0

EXECUTIVE SUMMARY
In our economy a good corporate governance has become a crying need now a days. Due to
deviant nature of human being, they are always interested to maximize their own benefit. In this
process of maximizing own benefit, board of directors of a company or the members of
management board of a company may involve in such an activity which may bring positive
result for them but might be harmful for shareholders who are the real owners of the company. In
other words, owners are concern about long term gain while agents are concerned about short
term gain. In this mismatch of objectives, the issues of agency conflict arises. Researcher claims
that, strict corporate governance policy is required to solve this problem. Again this corporate
governance policy vary from industry to industry, economy to economy and country to county.
So to know what types of corporate governance policies will be fit for an industry, study must
need in this field. This report was assigned to us to gather knowledge in this aspect. We have
selected The failure of C.K Tang as our key topic. We have tried to find out the cause and
different areas of issues where corporate governance failed throughout the report.

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Contents
Executive Summary..........................................................................................................................
Chapter- 01: Introduction to the Report...........................................................................................1
1.1 Introduction:..........................................................................................................................1
1.2 Objectives of the report:........................................................................................................1
1.3 Methodology of the report:....................................................................................................2
1.3.1 Data Collection Procedure..............................................................................................2
1.3.2 Data Processing and Analysis.........................................................................................2
1.4 Limitation of the report:.........................................................................................................2
Chapter- 02: Review of Literature...................................................................................................4
Chapter- 03: Company Overview....................................................................................................8
3.1 About C. K. TANGS:.............................................................................................................8
3.2 Evolution of The Brand:......................................................................................................10
3.3 Present Day:.........................................................................................................................10
Chapter- 04: Failure of C.K. TanG................................................................................................11
4.1 Role of the Board of Directors:............................................................................................11
4.2 First Privatization Attempt: Scheme of Arrangement..........................................................12
4.2.1 Reasons for failure of First attempt:.............................................................................12
4.3 Second Privatization Attempt: Unconditional Cash Offer...................................................12
4.3.1 Reasons for failure of second privatization attempt.....................................................13
4.4 Third Privatization Attempt: Voluntary Delisting................................................................13
4.5 C.K.Tang: The Fight towards Privatization.........................................................................14
4.6 Key Area of Controversy: Tangs Plaza................................................................................14
4.7 Unhappiness amongst Minority Shareholders.....................................................................15
4.8 The Capital Reduction Exercise..........................................................................................15
4.9 C. K. Tang: Corporate Governance Issues:..........................................................................15
Chapter- 05. Conclusion................................................................................................................19
References......................................................................................................................................20

CHAPTER- 01: INTRODUCTION TO THE REPORT

1.1 INTRODUCTION:
Corporate governance is the system of rules, practices and processes by which a company is
directed and controlled. Corporate governance essentially involves balancing the interests of the
many stakeholders in a company - these include its shareholders, management, customers,
suppliers, financiers, government and the community. Since corporate governance also provides
the framework for attaining a company's objectives, it encompasses practically every sphere of
management, from action plans and internal controls to performance measurement and
corporate disclosure. Since business world started to become complex, the importance of
imposing regulation more and more has been felt by the business people. Because this extended
complexity brings also scope to take some illegal advantages or doing any corruption.CG
Guideline or Corporate Governance Guideline is one of the tools imposing a restriction on such
illegal advantages or doing any corruption. Corporate Governance is the control of management
in the best interest of the company. We have assigned this report with a view to fulfilling the
objective of knowing about corporate governance issue relating to C.K. Tang Limited. To meet
the requirement of this report we have selected C.K. Tang Limited.

1.2 OBJECTIVES OF THE REPORT:

Broad Objective: Broad objective of preparing this thesis report is to know about the overall
scenario of our country regarding corporate governance guidelines.
Specific Objective: Without meeting above single line broad objective, this report will help me to
fulfill a list of sub ordinate objectives, those are:
To know about Corporate Governance and to know its importance.
To analyze the necessity of having a structured and detailed corporate governance

To find out should independent directors be primarily concerned with the interests of the
minority shareholders?

 To evaluate the independence of C.K. Tangs board during the third privatization attempt.
To find out whether the basis of valuation was fair.
To suggest improvements that would help protect minority shareholders in the future.
To explain three different privatization methods
To explain how these different methods work and the pros and cons of these different
methods from the viewpoints of the shareholder(s).

