltd (CSH); has had a complaint of professional misconduct against him; and had faced civil proceedings involving allegations of misrepresentation and misuse of position of trust and confidence.

The company stated that the Board and NC had examined all the disclosures about enforcement and legal actions involving Moe intensively and had concluded that the matters were of no concern. With regard to the criminal conviction and disqualification, the company said that there was no moral turpitude and Moe did not receive any benefit. Further, his disqualification had been reduced from two years to one year upon an appeal to the High Court. The NC was of the view that the conviction will make Mr Moe a more experienced director and Mr Moe has resolved to become more vigilant to safeguard the interests of the Company especially in the areas of governance and compliance. On the complaint of professional misconduct to the Law Society, the NC noted that the complaint was dismissed. On the civil proceedings which were related to the complaint to the Law Society, the case was amicably resolved through mediation.

The companys response prompted Associate Professor Mak Yuen Teen of the National University of Singapore Business School to publish a letter in The Business Times on 13 September asking GRP to further clarify the controversial appointment of Moe. Professor Mak sought greater transparency and disclosure of the nominating process and questioned how the NC had specifically assessed Moes suitability to take on the role5 giving the past enforcement and legal actions against him.

GRP issued a four-page response to Professor Maks letter on 18 September which attempted to address two major issues raised by him: how the NC could have properly assessed the civil proceedings against Moe which were resolved through mediation, since parties to mediation hearings are bound by strict confidentiality; and how Moe was identified as a candidate and whether he was nominated by particular shareholders.

GRP stated that the NC had done a proper assessment6 which took into account three main factors:

1. Prior experience as an independent director

Moe had over a decade of experience in three companies listed on the SGX: PSL Holdings Ltd, CSH, and Air Ocean Ltd.

2. Qualifications

Moe is a law graduate with an Honours degree from the University of Kent, Canterbury, United Kingdom. He was admitted as an advocate and solicitor in Singapore more than three decades ago and is still a practising lawyer.

3. Professional experience and credentials

Moe had 30 years of legal practice and had handled a variety of legal work including civil litigation, corporate advisory and real estate work, amongst others. A large part of his experience was in conveyancing and real estate legal work including residential, commercial and industrial property sales.

GRP also described its search and nomination process in detail. It stated that it tapped on the social and business network to identify potential board candidates. In the case of Moe, he was introducedto the NC by Kwan, who is a controlling shareholder of GRP, owning just under 30% of the shares of the company7. It was disclosed that Kwan had known Moe for about 10 years and had past dealings with him, although none since 2005.

GRPs responses to the queries about the appointment of Moe triggered no further action from the regulators. At its annual general meeting (AGM) on 29 October 2013, Mitchell and Sim decided not to seek re-election as directors8. Mahtani Bhagwandas was elected as a director and joined the Board as an independent director and a member of the Audit Committee.

Discussion questions

1. Evaluate the composition of the GRP Board as at 1 March 2013. How might the presence of Kwan Chee Seng as a controlling shareholder and executive director affect the corporate governance of GRP?

2. What are the essential elements of a robust search and nomination process for directors? Evaluate the approach used by GRP in appointing Peter Moe to the Board against best practice in a search and nomination process.

3. Do you think the Board should have appointed Peter Moe given his qualifications and experience, despite the enforcement and legal actions that he has faced? Evaluate the explanations given by the company in response to queries about the appointment of Peter Moe.

4. What is the role of the Nominating Committee (NC) in the appointment of directors? Do you think the NC discharged its role effectively in the case of GRP? What challenges does the NC face in companies such as GRP? How can the nomination process be improved?

5. There have been instances of directors who have been caught for legal, ethical or moral infractions that are not directly related to their role as directors. For example, one director was convictedof a criminal offence for cruelty to his dog, which he had left exposed to the elements for several days. Another was reported in the overseas and social media as having had a secret rendezvous with an overseas actress, while he was overseas with his wife. Should such personal infractions matter when it comes to assessing the suitability of a director for appointment? Explain. If you were on a board and one of your fellow directors finds himself in this situation, what actions, if any, do you think the nominating committee and board should take?

6. Should minority shareholders have more say in the appointment of independent directors? Should regulators intervene in the appointment of directors, such as in the case of the appointment of Peter Moe?