Never have Malaysian shareholders been this bold. FGV Holdings Bhd’s major shareholders - Federal Land Development Authority (Felda), Koperasi Permodalan Felda (KPF) and Lembaga Tabung Angkatan Tentera (LTAT) - just did that on Tuesday at FGV’s annual general meeting by rejecting the directors’ pay package. And understandably so.
Despite FGV making a loss of RM1.08 billion last year,the company sought the approval of its shareholders to pay its 10-member board RM5.74 million for the year. The FGV chairman’s remuneration alone amounted to RM1.95 million, adding much red ink to the already bleeding company.
We are all for shareholder activism. This happens not very often in Malaysia. Arguably,the 2008 financial crisis brought such activism to our shores. An activist view is that the board has oversight of the company and the shareholders an oversight of the board. In this way, checks and balances can be maintained. Besides, activism ensures good governance.
We have read reams of reports of dubious deals and other deficiencies. The one most inglorious example of such goings-on being the one let loose in 1Malaysia
Development Bhd. One cannot be sure, but there may have been an outside chance that such things could have been stopped in the tracks had there been such activism. But we are billions too late.
Do not mistake us. We are not against remuneration for directors. On the contrary, we are all for pay for performance. When the company bleeds red ink, it is hard to talk about a pay cheque as hefty as RM5.74 million.What is more, when staff were not paid bonus and the services of senior staff were terminated as revealed by one of the shareholders, KPF.
It would have been the most ungracious offer. In short, there is no business case for such a high remuneration. KPF thinks the directors only deserve half of the proposed fee package.
Law academic Sujatha Balan,writing in the Journal Of Malaysian & Comparative Law, says Malaysian law appears not to place a limit on what amount may be fixed as directors ‘remuneration by companies’ articles of association or the service contracts of directors. Good corporate practice demands directors, executive or otherwise, be paid only affordable salaries from divisible profits, so say lawyers who deal with company matters.
As the FGV case demonstrates, affordable remuneration isn’t easy to achieve. Neither is there a precedent - statutory or otherwise - to be applied to control such payments. Like in the case of FGV, it is best left to the shareholders to choose to be active or otherwise.
A typical lawyer’s advice on matters such as this is: as a general rule, the court will not interfere with the amount fixed by the company as directors’ remuneration. Perhaps there may be exceptions calling for the intervention of the courts as stated in the persuasive English case Re Halt Garage (1964) Ltd.
The exception being blatantly excessive remuneration being paid. But this is putting the cart before the horse.FGV’s major shareholders have put paid to this. Or have they? We will wait and see.