1.3 METHODOLOGY OF THE REPORT:

This report is a descriptive in type which does not include any quantitative data rather it
includes pure qualitative data. So this paper only requires qualitative techniques of the research
methodology. The study is performed based on the information extracted from different sources
collected by using specific methodology. Total methodology is divided into two major parts:
1.3.1 DATA COLLECTION PROCEDURE
To complete this research, secondary sources of data might deem appropriate. To some extent
published journal, research paper, and journal or newspaper article, reference books were used to
gather theoretical and practical information.
Secondary data: The secondary data were collected from internet. Sources of secondary
information can be defined as follows:
Corporate Governance Guideline
Official website of the company
Published journal, article, research paper, references book
1.3.2 DATA PROCESSING AND ANALYSIS
Collected data have then processed and complied with the aid of MS Word.

1.4 LIMITATION OF THE REPORT:

On the way of preparing this report, we have faced following problems that may be termed as the
limitation of the study:
Limitation of Scope: Policy of not disclosing some sensitive data and information for
obvious reasons posed an obstacle.
Personal Limitation: This includes inability to understand some official term, decorum etc.
Time Limitation: It was one of the main constraints to make the report more informative.
Despite these limitations we have tried our best to meet the entire requirement to prepare a
complete report.

CHAPTER- 02: REVIEW OF LITERATURE

Corporate governance importance arises in modern corporations due to the separation of
management and ownership control in the organizations. The interests of shareholders are
conflicting with the interests of managers. The principal agent problem is reflected in the
management and direction related problems due to the differential interests of firms
stakeholders. There is not a single definition of corporate governance rather it might be viewed
from different angles.
Berle and Means (1932) and the even earlier Smith (1776). Zingales (1998) defines corporate
governance as allocation of ownership, capital structure, managerial incentive schemes,
takeovers, board of directors, pressure from institutional investors, product market competition,
labor market competition, organizational structure, etc., can all be thought of as institutions that
affect the process through which quasi-rents are distributed.
Shleifer and Vishny (1997) define corporate governance as the ways in which suppliers of
finance to corporations assure themselves of getting a return on their investment. OECD in
1999 defined corporate governance as "Corporate governance is the system by which business
corporations are directed and controlled. The corporate governance structure specifies the
distribution of rights and responsibilities among different participants in the corporation, such as,
the board, managers, shareholders and other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also provides the structure through
which the company objectives are set, and the means of attaining those objectives and
monitoring

performance.

The

Ministry

of

Finance,

Singapore

(CORPORATE

GOVERNANCEC 2001) defines corporate governance as the processes and structure by which
the business and affairs of the company are directed and managed, in order to enhance long term
shareholder value through enhancing corporate performance and accountability, whilst taking
into account the interests of other stakeholders. Good corporate governance therefore embodies
both enterprise (performance) and accountability (conformance). A number of studies on the
state of corporate governance were undertaken. Studies have discovered number of reasons for
malpractices of corporate governance (CG) in companies listed with the Stock Exchange. One of
the principal reasons for poor corporate governance (CG) is that most of the listed companies are
4

family oriented (Ahmed and Yusuf, 2005) and these companies prefer to keep ownership
holdings within the family connections (The Daily Star, May 17, 2006), i.e., these companies are
closely held. As a result, small group of shareholders own or control the majority of shares and
by using that majority, control the decision-making processes of the companies (Bangladesh
Enterprise Institute 2003).
In an overwhelming majority of the non-bank listed companies, sponsor shareholders, who
generally belong to a single family, heavily dominate the Board of Directors. The Board of
Directors is actively involved in management. Most independent directors represent current or
former government officials or bureaucrats. They are appointed directors to assist company in
getting licenses or as payback for previous favors (Ahmed and Yusuf, 2005).
In the context of Bangladesh, independent directors do not act as an advocate of majority
shareholders or as a source of innovative ideas (Bangladesh Enterprise Institute 2003). But
ironically, the companies Act 1994 provides for many stringent rules regarding any negligence,
default, breach of duty or trust on the part of director, manager or officer of a company. But these
rules are more honored in the breach than observance (Ahmed and Yusuf, 2005). In addition
to this, annual general meetings (AGM) of many listed companies are not held in time, which
also implies poor corporate governance (CG) practice.
Ahmed and Baree (2000) summarizes the principles and standards of corporate governance as
agreed and put forth by Organization for Economic Co-operation and Development (OECD)
,Cadbury committee (UK) and other international committees. The authors identified problems
of implementing international corporate governance norms in Bangladesh and finally make
certain recommendations for reform of corporate governance as well. The article recommends
three substantive actions be taken to improve corporate governance scenario in Bangladesh.
First, a high powered committee including members from government, regulatory agencies,
companies and ICAB should write a code for corporate governance in Bangladesh. Second,
amendments to existing laws should be adopted to enforce corporate governance norms. Third,
academic and professional institutions should include corporate governance principles in their
syllabus.

