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Directors: Don’t play play, be diligent

In Corporate governance on 17/05/2010 at 5:21 am
Directors cannot “abdicate their responsibilities under the pretext of delegation” to other directors with specialised knowledge. The law will hold them responsible even if an issue falls outside of their area of expertise.

This was the message the High Court gave last week when it doubled the one-year disqualification order imposed on Mr Ong Chow Hong for failing to use reasonable diligence in the discharge of his duties when he was a director of then-listed company Airocean Group in 2005.

The SGX had halted trading of Airocean shares and asked for clarification on a media report that said the CEO was being investigated by the Corrupt Practices Investigation Bureau.

A directors’ meeting was convened but Mr Ong missed it to attend a golf function. Airocean sent out a “misleading” public statement later that night, which led to three other directors being charged. Their cases are still before the courts.

Appeal Judge V K Rajah said Mr Ong, had “committed nothing short of a serious lapse in entirely abdicating his corporate responsibilities …¬†One would think that any competent director would immediately comprehend the pressing urgency and significance of (the SGX’s) query and the critical need to respond accurately and promptly.”

“The gravamen of the charge here is that the appellant consciously abdicated from his responsibilities; he never asked to see the draft announcement before it was released to the public, and was quite content to delegate his responsibilities to another director.”

Justice Rajah said the public must be protected against all errant directors “by an uncompromising reaffirmation of the expected exemplary standards of corporate governance”, referring to the court’s discretion to impose disqualification orders that would be “sufficient to deter serious lapses in corporate behaviour”.

During the appeal hearing, Justice Rajah noted that the law “does not impose the obligation for directors to get it right all the time but it requires directors to exercise due diligence, that you must participate if called upon”.

Directors have to “bring to bear their own judgment” in evaluating advice received from professionals and not “seek shelter behind other specialised directors” even if they are not experts in that issue of concern.

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  1. In the morning of 25 Nov 2005 as I was about to leave for Safra Golf Resort to attend Aljunied Town Council Golf Tournament (Senior Minister of State Zainal Abideen Rasheed was guest of honour) Airocean company secretary called to inform me of Directors meeting to prepare announcement to SGX that day. On the spur of moment I decided to proceed with the Golf Tournament but asked and was confirmed that Peter Madhavan, a lawyer and company’s legal advisor would be involved in preparing the announcement.
    After the Golf Tournament I attended the Golf Tournament Prize Presentation Dinner during which I presented prizes to the participants as Chairman of the Town Council had to leave early to attend another function. My attendance at the event was as a function official because I was Audit Comm Chairman and EXCO member. At about 7 pm the start of the Dinner AO’s Director of Finance called me to tell me the draft announcement was ready and asked if she could read it to me over the phone. I said the function room where the Dinner was held was too noisy and I could not hear properly. I asked her to fax it to my home and I would read it later. AO Officer told me the announcement must be sent out that evening and that all other Directors had approved it. I asked and she confirmed Peter Madhavan and company’s legal advisor had given their approval. Thinking that I would be helping the company in the timely submission of the announcement, I said if the lawyers had approved it I would go along with them. After the Town Council event I returned home at about midnight. The announcement was sent out at about 8 pm.
    The phone call to me at the Dinner with all the details were not included in my Plea of Guilt and Appeal Submission. My lawyer told me I would be repeating myself because the same things were said in the phone call in the morning. However. all these were in my statements to the CAD and my Representations submitted to AG Chambers.

    • Further to my comments earlier, I would very much like to put in a few good words on the other three Airocean Directors whose cases are before the court. However, I should not make comments in the public domain. Otherwise, I may get into trouble.
      As for my case suffice to say that this is an unforgiving society. Because of the AO case I lost my town councilor position after serving 20 yrs because the fine was above $ 2,000. I lost my 2 directorships. I also lost my ad hoc consulting work with a listco in reviewing its overseas operations for which I served 14 yrs. Some director of this company said if they let me continue as consultant people will talk.
      Hence, I have been forced into total retirement in effect complete idleness. Although I am 71, I am bodily able and mentally sound. My forte is in management & operational audit.
      I sought the help of friends, some are prominent figures, to find something to do in non-profit organisation. This was in June last year. Up till now – nothing. It would seem no one would touch me a with 10 ft pole.

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