A BATTLE for control has emerged within property giant City Developments Limited (CDL) between executive chairman Kwek Leng Beng and his son Sherman Kwek, who is the group chief executive officer.
In a statement on Wednesday (Feb 26), the older Kwek said he has filed court papers on Tuesday to deal with the “attempted coup” by Sherman Kwek, Philip Lee, Wong Ai Ai and a group of directors acting with them to allegedly consolidate control of the board and the group.
Lee is the lead independent director of the board, while Wong is an independent executive director.
This is “to set things right” and to “restore corporate integrity”, said Kwek.
“We intend to change the CEO at the appropriate time. We will continue to explore all legal options available to us to vigorously defend and protect the interests of CDL and its shareholders.”
According to the older Kwek, Sherman Kwek’s group had bypassed the nomination committee (NC) on two occasions to change the board composition, and hastily followed up by making significant changes to board committees and CDL’s governance.
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This is “contrary to established corporate governance principle, the Singapore Exchange’s listing rules and the Code of Corporate Governance”, he said.
In his statement, Kwek Leng Beng detailed a series of events orchestrating acquisition of board control.
He said that on Jan 28, the eve of Chinese New Year, CDL’s corporate secretary sent an e-mail to the board with Lee and Wong nominating two additional independent directors.
On the following day, he questioned the urgency of appointing two new directors without due diligence and proper vetting.
“Chong Yoon Chou, our NC chairman, was completely unaware of the nominations. He strongly objected to bypassing the pre-scheduled NC meeting on Feb 20.”
Lee had cited “urgent concerns” as justification for the rushed appointments but failed to provide specifics, said Kwek Leng Beng.
He immediately ordered the cancellation of all director interviews, “reinforcing the need for transparency and adherence to corporate governance norms”.
However, on Jan 31, Lee requisitioned a board meeting, attempting to push through the proposed appointments.
On Feb 5, CDL’s board received legal advice that bypassing the NC was against the Code of Corporate Governance.
Two days later, on Feb 7, a board meeting was held with no vote being taken. A Directors’ Resolution in Writing for the appointment of the two new directors was also circulated and approved within hours, bypassing the typical NC process.
“This confirmed that Sherman Kwek, Philip Lee, Wong Ai Ai and the other directors acting with them had pre-planned this move,” chairman Kwek said.
On the same day, CDL issued a statement via the stock exchange that it had appointed Jennifer Duong Young and Wong Su Yen as independent non-executive directors of the company.
He added that he was “left with no choice” but to send an e-mail the following day seeking Sherman Kwek’s dismissal from the position of group CEO. However, on Feb 9, the reconstituted board led by Lee, objected to his attempt to dismiss Sherman Kwek.
Kwek Leng Beng said: “(Sherman’s) role in circumventing good governance and consolidating power through the irregular appointment of two new directors was the latest of a long series of missteps.”
He noted that this was not the first time that Sherman Kwek’s decisions “have put CDL in a precarious position”.
He cited:
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the group’s investment in China developer Sincere Property Group that led to a S$1.9 billion loss for CDL in FY2020;
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poor investment decisions in the UK property market that resulted in significant financial losses and contributed to a 94 per cent dip in profit for H1 2023; and
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the consistent underperformance of CDL’s share price compared with its peers since Sherman Kwek assumed leadership in 2018. This reflects “eroded investor confidence and shareholder concerns over strategic missteps”.
Addressing the disagreement within its board and the trading halt in its shares, CDL issued a statement on Feb 26 afternoon that “business operations remain fully functional and unaffected”.
It added that Sherman Kwek remains the “group CEO until such time as there is a board resolution to change company leadership”.
As the matter is under review, the company will make further announcements should there be material updates.
Noting the difficult decisions he has made, the senior Kwek said: “As a father, firing my son was certainly not an easy decision. I accept that business decisions are difficult and young people may make business mistakes in their careers and that is understandable, but circumventing corporate governance laws is a red line.
“As chairman, my responsibility is to CDL, its shareholders, and its future. I take my role as executive chairman seriously and have always prioritised the interests of all shareholders, not just those of my family. The stakes are simply too high to allow reckless power grabs to destabilise the company.”
By dismantling the existing NC and replacing it with a nominating and remuneration committee (NRC), Kwek Leng Beng said that it is “a calculated effort to sideline independent oversight and give the majority bloc unrestricted control over CDL’s leadership and decision-making”.
Through the restructuring, the election of key management personnel is left entirely at the discretion of Sherman Kwek’s group. This enables the appointment and removal of board members arbitrarily, and also strips the chairman of meaningful authority.
“As an executive chairman, notwithstanding my decades of institutional knowledge, I am not able to have a position on the newly formed NRC under the code,” noted Kwek Leng Beng.
He affirmed that certain members of the board, including Phillip Yeo and himself, remained firmly committed to upholding the highest standards of governance and accountability.
To restore stability and realign CDL’s leadership with the interests of shareholders, they have proposed to remove Sherman Kwek as CEO, citing that “CDL already has internal measures in place to ensure business stability in the absence of a CEO”.
Incumbent group chief operating officer Kwek Eik Sheng will serve as the interim CEO, maintaining continuity while the group searches for a professional CEO, said Kwek Leng Beng.
He added: “We will reinforce and strengthen CDL’s governance framework to prevent future violations and ensure that no single group can override corporate governance safeguards.”
In 1971, Kwek Leng Beng, his brother Kwek Leng Joo and their father Kwek Hong Png acquired control of a loss-making CDL.
Under Kwek Leng Beng’s leadership, CDL expanded its real estate portfolio and grew to become a property giant.
Kwek Leng Beng’s statement comes after CDL called for a trading halt and cancelled its FY2024 results briefing scheduled to be held at 10 am on Wednesday.
Shares of CDL ended 0.4 per cent or S$0.02 lower at S$5.12 on Tuesday.