Sarkar and Ahmed (2007) depicted the scenario of corporate governance disclosure by listed
public limited companies in Bangladesh. They identified some information items which
companies tend to disclose much such as disclosure of remunerations committee. They
observed that there are some information items, which companies tend to disclose less or try
conceal purposively, such as stock code. They observed that 25 companies out of total
257companies as listed on DSE up to June 30, 2005 reported Corporate Governance Report in
the annual reports voluntarily. The mean disclosure of corporate governance items is 40.84
percent. Sarkar, Khan and Alam (2007) studied the response rate of different companies
(industry-wise) with a special reference to the SEC corporate governance guidelines and the
compliance rate for corporate governance guidelines by the companies who have reported the
compliance with such guidelines in 2005-06 and 2006.
A comprehensive diagnostic study was conducted by Bangladesh Enterprise Institute (2003) as a
project, which seeks to focus on the key areas that have been identified internationally as
important to good corporate governance. Weak regulatory system has also been identified as a
roadblock in the way of achieving sound CG. The existence of weak regulatory system prevents
the current laws and statutes from being implemented.
Incompleteness of Board committees hinders good CG in Bangladesh. Board committees which
are very important for sound CG are composed of Audit Committee, Remuneration Committee,
and Nomination Committee. The Audit Committee monitors the integrity of financial statements,
reviews internal financial controls, recommends appointment of external auditors and reviews
auditor independence and objectivity and audit effectiveness. The Remuneration Committee is
responsible for reviewing the remuneration of directors and senior management and advising the
Board whether the amounts are reasonable in comparison with industry and corporate yardsticks.
The Nomination Committee is responsible for proposing new nominees to the Board and
advising the Board on the core competence required of new directors (Michael Seamer, 2002).
Despite significant importance of the Board committees, new boards (except of banks) have been
found to have audit committees and almost none has been found to have nomination or
remuneration committees in Bangladesh (BEI, 2003).

Discrepancy between International Accounting Standards (IAS) and Bangladesh Accounting

Standards (BAS) and inconsistency between the Companies Act, 1994 and IAS are other factors,
which have been found to be responsible for poor CG practices. The Institute of Chartered
Accountants of Bangladesh (ICAB) adopted 30 IAS as BAS but subsequent amendments of
these BAS were not made and consequently, BAS significantly differ from IAS in material
aspects. The situation aggravates when provisions regarding preparation and presentation of
financial statements, disclosures and auditing that are mentioned in the Companies Act, 1994 are
incompatible with IAS, which are required by the SEC. The Companies Act, 1994, for example,
does not require the preparation and presentation of a consolidated Balance Sheet for a holding
company, but it is required under the IAS.
In order to improve the present situation and to raise the awareness of the need for good CG
practices, a number of initiatives have been taken at the non-governmental level. The
establishment of the Center for Corporate Governance and Finance Studies (CCGFS) at the
University of Dhaka is one of the examples of the most recent initiatives. The CCGFS, DSE, the
OECD and the Asia Foundation jointly organized an international conference on corporate
governance on July 30 and July 31, 2005 for the first time in Bangladesh. The Federation of
Bangladesh Chambers of Commerce and Industry (FBCCI) organized another conference on the
same topic. The Task Force on Corporate Governance of Bangladesh Enterprise Institute (BEI)
undertook a project supported by Department for International Development, World Bank and
the OECDD and developed the Code of Corporate Governance for Bangladesh in April,
2004.Butat the government level, the SEC has made the most important move by issuing the
corporate governance guidelines on February 20, 2006 and making them mandatory on the listed
companies on comply or explain basis.
The Dhaka Chamber of Commerce and Industry (DCCI) has been implementing a project,
entitled Economic Reform and Research Enterprise, in co-operation with The Center for
International Private Enterprise (CIPE) - an affiliate of the US Chamber of Commerce,
Washington D.C. Haque, Jalil and Naz (2007) studied that one of the objectives of this project is
to prepare economic policy papers on selected business sectors. DCCI requested to prepare a
paper on Principles of Corporate Governance for Public and Private Enterprise in Bangladesh.
According to the Term of Reference (TOR) the scope of the study was limited to analyze the

