COMPANIES & FINANCE: ASIA-PACIFIC:
Asian investors learn to fight for rights:
Previously ignored shareholders are making their voices heard, writes Joe Leahy:
Financial Times; Jun 22, 2000
By JOE LEAHY

When the former flagship of Indonesia's Lippo Group, insurance company Asuransi Lippo Life, announced in January an ambitious plan to become an internet investment vehicle, company executives were euphoric.

"Lippo Life's share price is still very undervalued," declared Billy Sindoro, chairman. "I am certain that the party has not yet begun."

Unfortunately for Lippo, the party was a flop. Far from reaching for the champgne, minority investors were furious, accusing the company of moving away from its lucrative core insurance business without consulting them.

Lippo rejects the allegations, but the company did miscalculate one thing - an increasing willingness among investors in Asia to stand up for their rights.

The Lippo case, which has not yet been fully resolved, is one of a growing number of disputes in the region in which retail and institutional shareholders, once a silent minority, are becoming increasingly vocal.

This week, a plan to create what would have been the region's biggest brokerage, through the merger of Singapore securities houses Vickers Ballas and GK Goh, was scuppered by objections from a minority shareholder, businessman Ong Bong Seng. Government-owned Vickers would have been shortchanged under the deal, Mr Ong argued.

That followed a rebellion earlier this month by minority investors in Jardine Matheson. The shareholders wanted to abolish the elaborate cross-shareholding structure by which the controlling Keswick family maintains its fiefdom.

The lessons of the Asian financial crisis, coupled with a widening domestic investor base, are emboldening minority investors to become more outspoken on deals and equity structures they see as undermining shareholder value. If successful, the changes could lead to a more accountable corporate environment in Asia, fund managers say.

"As more and more Asian investors enter the Asian markets and as mutual funds and privatised pension funds grow in the region, there will be more impetus for investors and investment managers to be more outspoken," says Mark Mobius of Templeton Asset Management, which has a stake in Jardine Matheson.

The desire for better governance is also part of a worldwide trend, according to a survey by McKinsey & Company. "Over 80 per cent of investors say they would pay more for the shares of a well-governed company than for those of a poorly governed company with comparable financial performance," McKinsey said.

Asian standards of corporate governance vary wildly. In some countries, improving boardroom accountability is more about fine-tuning, while for others it is a make-or-break issue.

In Singapore, one of the region's cleanest corporate environments, boardroom conservatism and a misunderstanding of the responsibilities are the main obstacles to better accountability, says Hugh Young of Aberdeen Asset Management.

The challenge was to impress on directors that boardroom membership was not just a job for life and that their loyalties should be to all shareholders not just the controlling families.

"It's very hard to be genuinely independent and to break the gerontocracy that runs things not only in Singapore but all over Asia," says Mr Young.

However, the success of Mr Ong's campaign on the Vickers-GK Goh merger is one sign things may be changing. Some of Singapore's leading banks, such as Oversea-Chinese Banking Corporation, are beginning to appoint younger, independent directors.

"What you're seeing are the glimmerings of corporate governance coming through," Mr Young says.

Lin Che Wei, research director at SG Securities Indonesia and a leading opponent of the Lippo Life plan, argues that Indonesia's poor reputation for corporate governance could ultimately threaten the survival of its financial markets.

"I'm trying to encourage the creation of a self-regulating environment by making market participants more outspoken," Mr Lin says of his campaign against Lippo. "I don't want to see my industry destroyed."

However, the battle is still uphill. The vested interests are vast, with many of the region's conglomerates still dominated by the founding families.

The problem is not restricted to Asian companies - many foreign groups in the region are also causing headaches for minority investors, Mr Young says. He cites the example of American Standard Sanitaryware Thailand. In 1998, the company's New York parent tried to buy out its Thai joint venture partners. Calls for an independent valuation went unheeded.

Brent Woods, a San Diego-based fund manager with Brandes Investment Partners and the main protagonist in the Jardine case, says the fight will go on.

"People are starting to see a link between financial performance and lack of accountability in the boardroom," he says.

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