14/2016 – On listing and being a board member
by Tan Thiam Hock
Saturday, 17 September 2016
GOING back 30 years, entrepreneurs seldom think of exits when they start a new business.
Firstly, it was difficult to scale a local business as the national consumption capacity then was pretty low. Unless you are in the manufacturing sector exporting to the booming US and European markets, building a sizable local market business requires a conglomeration of various small businesses or building a trading and distribution business of multiple agencies.
The ultimate aim for any entrepreneur worth his salt was to seek a listing for his company in the Kuala Lumpur Stock Exchange (KLSE) which has now been renamed to Bursa Malaysia, itself a listed concern.
I can still remember how I used to prepare my growth plans for listing to my partner, the late Ang Guan Seng who will smile wryly every time he listens to my enthusiastic and unrealistic plans. He had himself listed Petaling Gardens Bhd in 1983 and If I remember correctly, one of the earliest property companies to be listed on the KLSE.
Back in 2009 after Ang had passed away, his family and I decided to list our company on the main board as our track record and past three year financials had prequalified our credentials. But midway through our listing preparations with our investment bank, an offer from private equity came in. To the Ang family, it was a clean divestment opportunity. As long as the selling price equates the expected market cap price, it was a doable fair deal.
As fate would have it, we sold out to private equity and I ended up with an unfulfilled dream of ever listing my company. But life is full of twist and turns and I find myself at the tail end of my entrepreneur journey to be appointed as an independent non-executive director of two listed companies this year. I had taken up the appointments against the advice given by my drinking buddies, bros Ho and Vincent who had earlier experienced the stringent responsibilities of being a director in a listed company. I still cannot decide today whether to blame it on the whisky or the wine.
I realised my folly when I had to attend the MAP seminar, a requisite compulsory class for directors of a listed company. The Mandatory Accredited Program is a one and a half-day programme organised by the training arm of Bursa Malaysia and to their credit have a line-up of speakers of very capable past and present directors of Bursa Malaysia and Securities Commission (SC).
Expecting a dry and boring session, I was pleasantly surprised by the richness of the interesting case studies presented and the enthusiasm of the speakers, every one of them reminding the green horns in the room of their responsibilities of being a director of a listed company. It does not matter whether you are an executive, non-independent or independent director, the board of directors are collectively responsible for any wrongdoings of the company unless you can prove (validated by minutes of the meetings) that you have spoken or voted against any act of supposedly bad faith. And you are encouraged to whistleblow if you need to save yourself from any prosecution.
The message delivered was clear and precise. Listed companies raised funds from the public and the board of directors must ensure adequate corporate governance to protect public investor’s interest in the company. Which means no insider trading (major problem), fraudulent activities (massive problem) and many other acts in bad faith. Reprimands and fines by Bursa and fines and jail terms by SC are the punishments for errant directors.
According to the current director of enforcement at Bursa, they have never lost a court case, so the underlying tone of advice is to take the reprimand on the cheek and pay the fine accordingly. Do not mess with us, was the key message to all the rookie directors. I could see many worried faces in the room, especially the independent directors each measuring their risk rewards ratio. All wondering whether if it is worth it?
After going through the course, I realised that there were not that many moral differences from being directors of a listed company compared to being a director of a private limited company (sendirian bhd).
If you are an executive director, you will be responsible to the other shareholders of the company. More so if your partners are venture capital or private equity funds. Theses funds are primarily managed by accountants and after being appointed to your board, they go through your budgets and expenses like a hawk with a tooth comb with references to multiple spreadsheets that they have prepared. They can cross checked and triple confirmed and remind you of earlier commitments that you have made. All you can do is plead amnesia and act dumb.
They are the equivalent to a non-independent non-executive director of a public listed company. And if they hold majority control, they have the final say. If you think you are still in control as the CEO, it is just a figment of your imagination. You have sold your right to be in charge. You have the right to do your job as stipulated in the management contract that you have signed. There is just no point in messing with them.
My only advice to entrepreneurs who roped in venture capital to fund their business is to play it straight right from the beginning. Be honest with your assessment and forecast and build a relationship of trust with your fellow directors. As qualified accountants, they are fast learners. After a year or two, they can actually help you run the business. All based on numbers of course.
You just have to learn to suppress that gut feel in your stomach as accountants do not have the stomach for major change in directions if not supported by numbers. No, accountants are not gutless, they are just practical number crunching machines.
Anyway, Bayer just announced buying Monsanto for US$66bil on a PE of 16.5 times earnings which means Monsanto makes about US$4bil profits a year. Compare that to Uber’s latest round of fundraising which values Uber at US$60bil and Uber loses billions a year. So you ask yourself, in this new world economy, whether it is worthwhile to list your company and for that matter being a director of a listed company would bring you any satisfaction?
I would need another session with my drinking buddies to ask for their advice. Hopefully I can stay sober enough to hear their “I told you so” slurs.
Happy Malaysia day and Cheers!