situation of corporate governance in the three types of Enterprises: Public limited companiesFinancial and Non-Financial institutions and State Owned Enterprises (SOE).

CHAPTER- 03: COMPANY OVERVIEW

Tang Limited is a company that specializes within Singapores retail market, with its flagship
store TANGS located on Orchard Road, Singapore. For many, TANGS is regarded as a principal
shopping destination in the city, comparable to Bloomingdale's in New York City and
Selfridges in London. The oldest home-bred department store in Singapore, TANGS was
founded by Tang Choon Keng, popularly known as CK Tang, in 1932.

3.1 ABOUT C. K. TANGS:

An icon of Singapore, TANGS is a leading player in the retail industry that has its fingers
constantly on the pulse of the ever-changing consumer wants and trends. With the flagship
TANGS at Tang Plaza's transformation completed, Singapore's most distinctive and beloved
shopping destination raises the bar in retail, stepping up its role as a curator of a spectrum of
exciting Asian as well as international brands, and redefining the shopping experience with a
refreshed store concept. TANGS is present in Singapore and Malaysia with six stores, namely,
TANGS at Tang Plaza, TANGS Vivo City, TANGS 1 Utama, TANGS Empire Subang, and
TANGS Gentling and TANGS the Shore, Melaka.
1923
C.K. TANGS founder, CK Tang, was born in a town in the Chinese province of Swatow to a
Presbyterian pastor and his wife. As an itinerant pastor, CK Tangs father frequently travelled the
region, leaving his wife to run the household with his meager income. To get out of the cycle of
poverty and struggle, CK Tang journeyed to Singapore in 1923, which was then under colonial
administration. Armed with two trunks one tin and one leather case filled with lace and linen
CK Tang set off on his arduous journey. Upon his arrival, he hired a rickshaw puller and peddled
his wares to the resident expatriates with tenacity and uncompromising principles.

1932
Nearly a decade after his arrival, CK Tang decided to shift from door-to-door selling to opening a
store, renting a shop unit on River Valley Road. This was a bold move, considering his customers
were used to his coming to them. The gamble paid off his loyal customers followed and
brought new customers with them. The retail business was good for him, after gradual expansion
CK Tang was able to buy a piece of land in 1939 on River Valley Road and build a three-storied
structure as both a business and a dwelling. With this additional space, he expanded his product
offerings to include other merchandise from China such as jeweler, baskets and assorted Chinese
curios.
1958
From his time as an uneducated 21-year-old, CK Tang showed great vision. But perhaps the most
famous of his visionary decisions was expanding his store on River Valley Road and buying the
land on Orchard Road. Then, Orchard Road was relatively quiet, and faced a Chinese cemetery.
People used to tell me this is not a nice place to start a business. Why buy such a deserted place,
and one in front of the graveyard? I would tell them, One day this place will boom. His
decision to buy the land stemmed from a vision he could clearly see and articulate a thriving
Orchard Road, with TANGS at its center. He was right; it was the perfect location as the
expatriate community had to pass his store when travelling from their homes to the financial
center. Over time, other stores sprouted around and outwards, making Orchard Road a thriving
shopping destination and one of the busiest, most well-known shopping streets in the world.
TANGS itself grew from strength to strength, becoming the store of choice for Western brands
entering Singapore and a purveyor of quality Chinese crafts, offering something for everyone
and earning CK Tang the moniker The Curio King.
1982
In 1982, the new 33-storey Tang Plaza, incorporating The Dynasty Hotel and a 5-storey shopping
complex, was opened. At the same time, the retail landscape was changing; international travel
had exposed shoppers to what the world had to offer, and independent brands were arriving in
Singapore.

