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Posted: 29 Jul 2011 07:50 PM PDT

Board meetings are about decision making on a variety of matters. The supervisory and monitoring duties dominate. However a corporation is a wealth creation entity and major business transactions are placed before boards that demand deliberation and judgment.

When a business judgment is mistaken or proven wrong leading to severe losses and damages, how are directors accountable under their burdensome duties of care and skill? In recognition of the risk dimension of a business judgment and the burgeoning duties, legislature has passed safe haven protection for directors.

Judicial acceptance of business judgment

In an Australian decision which captured the pragmatism of common law, Rogers J observed:

"The courts have recognised that directors must be allowed to make business judgments and business decisions untrammeled by the concerns of a conservative investment trustee.

"Any entrepreneur will rely upon a variety of talents in deciding whether to invest in a business venture. These may include legitimate but ephemeral, political insights, a feel for economic trends, trust in the capacity of other human beings. Great risks may be taken in the hope to commensurate rewards. If such ventures fail, how is the undertaking of it to be judged against allegations of negligence by the entrepreneur?" [Daniels v Andersen (1995) NSW Supreme Court.]

The business judgment' defence under Companies Act

The Malaysian Companies (Amendment) Act, 2007 which came into force on 15 Aug 2007 which is now encapsulated in Section 132(1B) provides a "safe harbour" defence for a director who makes a business judgment:

A director who makes a business judgment is deemed to meet the [duty of care, skill and diligence] and the equivalent duties under the common law and in equity if the director

(a) makes the business judgment in good faith for a proper purpose;

(b) does not have a material personal interest in the subject matter of the business judgment;

(c) is informed about the subject matter of the business judgment to the extent the director reasonably believes to be appropriate under the circumstances; and

(d) reasonably believes that the business judgment is in the best interest of the company.

Section 132 (6) sets out to define "business judgment" to mean "any decision on whether or not to take any action in respect of a matter relevant to the business of the company."

Four conditions

All four conditions must be satisfied before this defence is available.

The first is that the rule protects only decisions that have been consciously made, and where positive evidence of a judgment has been taken on the matter. Passive rubber stamping of a decision and negligent omission by way of serious failure of oversight and monitoring on part of a director does not constitute an exercise of judgment.

Secondly, the decision must not be lacking good faith or have improper purpose.

Thirdly, disinterestedness in the decision making is crucial. If there is any evidence of self-dealing or material personal interest the application of this defense will not be available.

The final element is that any belief that a transaction is in the business judgment be grounded on reasonable ground that it is for the best interest of the company.

Informed decision making

The significance of an informed decision is a cardinal element. The American Law Institute (ALI) acknowledges that there may not be a precise way in which to measure what information is appropriate for sound and informed decision making. Much of governance lapses come from what economists characterise as asymmetrical information that leads to misjudgments by Boards.

The ALI lists the following as matters which are appropriate for sound decision making:

(i)importance of the transaction;

(ii)time availability;

(iii)costs for obtaining information;

(iv) director's confidence in exploring the matter;

(v)state of company's business and nature of competing demands for the board's attention.

In one interesting Delaware decision, the court held that the Board of Trans Union Corporation was not adequately informed when they approved the cash out merger for the corporation [Smith v Van Gorkom (Del 1985)].

The main defects which persuaded the court to disentitle the directors of the protection under the rule and have their conduct castigated as grossly negligent were that the directors:

did not adequately inform themselves as to the role of Van Gorkom in forcing the merger and establishing the cash out price;

were uniformed about the intrinsic value of the company; and

approved the merger after only two hours deliberations without prior notice.

Further, it appeared that the Board did not seek any further valuation or justification for the sale price and made no inquiries for Van Gorkom's bare assertions of value.

The availability of the business judgment rule therefore does not preclude the requirement that a director carries out his evaluative decision making in a manner that evidences reasonableness and is wholly disinterested for the interests of the shareholders of the company as a whole.

Not hindsight but assessment of conduct at relevant time

It is important and salutary that courts urged that any judgment on directors' decision making must not be from hindsight. The merit of the transaction ought to be evaluated given the knowledge then available to the board. Judgment on directors' actions must not be in a realm of unreal altruism or high abstraction but forward looking.

In ASC vs Rich & Anor (2009) Austin J of NSW Supreme Court laid down a very cogent analysis of the scope of the defence of Business Judgment under similar Australian provision. The ASC alleged that certain directors of the Board of One.Tel were in breach of statutory duty of care and diligence when they failed to disclose the true financial position of the company. Central to the ASC case was that in terms of cashflow, creditors, debtors and earnings and liquidity was far more precarious than what was represented to the board. Forecasts provided also had no proper basis.

Austin J confirmed the efficacy of business judgment defence in appropriate circumstances. Clearly, management decisions involving acquisition, divestment or corporate restructurings are construable as "business judgments." But what about management organisation and strategic planning?

