May 17, 2007

The NKF Story Goes On

In the comment section of a recent post, I was discussing the duties of directors. Being honest is not enough to escape all potential liability under the law.

For example, a director could be honest and yet lazy and incompetent, and thereby endanger the interests of shareholders. Directors have the duty to exercise reasonable diligence to ensure that the company is properly run.

This article illustrates my point. Understand now, Boon?


ST May 17, 2007
Two ex-NKF directors fined $5,000 each for failing in their duties
By Chong Chee Kin

RICHARD Yong and Loo Say San yesterday became the first of the former National Kidney Foundation (NKF) board members to be convicted on criminal charges, though both men avoided jail terms.

After a trial lasting 13 days, Yong, 65, and Loo, 58, were each fined the maximum $5,000 after a district court found them guilty of failing in their duties while they were directors of the charity.

They could have been jailed for up to one year.

Yong and Loo were charged in March with causing the charity to make excessive payments to software company Forte Systems Inc over a botched and incomplete project for the charity.

Yesterday, a district court found the two men failed to exercise due diligence over the deal.

Yong was NKF chairman at the time, while Loo was the treasurer.

The case centred on a deal between NKF and Forte - a company owned by Mr Pharis Aboobacker, a close friend of former NKF CEO T.T. Durai - to upgrade the charity's computer system.

Forte failed to deliver the software, but still demanded $2.6 million in payment.

Yong and Loo made a counter-proposal and paid the company $1.3 million.

Ruling that both men had been negligent, District Judge Jasvender Kaur spelt out clearly what was expected of company directors:

'Directors must not only act honestly, but also exercise reasonable diligence ... directors also have a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company's affairs to enable them properly to discharge their duties as directors...'

She added: 'In this day and age, the demands made of directors are more exacting and the community has come to expect more from them.'

11 comments:

boon said...

wow, an entry dedicated to me!

My question would be, why are Yong and Loo the only ex-NKF directors to be charged? Surely all of them have failed to "exercise reasonable diligence to ensure that the company is properly run"?

Why didn't the prosecution charge all of them?

One possible reason is that these two have a higher degree of involvement with the evaluation of Forte Systems.

Another (more likely) reason is that these two are the scapegoats.

In the case of von Pierer, he appears to be as much in the dark as other members of the board. So it seems to be a political move - he makes a convenient scapegoat for the current CEO.

This is hinted at in your original reference article: "Von Pierer's move will probably disburden the present Siemens chief executive officer Klaus Kleinfeld who has gotten in a quite difficult situation by the different criminal probes within the company."

Legally, of course one could make the case that von Pierer's at fault. But in an organisation as large as Siemens, do you honestly expect the CEO to know everything that goes on?

That was why I felt it was not very good sport of you to mock the Singapore government for awarding his honourary citizenship.

Understand now, Wang? ;)

Anonymous said...

mr wang which come first, the chicken or the egg?

Elaina Olivia Chong said...

I was discussing the duties of directors at NKF as well - in relations to a quote "Being honest is not enough to escape all potential liability under the law".

MWSS, I agree with you that "being honest is not enough...". Even more so today, directors have a naturalised obligation to ensure the profitability of the business for its shareholders don;t you think.

Honesty is one part, business acumen is another - does not a charity in Singapore, not need an enterprising head to drive the fundraising campaigns as well nowadays? What is the line between enterprise and charity??

kai said...

Legally, of course one could make the case that von Pierer's at fault. But in an organisation as large as Siemens, do you honestly expect the CEO to know everything that goes on?

So why was that Chief Commando Officer forced to step down in the aftermath of the dunking death incident? Surely someone had to take responsibilty? But in the case of von Pierer, he resigned voluntarily. If it's not from a lack of integrity, I don't know what it is. I mean, Lee Kuan Yew didn't resigned when his then Minister for National Development Teh Cheang Wan received bribes, did he?

Mr Wang Says So said...

"My question would be, why are Yong and Loo the only ex-NKF directors to be charged?"

Short answer is that they are the FIRST of the ex-NKF directors to be charged and the rest are on their way.

lee hsien tau said...

"mr wang which come first, the chicken or the egg?"

For Mr Wang, it's neither. Mr Wang comes first lor.

Apart from the punt, would Mr Wang comment on the setting up of a 'Bail Court':

Does Mr Wang agree that that proves the original system was screwable. (Not that the existence of a Bail Court changes anything.)

I mean, who decided that whenever I appeared in court, the bail would be $50,000 everytime. Would a Bail Court now have decided otherwise.

boon said...

well mr wang, we shall see how things develop.. But somehow I don't see every single ex-KNF director being charged.

simplesandra said...

Elaina Olivia Chong wrote: "Honesty is one part, business acumen is another - does not a charity in Singapore, not need an enterprising head to drive the fundraising campaigns as well nowadays?"

Yes, but being a charity, it also needs one whose heart is in the right place, as much as his brain. Like they say: charity starts at home. :-)

scb said...

Can we say that Regulators(Regulating Authorities) are as guilty whence those under their supervisions went astray? Hardly noticed any regulators taken to task< don know why!

Anonymous said...

To Boon:

Regarding your defence of the innocence of von Pierer, please read the facts which i had posted as a comment to MWSS article "Our Honorary Citizen", May 14, 2007 4:45 PM.

He was in the know and it was documented in meeting minutes since the 90s.

FrauP.

Anonymous said...

try following the chinese style --> death penalty