TANGS repositioned itself as a hip destination for modern, international shopping, creating a
space filed with international brands. The superstore created so much attention in the retail scene
that international brands paid attention to Singapore, with the likes of Estee Lauder, Paloma
Picasso, Isabella Rossellini and Tyson Beckford headlining launches and events. At the same
time, TANGS began its legacy of supporting local talent, showcasing the works of multiple local
designers through the Society of Designing Arts Singapore (SODA). This retail revolution
brought TANGS to a new territory fashion and brought the store to new heights.

3.2 EVOLUTION OF THE BRAND:

In the 1980s, TANGS launched the tag line "All the Best under One Roof" to showcase their
diversification of products.
The company was known as a fair employer and was closed on Sundays (a rare thing in Asia) as
C.K. Tang himself was a staunch Christian. This was implemented so that so his family and
Christian staff could attend church services.
In the late 1980s and early 1990s one of CK Tang's sons, Tang Wee Sung took control of the
store. He went on to become chairman of the company in 2000 after his fathers death, and his
appointment gave rise to changed operating policies, such as permitting the store to remain open
on Sundays and introducing marketing strategies to increase consumer choice.
In 2012, TANGS announced an S$45 million, 3-year transformation plan to its flagship store on
Orchard Road.

3.3 PRESENT DAY:

Upon its 80th Anniversary, TANGS began a large-scale transformation of TANGS at Tang Plaza,
its flagship store along Orchard Road, across all concepts to reinforce its position as a leading
retailer and Singapores iconic, world-class shopping destination. Presenting a mix of carefully
curated international and Singaporean brands across all concepts of Beauty, Home, Fashion and
even Food & Beverages, TANGS appeals to the modern shopper who seeks to distinguish
themselves with our blend of international, modern heritage, exclusive and quality offerings.

10

Designed to offer the best of brands in the intimacy of a department store, the revamp also
provides a truly immersive customer experience, with services and flourishes available at every
corner, dining and rest spots on almost every floor, a comprehensive loyalty rewards programme,
24-hour shopping via www.tangs.com, and even an exclusive members-only rest in the form of
the Preferred Lounge at SEVIIN AT TANGS. The result an updated TANGS, rooted in its
heritage and commitment to its customers, with its sights set firmly in the future.

CHAPTER- 04: FAILURE OF C.K. TANG

In 1975, C.K. Tang was listed on the then Singapore Stock Exchange, which later became the
Singapore Exchange (SGX). However, since 2003, the Tang family had been trying to delist and
privatize the company. After two failed attempts, the Tang family finally succeeded and the
company was delisted on 24 August 2009.
In 2011, C.K. Tang made an offer to about 500 minority shareholders who had held on to the
shares of the delisted company. This offer represented a 15 per cent premium over its fair value
and well above the price offered to other shareholders for the delisting in 2009. However, some
of these minority shareholders were still unwilling to take up the share buyback offer, and were
holding out for a better offer. A very brief summary of these privatization attempt is presented
below:
Privatization
attempts

Yea
r

1st Attempt

2003

2nd Attempt

2006

3rd Attempt

2009

Means

Offered

Premi

Resul

price

um

35 %

Failed

16.1 %

Failed

Scheme of

S$0.42 per

arrangement

share

Unconditional cash

S$0.65 per

offer

share

Voluntary delisting

11

S$0.83 per
share

22 %

Succee
d

4.1 ROLE OF THE BOARD OF DIRECTORS:

During the third and successful privatization attempt, the board of C.K. Tang was chaired by
Ernest Seow, a former PricewaterhouseCoopers (PwC) partner. Apart from Seow, there were
three other directors with experience in accounting, business management and the retail industry.
Among the four directors, three of them were serving as non-executive independent directors.
During the companys history, there was at least one Tang family member on the board.
However, in 2008, Tang Wee Sung, CEO and the majority shareholder of the company since
1987, stepped down from the board, after he was alleged to be involved in an illegal organ
trading scandal.
With this development, for the first time in the companys history, there was no Tang family
member on the board. According to C.K. Tangs Corporate Governance Report in 2009, the
board would be responsible for enhancing long-term shareholder value and the overall
management of the Group. This includes reviewing the Groups performance, approval of
corporate strategies and promoting high standards of corporate governance. The board delegated
some of its functions to the board committees, namely the audit committee, nominating
committee and remuneration committee.

