It was not just a matter of wanting to trim costs when Jurong Cement Limited (JCL) announced last month that five directors would resign to cut expenses.
Following a query from the Singapore Exchange (SGX) on how much cost has been saved, JCL yesterday surprised with a clarification that there had in fact also been an ’ongoing conflict of interest’ issue relating to certain directors and ’irreconcilable differences’ between two controlling shareholders.
These arose because JCL’s two controlling shareholders, both represented by directors on the board, had become competitors in the ready-mixed concrete market here.
Last month, the company said that ’extensive discussion on the need to reduce costs’ led to a decision to trim its board at a Nov 11 board meeting. JCL said then that five directors volunteered to stand down - three non-executive directors, one independent director and executive director Roland Mathys, who is still the company’s chief executive.
Following the SGX query, it emerged that cost reduction was not the key reason why they had stepped down. In a statement yesterday, JCL said that ’ongoing conflict of interest’ had arisen after JCL became a subsidiary of Swiss-based Holcim Group. The other controlling shareholder is Malaysian infrastructure conglomerate YTL Corporation Berhad.
’Two of the directors on the company’s (JCL’s) board are employees of the YTL Group which has moved into the ready-mixed concrete market in the past two years and become a major competitor of the Holcim Group (including the company) in Singapore,’ said JCL.
Prior to the board meeting, Holcim Investments Singapore (HIS), which has a 55 per cent stake in JCL, tabled a notice to remove certain directors, pursuant to section 176 of the Companies Act (Cap 50). It said that it believed the company ’needed to reduce costs, and, more importantly, needed to address an ongoing conflict of interest issue’.
In its clarification yesterday, JCL said that directors who were employees of the two controlling shareholders were not paid any directors’ fees. And the two directors who were not employees of either group each received $35,000 a year, JCL said. The company posted a nine-month net loss of $4.56 million at the end of September.
The more salient issue was ’the incongruous position of the company having a competitor privy to the dealings of the company’s board’, according to yesterday’s statement.
A second issue had to do with ’possible breaches of the Competition Act’ - as information from board meetings could be used in ways adverse to competition.
While JCL and the Holcim Group’s other Singapore subsidiaries ’operate as a single economic entity’ under the Competition Act, YTL Group has a Singapore subsidiary which is ’deemed to be in competition’ with JCL, the company said. The board thus ’ran the constant risk of breaching the Competition Act’ by discussing sensitive information in the presence of directors representing a direct competitor, YTL.
Furthermore, JCL said, earlier negotiations between the controlling shareholders over the company’s future direction, had already ’demonstrated that there were irreconcilable differences between them’. After the five directors voluntarily resigned on Nov 11, HIS withdrew its notice.
Source: The Business Times