Austin J observed that there must be a decision to take or to refrain from taking action. Construing the phrase "matter relevant to business" the judge held that these are words of considerable breadth. A key ingredient for seeking shelter under this safe haven is that there is a conscious judgment exercised. Mere neglect or complete passivity or rubber stamping will not qualify as a business judgment.

Austin J also held that decisions taken in planning, budgeting and forecasting are capable to receiving protection. As to whether the actions satisfy rational belief element (note the phrase of Malaysian provision differs by using "reasonably believes,") Austin J held that a director's or officer's belief would be a rational one if it was based on reason or reasoning (whether or not the reasoning was convincing to the judge and therefore "reasonable" in an objective sense), but it would not be rational belief if there was no arguable reasoning process to support it.

It may be that the Malaysian provision, in using the language of "reasonably believes" have opted for a more stringent objective test.

Commercial justification as in the interest of the company'

When a board meets to make a business decision, its collective judgment is called for to ascertain whether in making the decision the transaction will turn out to be of benefit to shareholders. There will be assessment of medium to long term view coupled with present interest of shareholders. Does this mean that profits must be maximised or are directors permitted to take a wider view? In Intraco Ltd v MultiPak Singapore Ltd [1995] the Singapore Court of Appeal gave wider latitude in construing as to what is commercially justifiable.

In this case a decision was made by a Board of Intraco who was creditor to engage in a debt equity swap with City Carton in an attempt to forestall the insolvency of City Carlton. The transaction was effected but did not avert the eventual collapse of City Carlton.

The Receiver challenged the transaction and argued that directors breached their fiduciary duties. The Court affirmed that no duty was breached as notwithstanding that the debt purchased was nearly worthless.

The test applied was that "whether an honest and intelligent man in the position of the directors taking an objective view could reasonably have concluded that the transaction was in best interest of the company."

Evidence was accepted that the debtequity swap will result in control of City Carton providing a strategic business alliance to a government linked corporation. There is also evidence that it will be part of a vertical integration of City Carlton's with the Acquirer's Group interest.

"Governance" has its roots in Latin "gubernatorial" which relates to navigation of a vessel. If the captains of a corporation were to avail themselves of the safe haven of business judgment the elements discussed in this paper would need to be heeded.

Philip TN Koh is a senior partner of Mah-Kamariyah & Philip Koh, Advocates & Solicitors.

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Cream of the crop and succession planning

Posted: 29 Jul 2011 07:49 PM PDT

ONE of the companies leading the way in terms of accelerating' their employees talent and leadership is Malakoff Corp Bhd. Its chief executive officer Zainal Abidin Jalil, spent many years working in numerous countries in multiple roles with Exxon-Mobil, including stints in Angola and the United States, and has personally gained, career wise, from the programme at Exxon-Mobil.

Not surprisingly, he is a strong advocate of the programme for Malakoff, a company he helms. He personally spends time coaching, and plans to also train employees at their accelerated Leadership Development Programme where the "cream of the company" spend 12 months working on live projects which add value to the company, such as visits to great companies like AirAsia, LaFarge and General Electric (GE). Together, they work and strategise for the future of the company's growth.

According to Zainal, Malakoff, which is involved in power generation, water desalination and electricity distribution, has developed numerous accelerated programmes in its partnership with Leaderonomics.

They are just about to kick-off an accelerator for their senior managers. "We have a clear process of identifying top talent early through its robust succession planning processes.

"These talent are then put through an extensive assessment process, including understanding their aspirations and goals. We then developed a specialised individual programme to help them attain their goals and help Malakoff grow to the next level," he says.

Its senior vice-president for corporate services Bani Zainal Azmian says the key reason the company invests deeply in talent development is because of its determination to remain the leading independent power producer in Malaysia.

"We also plan to grow significantly internationally in power and water, and the talent pool requirement for our growth is tremendous. Previously, we invested in generic classroom training but the net effect on the talent was minimal. So, we changed our approach and engage a provider that understood Malakoff to design an accelerator programme that truly could grow our talent systematically and with certainty."

The CEO himself is earmarked to teach in many of the modules in the various "accelerator" programmes.

Another company which employs Leaderonomics talent accelerator programme is Bolton Bhd. In June this year, the company graduated its first class of accelerated' employees at Saujana Kuala Lumpur with its executive chairman Datuk Azman Yahya presenting the graduation scrolls to 18 highly talented staff.

Speaking about his own career, Azman himself was accelerated in numerous ways by being constantly pushed out of his comfort zones taking on big and challenging roles early in his career.

And even though Bolton may have a relatively smaller workforce compared to large MNCs, he still believed that leadership development and "acceleration" was not something only reserved to the big boys.