4.2 FIRST PRIVATIZATION ATTEMPT: SCHEME OF ARRANGEMENT

On 29 October 2003, Tang Wee Sung offered minority shareholders S$0.42 per share via a
scheme of arrangement. This represented a premium of about 35 per cent above the average
closing price over the last five trading days. This price also meant a 19.2 per cent discount
against the companys net tangible assets as at 30 September 2002. However, the resolution
failed to pass, as the shareholders felt the offer price was too low and wanted more information
on the companys prospects.
4.2.1 REASONS FOR FAILURE OF FIRST ATTEMPT:
However, the resolution failed to pass as the shareholders oppose this.

The shareholders felt the offer price was too low.

They wanted more information on the companys prospects.

12

4.3 SECOND PRIVATIZATION ATTEMPT: UNCONDITIONAL CASH OFFER

In December 2006, Tang Wee Sung and his brother Tang Wee Kit, offered shareholders S$0.65
per share through Kerith Holdings, a company equally controlled by the brothers. This second
attempt was in the form of a voluntary unconditional cash offer. The S$0.65 per share offer
reflected a 16.1 per cent premium to C.K. Tangs latest closing price at that time. It also
represented a 9.4 per cent premium to the companys net asset value, based on its annual report
for the financial year ending 31 March 2006. When the offer deadline expired, insufficient
acceptances had been received. The reason was widely believed to be the undervaluation of the
commercial property Tangs Plaza. As a result, the company continued its listing on SGX.
On 15 July 2008, at an Annual General Meeting (AGM), minority shareholders questioned the
board about the companys financial losses, as well as its plans to delist the company from SGX.
The board declared that a privatization exercise is solely the decision of the majority shareholder.
The board said it owed a fiduciary duty to shareholders, which is to look after the business of the
company. Attempts to vote against standard resolutions such as advance payment of directors
fees were defeated, because of the Tang familys majority holdings.
4.3.1 REASONS FOR FAILURE OF SECOND PRIVATIZATION ATTEMPT

The reason was widely believed to be the undervaluation of the commercial property
Tangs Plaza.

4.4 THIRD PRIVATIZATION ATTEMPT: VOLUNTARY DELISTING

On 8 May 2009, the Tang brothers made their third privatization attempt through an investment
holding vehicle, Tang Unity Three, which submitted a delisting proposal to the company.
Voluntary Delisting occurs when a company decides that it would like to purchase all of its
shares or move to an OTC market while in full compliance with the exchanges. The remaining
shareholders were offered S$0.83 per share, which represented a 22 per cent premium over the
companys last traded share price of S$0.68 prior to the offer, and a 21 per cent discount to the
firms net asset per share price of S$1.05 as of 31 December 2008. The board recommended that
the minority shareholders accept the offer, based on an evaluation of the offer provided by the
independent financial adviser PwC. At an Extraordinary General Meeting (EGM) held on 31 July
2009, minority shareholders questioned if the offer was reasonable, given that the shares had
13

closed at a price above the offer at that point in time. Nonetheless, the board retained its
recommendation, saying that market prices typically varied. This was despite earlier statements
by the Tangs saying that the privatization offer was to allow shareholders to monetize the value
of their investments at a premium over its historical trading prices. Shareholders also reproached
the directors for failing to clarify with the Tangs about their redevelopment plans for Tangs Plaza
after its privatization. They expressed disappointment with the independent directors, saying that
they had insufficiently analyzed the issue.

4.5 C.K.TANG: THE FIGHT TOWARDS PRIVATIZATION

Doubts were raised about the independence and neutrality of the CEO of the company at the
time, Foo Tiang Sooi, because he was personally related to Tang Wee Sung. Foo had worked
under Tang from 1999 to 2006. He and Tang were also former schoolmates. However, he
dismissed these facts as irrelevant. Foo also added that he was related to the shareholder who
posed the question, but this fact was irrelevant as well.
Another shareholder called for a vote of no-confidence against the board chairman. After
consulting with legal advisors, the board rejected the motion, with the chairman saying that the
action was an attempt to frustrate the meeting. Even as shareholders tried to probe further, the
chairman called for the vote to be taken. The resolution to privatize the company was passed
with 96.25 per cent of votes in favor of the proposal.

