The Good, The Bad, and the SFC
The Securities and Futures Exchange regards itself as the referee who will maintain that the playing field is level. This body would like to be the white knight who will leap to the defence of the poor shareholding maiden when she is being devoured by the wicked fire-eating dragon.
Yet there are many cases in which shareholders have been taken for a ride, and the SFC has had no recourse when the playing field was tilting dangerously in the dragon's favour.
Of course the SFC is not the only potential saviour of hapless maiden's rights, as there are also two Linesmen who will make sure that the ball does not go into touch, or that there is no flagrant breach of the offside rule. These are the company's auditors and the Stock Exchange of Hong Kong. However as guardians of the hapless maiden they are useless and spineless.
The company's auditors are considered to be, and often usually are, almost entirely on the side of the directors of a company. There is no gainsaying the old maxim that he who pays the piper calls the tune, and the auditors are appointed by the directors and their tenure is dependant on the goodwill of the directors. One has only to see the groveling behaviour of some of the theoretically most prestigious and largest firms of auditors when they have been caught red-handedly turning a blind eye to some of the red chips companies in their depredations of the rights and the property of their own shareholders.
And these are not the end of the story, but are merely a small blot on their callous disregard of minority shareholders' rights. The fiction that auditors are there for the protection of the minorities pales into insignificance when weighed against their protection for the board of directors.
The SEHK is the representative of the stockbrokers, who are, after all, those who appoint them and those in whose interests they are appointed to stand. The whole purpose of the Stock Exchange committee is to promote and expand the interests of the market, as this will produce more revenue for their stockbroker members. The stock exchange exists at the will of the listed companies, whose aims are identical with those of many of the members, who are more familiar and have closer liaison with the directors of a public company rather than the smaller minority shareholders. Nevertheless there may be a rapport with some of the larger institutional investors whose aims may be but not always are the same as the smaller shareholders.
My colleague Steven Vines has picked on various cases where minority shareholders appear to have been hard done by, and the Stock Exchange pedantically corrected his article by pointing out that independent directors were not the same as independent shareholders, although in the case in point this had made no difference to the conclusion.
Unless a shareholder is able to afford the vast costs of a lawyer, and also of a public relations agency in order to gain other minority shareholders to support him, he has absolutely no chance of getting his way. For a normal shareholder with a stake of $20,000 the costs of a lawyer could run into the hundreds of thousands of dollars, even if not the millions.
Just take Jardine Matheson. Here a minority shareholder, one who has a larger part of the share capital than the Keswick family whose autocratic arrogance is spitting in the face of the other shareholders, cannot get a word in edgeways. This shareholder has now been joined by numerous other shareholders, Brierley Investments, Marathon Fund Management, and even Li Ka Shing's companies, whose joint shareholdings total at over 15% of the free capital dwarfs the 5% under the KeswickÝs control.
As many other UK institutions would now fly to assist this rebel movement, without the alliance between Jardine Matheson and Robert Fleming, and because the Fleming interests have been superceded by Chase Manhattan. As smaller independent shareholders, like myself and my ex-clients, who had seen the value of their investments shrivel under the Keswick management, would also like to get onto this bandwagon, but whether that would be sufficient as 60% of the capital is held by the cross-holding with Jardine Strategic whose votes could be controlled by the smaller minority Keswick shareholding, unless a dispensation can be obtained from the courts, but then nobody seems to know which courts in which country have ultimate discretion.
The SFC can complain that this is not their baby, but they cannot refute that this blackguardly removal took place under their predecessor's eyes, and with their tacit assent. Now they are content also to close their ears to any complaints.
Last week there had been a complaint, yet another, about Playmates Toys. One, feuding brother of the Chan family now wonders why the company had sold 17 million shares in Harbour Ring although Thomas Chan, Chairman of Playmates and Prestige a property company, had distinctly and directly denied any intention of selling as recently as March, and the price was not disclosed. Of course within weeks they sell. Prestige had also diluted the share capital with the deliberate effect of diluting Warringtons', owned by brother Albert, interests. Despite the fact that under Thomas's sponsorship the NAV at the company has halved over 5 years, the resolution was passed even though opposed, and with scary a look from the referee and the Linesmen.
The story of minority shareholders being deprived of their rights by controlling and influential boards is a never-ending tale, and this can be done without any fear of opposition from the SFC, the HKSE or even the auditors appointed at the company's AGM, when a lone minority shareholder has no voice.
The forthcoming tale of the rape of CWHKT, where the majority steamroller is passed between CWHKT and PCCW, assures that minority shareholders in CWHKT who do not want to be stuck with PCCW's asset-less paper, with little or no earnings in the foreseeable future, is now being condoned by both the SFC and the HKSE. The "independent" directors of CWHKT are in the process of countenancing a report that this is in their best interests!!! The independent shareholders are not to be allowed to have, if the newspaper reports last week are to be believed, even a minor say in their own defense, but will be swept into the same path as the majority shareholder, but will end up in the drains.
It is quite laughable that anybody seriously expects any of these three guardians to protect the interests of smaller shareholders. After all if they cannot protect the rights of the larger shareholders then what chance have smaller shareholders got. (end) |
