Published September 5, 2008
When to forgive and forget?
By ANGELA TAN

Email this article

Print article

Feedback
HIS annual pay package could easily have been in the six-digit range when he was the managing director of Speedo Corrosion Control and consultant to See Hup Seng Limited back in July 2006. Yet, Yap Sew, now 60 and executive director as well as chief executive officer of See Hup Seng, took the centrestage this week after the Monetary Authority of Singapore (MAS) slapped him with a civil penalty of $50,000 for insider trading which net him a mere profit of $4,020.
On Monday, the MAS - which plays the dual role of central bank and securities regulator - disclosed that between July 21 and 24, Mr Yap bought a total of 900,000 See Hup Seng shares while he was in possession of 'non-public price-sensitive information' concerning an impending acquisition. He was a consultant to See Hup Seng on July 25, 2006 when the company announced a deal to buy Speedo Corrosion Control for $3.5 million from CT Holdings. As a result, he made a profit of $4,020.
Mr Yap has admitted civil penalty liability and will pay the fine without court action.
On Wednesday, See Hup Seng - a provider of corrosion prevention services for the marine, offshore oil and gas and construction industries - said its board has 'unanimously decided that it would be in the best interests of the company that Mr Yap be retained in his current capacity'. It felt the incidents had taken place when Mr Yap was not a director or employee of the company. And since Mr Yap joined the company as CEO in August 2006, he has been instrumental in turning the loss-making company into a profitable one, it said. By fiscal 2007, its net profit was $13.57 million, partly due to its purchase of Tat Petroleum.
All totally reasonable arguments. But in the corporate world, one wonders if the marital vow of 'in good times and bad' should apply.
See Hup Seng's shares continue to languish at around 25 cents and the already thin trading volumes remain so.
Privileged information
Is See Hup Seng's board making the right decision to stand behind Mr Yap even if he made an egregious error in judgment and has promised the board of his full commitment to spur the company forward?
While Mr Yap's poor judgement to trade on privileged information did happen in the past and when he was not a staff of the company, investors can't help but be more averse to putting money in a company whose CEO has been rapped by the authorities for insider trading. The laws here are clear - if in possession of such information, the person is prohibited from trading.
One can argue that it is a fine line between a civil penalty and a criminal action. The former requires a lower burden of proof and less stringent rules about admissibility of evidence.
Civil penalty
Under the civil penalty regime in Singapore, the person is subject to a minimum amount of $50,000; $100,000 for corporations. But while it may appear less serious than court action, it doesn't mean the offence is less wrong. A civil penalty could simply mean there was insufficient evidence for a criminal case, which could see the person disqualified as a director if convicted.
If that is the case and if one of the roles of a CEO is to set and build the moral and ethical tone of a company on top of securing performance, then a CEO with the little black mark of insider trading in his book can potentially become an issue - whether in dealing with staff or external parties including clients. It can become an albatross he cannot rid of.
But should CEOs who made mistakes be simply axed? After all, there are good CEOs who make mistakes and CEOs who don't but are also unable to drive profitable top-line growth. See Hup Seng's board obviously feels it has a compelling case to retain the services of Mr Yap, who has over 20 years of experience in the marine and offshore industries.
At the end of the day, the reality is no CEO is mistake-free. When a CEO blunders and investors call for his head, directors should ask first whether the CEO can correct the problem. Pressuring boards to fire the CEO quickly isn't always in the company's best interest. Afterall, the board's relationship and trust in a CEO take time to build and a board might do better in fixing the matter and person at hand than hire and nurture a new one.
See Hup Seng's board seems to have chosen to do that. It acted decisively to keep its CEO but not without first putting in place a new structure to strengthen the board. It has appointed its chief operating officer, Lum Chee Kong, as executive director.
So while investors can be unforgiving when a CEO goes astray, an effective board can choose to forgive but hopefully not forget a CEO's slip by keeping him on his toes.