4.6 KEY AREA OF CONTROVERSY: TANGS PLAZA

The Singapore Code on Takeovers and Mergers (the Code) governs all takeover activity in
Singapore involving public companies. Under Rule 26.2(a) of the Code, a property which is
occupied for purposes of the business must be valued at the open market value for its existing
use. However, Rule 26.2(c) provides for the case in which such a property is valued for an
alternative use. For such a case, the costs of conversion and/or adaptation should be estimated
and shown. During all three privatization attempts by the Tang brothers, the offer price reflected
an undervaluation of Tangs Plaza. The board stood by its stand of valuing the property according
to its existing use, as there was no intention of deviating from it. One investor had brought up
the fact that in C.K. Tangs 2007 annual report, a property valuation report had taken into

14

consideration the redevelopment potential of Tangs Plaza. In response, the boards legal adviser,
Yeo Wee Kiong, said it was not legally required to put a redevelopment valuation on the report.
PwC stated that the property was valued at S$340 million on 25 May 2009. This was much lower
than other nearby sites. In contrast, minority shareholders contested that the site was easily worth
at least S$400 million, according to an independent valuer. This value did not take into account
the potential value arising from redeveloping the site, and did not consider the potential value
from sub-dividing the site into small retail units and leasing them to specialty tenants. The board,
however, stated that regulators had told the directors that any such redevelopment was not
applicable

4.7 UNHAPPINESS AMONGST MINORITY SHAREHOLDERS

Several shareholders were unhappy about the perceived undervaluation of the Tangs Plaza site,
as well as the fact that the offer price was less than the companys net asset per share. Thus, they
met with the Securities Investors Association (Singapore) (SIAS). SIAS stated that it objected to
the exit price and that the minority shareholders had been treated with no dignity. SIAS had also
called for regulators to intervene. Ten shareholders had also signed a petition to SGX and the
Ministry of Finance questioning the basis of the valuation on the propertys existing use, in a
bid to convince the regulators to allow them to obtain an alternative valuation report. SGXs
reply was that C.K. Tangs move to delist was purely commercial, and that the company had
complied with the listing and delisting rules.

4.8 THE CAPITAL REDUCTION EXERCISE

On 19 August 2011, C.K. Tang embarked on a capital reduction exercise to cancel out all
remaining shares held by minority shareholders. C.K. Tang would pay each investor S$1.30 per
share, which represents an increase of 56.6 per cent on the exit offer in 2009. PwC had indicated
that the S$1.30 offer is 15 per cent above its fair market value. The rationale behind the exercise
was to reduce administrative burdens. Additionally, the company reaffirmed that there are no
plans for the redevelopment of Tangs Plaza, and the buyout had no hidden agenda.
However, only 39 per cent of the minority shareholders in attendance agreed to the price for the
share buyback, far below the 75 per cent required. Some minority shareholders cited the

15

undervaluation of the Tangs Plaza property as the reason for rejecting the offer. C.K. Tang would
have to do more to convince these shareholders for the buyout to succeed.

4.9 C. K. TANG: CORPORATE GOVERNANCE ISSUES:

After successfully operating for more than 70 years, C.K. Tang had multiple corporate
governance issues to have been risen up. Most of these issues related to the privatization attempts
made by the board of directors, the activities of the CEO, Mr. Foo Tiang Sooi and to some extent
the role of the board of directors were also not cleared whether they are protecting the minor
shareholders or not.
The unlawful Valuation Method:
Every business entity that is established and operated in a particular country needs to follow the
rules and directions provided by the regulators in terms of its business operation and the
management of that entity. C.K. Tang is one of the most renowned firm in Singapore in retailing
business. According to The Singapore Code on Takeovers and Mergers (the Code) governs all
takeover activity in Singapore involving companies. Under Rule 26.2(a) of the Code, a property
which is occupied for purposes of the business must be valued at the open market value for its
existing use. However, Rule 26.2(c) provides for the case in which such a property is valued
for an alternative use. For such a case, the costs of conversion and/or adaptation should be
estimated and shown
C.K. Tang did not comply with the Code enforced by authority, The Singapore Code on
Takeovers and Mergers, and directly overturned the code for their own purpose. For valuing the
most important property, Tangs Plaza, the board always use existing use method to value the
plaza during its three attempts on privatization. The only purpose was to undervalue the Tangs
Plaza so that board can offer lower price per share to minority shareholders. Different minority
shareholders questioned the valuation method as the method was a clear violation of code
provided by regulators. Furthermore, the management of C.K. Tang did not show the costs of
conversion and/or adaptation procedure in the annual report as required by the code. According
to the PwC, the holding company assigned by the C.K. Tang to value the Tangs Plaza was S$340
milllion but minority shareholders claimed that the value of the plaza site was easily worth at
least S$400 million, according to an independent valuer. The minor shareholders stated that the

