SOME readers have asked me for my views on the punishment being meted out to lawyer Peter Madhavan who is the first independent director in Singapore to be given a jail sentence over a misleading statement.
Just to recap first for those who have not followed the story closely, Madhavan was on the board of a then SGX-listed company, Airocean, and the statement was related to the company's former chief executive Thomas Tay who was the subject of a criminal probe.
There are two points that I want to highlight:
First point to note is that after the probe, Thomas Tay was subsequently put on trial. But his penalty was financial in nature. He was fined $3000 for attempted bribery and another $240,000 for disclosure lapses and making misleading statement.
Madhavan was, however, handed a jail sentence. He is appealing against both his conviction and jail sentence.
The second point to note is that while the misleading statement had been put on the SGX website by Airocean’s board, the role of each of the three former directors, which had been charged for making the "misleading" statement to the SGX, was examined separately, and the punishment doled out accordingly.
This seems to indicate that while the accuracy of a statement put out by a company may have been the collective responsibility of the board, this does not absolve each director of individual blame if a mishap were to occur.
So what is an investor to make of the latest development and its impact on corporate governance in Singapore ?
The irregularities at Airocean had occurred so long ago, that few readers now remember what had transpired.
But the spate of S-chip scandals is still fresh in our memory and we had a rude reminder just last week when another two – China Hongxing and Hongwei – were suspended from trading due to accounting irregularities.
This has again triggered a big outcry among aggrieved investors here that there seems to be no way to make the errant bosses of these scandal-hit companies accountable for their actions because they are based in China.
True, there may be no way currently to bring any errant China bosses back to Singapore to face the music unless they voluntarily agree to come here, like what China Aviation Oil's Chen Jiulin did years ago, since there is no extradition agreement between China and Singapore. But the catch is that each time before a company issues its interim results, its board has to come out with a "negative assurance" that nothing had come to its attention to make the results "materially false or misleading".
So I am not surprised to find awkward questions being raised of the negative assurances which had been issued by the boards of scandal-hit firms just a few months before accounting irregularities had been uncovered in them during the annual audit.
As I observed in yesterday’s Cai Jin column, the Airocean's case sends a strong signal to independent directors to take their watchdog role seriously.
And when it comes to a weighty matter like issuing a 'negative confirmation' for a company's results, they should break ranks and refuse to go along with the rest of the board if they are not comfortable - or face possibly painful consequences.
This is in view of the precedence established in Airocean where the role played by each director was scrutinised.
One other point – I will not be surprised if some independent directors insist on getting the company’s auditors to look through the numbers and get some comfort before they issue any negative assurance – or stage a walkout.
That will jack up the costs of running a listed firm here, but that can’t be helped, given the angry mood among investors over the accounting scandals that have again resurfaced on the S-chip sector.