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A Corporate Governance Breach At Singpost Case Solution
SingPost is a Singapore based mail service company that deals domestically as well as internationally. The company was hit by a corporate governance saga which caused it to lose the trust of its shareholders who questioned its corporate governance framework. As a result, it hired Simon Israel who was a credible name due to his previous role in SingTel. But there was more that was required from the company to gain back the investor trust. A number of corporate governance issues were highlighted which include larger board, high frequency of executive committee meetings, senior members on board serving for an exceptionally long period, absence of nomination and corporate governance committee, failure of the compensation committee to meet quarterly in a year as it just met annually and absence of any guidelines pertaining to merger transactions. As a result, it was proposed to consider a board renewal and have a smaller board along with the relevant board committees in place which would be responsible for the board oversight and succession and nomination of board members.
Following questions are answered in this case study solution
Corporate Governance Related Issues
Case Analysis for A Corporate Governance Breach At Singpost
Sing Post initiated its operations as a small mail office in 1819 and soon became Singapore’s designated Public Postal Service as it provided domestic and international postal services to the consumers. The company has been very quick to respond to the changes in the market as it soon realized the increase in the extent of the competition along with the growth of the internet-based services which reduced the total postal volume generated by the company on an annual basis. As a result, Sing Post welcomed a new CEO who very effectively led the new transformation as the focus was directed towards investment inefficient IT infrastructure.
Talking about the board of the company, it had a much larger board comprising of 12 directors unlike in the case of most of the companies. One interesting thing about the board was that majority of the members that were there on the board were for a long period of time that is more than 20 years and was more than 70 years old. Although there were new independent directors that became a part of the board in the recent years but give the complete structural change of the company to adopt digital technology, the evolution in the board committee does not seem significant which will be further discussed in relation to corporate governance issues that may have arisen as a result.
In the beginning, the company was very much successful as its market capitalization increased due to consistent profitability. Hence, there was positive investor confidence and the shareholders of the company seemed to be quite satisfied with its performance but soon a series of corporate governance problems unfolded for the company which will be discussed in detail in the following report after a thorough analysis of the case.
3. Problem Statement
During 2015, Sing Post found itself in deep waters as the Group CEO resigned without any notice and soon after a few weeks, the company made an announcement that it had not made a disclosure concerning the interest of a lead independent director in an acquisition transaction that occurred in 2013. This is because Tay had a significant stake in Stirling Coleman, which was a financial advisor company that represented the sellers in the acquisition. Hence, this was a direct interest of Tay in the transaction and the fact that it was not disclosed at the right time caused the investors to be concerned who believed that such important information was deliberately hidden from them and they questioned the credibility of PWC which had previously conducted the audit of the company and failed to notify of such an issue.
Although the company engaged in a special audit and appointed a law firm as well an independent consultant to investigate the issue in attempts to restore the investor confidence, even before the report was released, the resignation of Signpost’s chairman and then stepping down of the new chairman and soon after Tay’s resignation created an uncertain situation and the fact that Fay was found to have breached his fiduciary duties as well breaching a section of Companies Act placed a huge question mark on the corporate governance effectiveness of the company.
Due to such a huge demand, Sing Post appointed Simon Israel, who was considered to be a credible figure given his role as chairman of SingTel, Singapore’s largest telecommunications company. However, the company still needed to strengthen its corporate governance procedures apart from having a strong figure in the board to eliminate the loopholes in the system or it may suffer from deteriorating investor confidence along with the actions taken by the Singapore government which prides itself in a strong regulatory environment.
The special audit report provided deep insights into how the corporate governance was managed at Sing Post. Firstly, it was found that Sing Post itself had no policy to evaluate and approve M&A transactions and solely relied on the experience of its members. This can be considered one reason why such a major disclosure was missed by the directors when they were evaluating the transaction. Also, it can be seen that the audit report clearly helped establish the stance that the failure to disclose was mainly an error and not purposeful concealment gave the fact that Sing Post was not actually obliged to disclose Toy’s interest in the Famous Acquisitions but the fact that it published the statement that none of its members had any interest was what put it into deep waters.
i. What steps, if any, should the regulatory authorities of Singapore take against the postal giant’s board to ensure that the city state’s reputation for quality of governance and transparency remains unsullied?
As has been discussed that Singapore prides in its strong governance, the failure of the company reflects the failure of the regulatory authorities which is why it would be advisable that the company is charged a fine or penalized in some way so that such a situation does not arise in future. Apart from this, regulatory bodies can compel businesses to make disclosures on governance frequently so that their performance can be tracked in a better way.
It should on the other hand still be kept in mind that the omission did not result in any changes in the decisions that were made regarding the acquisition and regarding the price. However, this should not be taken lightly as such carelessness at the end of the management might mean that further such transactions can take place that would potentially cause the investors to lose the stakes they have invested in the company. Hence, as a result, there is a need for Sing Post to not only publicly accept its careless mistake and not only hire a credible figure as a chairperson but review the qualifications and the experience of its board members to have a strong oversight over such issues so that such a thing may not happen in the future.
ii. Under the watchful eyes of all stakeholders, the company was clearly going to make the changes recommended under the Special Audit Report. But would this be a little too late?
Based on the analysis of the case, it would be right to agree with the fact that the breach did not result in any significant damage and was more of a hype created by the media and the concerned shareholders, but the fact that the breach existed in the first place is something that Sing Post needs to be mindful of in the first place as such a situation can even place it in the bad eyes of the public and cause it to lose to the competition which would further work against the interests of the shareholders.
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