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PwC valuation did not consider the potential value arising from the redeveloping the site. The
board, however, defended itself by stating that regulators had told the directors that any such
redevelopment was not applicable.
The Bias role of Independent directors and Chief Executive Officer (CEO):
The board of Director of C.K. Tang was consist of CEO and three other directors with experience
in accounting, business management and the retail industry. Among the four directors, three of
them were serving as non-executive independent directors. It is one of the core principles of
corporate governance is that the independent directors will be acting on behalf of the
shareholders especially for the interest of the minor shareholders but doubt was raised among the
shareholders that the independent directors and CEO overlooked the minor shareholders interest
and they were concerned to the interest of the Tangs family. Further claim had been made by the
shareholders that the directors failed to clarify with the Tangs about their redevelopment plans
for Tangs Plaza after its privatization. Shareholders expressed disappointment with the
independent directors, saying that they had insufficiently analyzed the issue.
Low offered rate:
The Tang family who is the major shareholders of C.K. Tang since its inception made three
attempts to privatize the Tang and tried to delist the company from Singapore Exchange (SGX).
The rate they offered to the minority shareholder through board meeting were lower than the
actual price of each share. The C.K. Tang management followed defective valuation method that
undervalued firms property and tried deceive the minority shareholders showing that, they were
given higher than the actual price. In 2009, though Tang family successfully delist the firm from
SGX, many of the shareholders were dissatisfied for the poor offered rate of the management.
Absence of proper disclosure:
A public company requires to follow the disclosure guidelines provided by the regulatory
authority. The adequate disclosure of financial and non-financial data helps an investor to take
decision whether s/he will invest into the company or not. Proper disclosure is not only important
for creating an efficient market with symmetric information, disclosure provides important info
to the regulators about the management and financial condition of the business entity. C.K. Tang
did not properly disclose the information of its own in annual reports especially information
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relating to the valuation of the assets during the privatization attempts. Though, Tangs 2007
annual report included the detail property valuation procedure, this practice was discontinued by
the management of Tang.
Lack of accountability to shareholders:
The management is responsible to board of directors and board of directors is responsible to
shareholders. The board of directors always need to act for the interest of the shareholders of the
firm. Things are not same in Tang, the board of directors always tried here to maximize their
benefit sacrificing the fair payable of the shareholders. They tried to show their asset
undervalued to pay less to the shareholders. They have set a minimum exit price for the
shareholders. A call for non-confidence to the members of the directors by one of the
shareholders had been diverted into irrelevant matters to protect their own interest.
Finally, it is the best example of having poor relationship between shareholders and board of
directors. The eternal conflict between manager and the owner of the company was the main
theme in the C.K. Tang.

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CHAPTER- 05. CONCLUSION

It is very common phenomenon that owner has a different feeling for the company and thus have
a very different viewpoint for the company compared to the board of directors. This different
viewpoint leads to different objectives. So while difference of objective rises, it results a conflict
of interest. This conflict can be resolved by formulating proper corporate governance guidelines.
But merely formulating a corporate governance guideline cannot be a tool to resolve this
problem. Application of this rules must be ensured. Form this analysis of Tang, we see that
sometimes controlling authority become indifferent to solve the problem. They can easily be
manipulated by bribery or involving them into benefit. If this problem of corruption in highest
level cannot be eliminated, no fair and sophisticated corporate governance guidelines can solve
the agency conflict regardless of the standard and quality of the rules and regulation. However,
proper corporate governance should be practiced from the root level to top tier hierarchy in a
corporation so resolve the problem of agency conflict.

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