The first ever acceleration' programme was launched on Aug 18 last year and called talent leadership development programme (TLDP) as part of its people development strategy in its mission of becoming an employer of choice.

Bolton's head of marketing and corporate services Azman Shah Mohd Yusof says this programme was a natural extension of the company's initiatives towards attracting, optimising and retaining top talents in its workforce. The programme's objective is to enhance the leadership capabilities of its staff, thus creating a leadership pipeline for succession planning, he adds.

According to Azman Yahya, the programme is a key component of the company's transformation into a performance-centric organisation. "At Bolton, we want to develop a culture of leaders developing leaders and through TLDP, our talents were exposed and trained to build entrepreneurial mindset, strategic visioning and a desire for excellence, he notes.

BOLTON : [Stock Watch] [News]

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Dijaya Corp thinks big

Posted: 29 Jul 2011 07:48 PM PDT

AFTER keeping a low profile in the past with sales below the RM500mil cap, property developer Dijaya Corp Bhd is changing course and moving into higher gear to become a more active developer with higher sales targets.

It is targeting sales of RM519mil for the current financial year (FY) ending Dec 31, 2011, RM820mil in FY2012, and RM1.24bil in FY2013.

The more ambitious sales targets will be supported by new project launches to the tune of RM839mil this year, RM1.7bil in 2012, and RM1.8bil in 2013. As at June 30, 2011, the company has unbilled sales of RM450mil.

Dijaya has an undeveloped landbank of 249 acres in the Klang Valley and Johor, that have potential gross development value (GDV) of RM12.4bil.

According to the company's 2010 annual report, it has some 11 acres of land left for development in Tropicana Golf and Country Resort, and 20 acres in Tropicana Indah Resort.

It also owns investment properties such as The Tropicana City Mall in PJ.

With two signature developments to leverage on, the 625-acre Tropicana Golf & Country Resort and 409-acre Tropicana Indah Resort Homes, Dijaya managing director Datuk Tong Kien Onn says the company will continue to build up its prowess in product innovation and ensuring superior quality and practicality in its projects.

Tong shares with StarBizWeek that the company is actively looking for opportunities to expand its landbank, and is in talk for three to four parcels of more than 200 acres each in Selangor.

Dijaya's most recent land acquisitions were sealed last month. It purchased an 88.5 acre parcel in Subang for RM385.5mil or at RM100 per sq ft, and 12.9 acres in Kampar for RM5.6mil or RM1 per sq ft.

On June 8, Dijaya's subsidiary, Tropicana Subang Development Sdn Bhd, inked a deal for the four parcels of freehold land on the outskirts of Subang from Chunghwa Picture Tubes (Malaysia) Sdn Bhd.

The land in Kampar was also from the same vendor.

The 88.5 acres at Pekan Country Heights borders Subang Jaya and Shah Alam.

Tong says the land will be developed into an upper medium range of mixed residential and commercial development with expected GDV of RM3.5bil.

"The residential development will comprise condominiums, linked and semi-detached houses and bungalows, while the commercial development will feature retail outlets, shopping malls and office lots as well as service apartments," Tong explains.

He says the company has engaged GDP Architects to come out with the design plans and the development is expected to kick off early next year for completion in eight to 10 years.

The RM125mil Kampar project is still at the planning stage.

In the next two years there will be six new projects lined up for launch. The new launches will have an estimated GDV of RM2.5bil.

The first to get rolling next month will be Tropicana Cheras comprising terrace and semi-detached houses and bungalows worth RM185mil. The 26-acre project will take three years.

In October, Tropicana Avenue in Tropicana Golf and Country Resort featuring two floors of retail podium with offices and soho units above the podium block will be launched. The RM412mil project is targeted for completion in 2013.

The integrated commercial development of Tropicana Danga Bay will be unveiled in Iskandar Malaysia, Johor in September or October.

The RM3.8bil development will comprise service apartments, hotel, office tower, shopping mall, and retail cum office lots. It will take 10 to 12 years to complete.

Launches in the first quarter next year will comprise Tropicana Subang and Tropicana Bayou, gated and guarded residential projects on 66 acres in Balakong. The project will have GDV of RM400mil.

In June 2012, the Tropicana Gardens commercial centre will be launched on 14 acres opposite Giza Sunway in Kota Damansara. The lake-front project with GDV of RM1.8bil will feature service apartments, soho units, offices, a hotel and lifestyle retail space. It will take seven years to complete.

Tong says Dijaya will be focusing on integrated commercial projects and has a number of such projects lined up for the coming years.

With that strategy, contribution from commercial projects to revenue is expected to rise to 60% in the coming years from close to 50% now.

The company intends to keep some of its commercial space to build up its investment property portfolio and for regular rental income streams.

DIJACOR : [Stock Watch] [News]

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Kredit: www.thestar.com.my

Sabtu, 30 Julai 2011

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