Power tussle at CDL sparks concerns over governance and share price volatility

“TIP OF THE ICEBERG”

Requesting the removal of a CEO based on a governance lapse in the nomination and appointment of board directors is “rare”, said Professor Lawrence Loh from the National University of Singapore (NUS), adding that the latest dispute is “likely the tip of the iceberg”.

Similarly, Mr Lai said: “From my perspective, a governance lapse relating to a (nominating committee) process alone is unlikely to justify and warrant the removal of a CEO.”

Mr Kwek Leng Beng had in his statement cited “a long series of missteps” by his son since he took over the company’s top job in 2018, including the ill-fated investment in Chinese developer Sincere Property Group.

Spearheaded by Mr Sherman Kwek in 2019, the investment was intended to expand CDL’s footprint in China. But the onslaught of COVID-19 and regulatory upheaval in the Chinese real estate market ultimately resulted in a S$1.9 billion (US$1.42 billion) loss for CDL in FY2020.

The company later sold its stake in Sincere for US$1 in 2021, but not without causing a rift within the family-controlled business. It led to board resignations, including the departure of non-executive and non-independent director Kwek Leng Peck, a cousin of the senior Kwek.

RHB Singapore analyst Vijay Natarajan described the investment into highly indebted Sincere as a “misstep” taken in an attempt to quickly scale up CDL’s presence in China. 

“While CDL has operationally recovered from it, we believe the issue still remains as an overhang in the minds of investors who have been looking out for a concrete overseas growth strategy,” he said.

WHAT CAN THE COMPANY DO TO RESTORE CONFIDENCE?

The legal battle is not the first publicised family dispute within CDL, but experts suggest its impact could be more significant this time.

“What can be more serious than a father firing his own son?” asked NUS’ Prof Loh.

The legal action taken by the senior Kwek appears to be aimed at issuing a “strong statement that corporate governance is sacrosanct and due diligence is essential”. 

“We can take it as the company is moving to upkeep the company in the interest of shareholders. To put it more directly, between company and family … the company takes precedence over the family,” said Prof Loh, who is director of the Centre for Governance and Sustainability at the NUS Business School.

The elder Kwek’s statement noting that CDL is open to appointing a “professional CEO” suggests the company may seek leadership beyond family control to reassure stakeholders, Prof Loh added. 

Assoc Prof Law said the removal of a CEO is “generally a major step for any company, particularly one with a family-run background”.

“From an outsider’s perspective, prominent public disputes can create an impression of internal discord, potentially prompting concerns from stakeholders about the company’s strategic direction,” he added.

“Still, the degree of reputational or operational impact hinges largely on how swiftly and transparently the company resolves any internal disagreements.”

If the company’s leadership can demonstrate “clear steps to uphold governance principles and ensure smooth operations”, the long-term effect on brand perception and investor confidence may be mitigated,” said the NTU professor.