February (SINGAPORE) An investigation conducted by the Commissioner of Charities (COC) has found many irregularities

Transcription

1 February 2007 Investigation Uncovers Poor Governance At Youth Challenge Durai Admits Liability In NKF Trial Home Depot CEO Resigns Amid Outcry Over Pay Package; Company Revises CEO Pay Thai Institute Of Directors Compiles Chartered Directors List Survey Finds Directors Lack Control Over Executive Pay Former Auston CFO Sentenced To Seven Months' Jail Former Cendant Executives Sentenced In Fraud Case Former Gemstar CEO Ordered To Pay $93.6 Million Former Red Cross Official Charged With Fraud Investigation Uncovers Poor Governance At Youth Challenge (SINGAPORE) An investigation conducted by the Commissioner of Charities (COC) has found many irregularities and areas of concern in the corporate governance, management and financial controls of charity organisation Youth Challenge (YC). Of particular concern was the lack of transparency and misleading information on the pay of the charity's executive president, Vincent Lam. Mr Lam's total remuneration of $248,867 in 2006 was more than half of the total donation and other income of $442,287 raised that year. However, only $53,836 was disclosed in the charity's income and expenditure statement. It was also found that Lam could make electronic transactions including those for his salary without a second level of approval. The COC report also said that YC had deficiencies in internal control such as blank pre-signed cheques; non-compliance with the expenditure approval limits set in the charity's constitution; and payments not supported by documents. Following the announcement last August of an inquiry, there was a mass resignation of YC's management committee. A new committee was elected in October. Lam, who resigned from his post on 22 Jan this year, has said that YC 's previous boards of management have to explain his $13,000 monthly salary. Meanwhile, an electronic transfer of $15,220 made by YC's board treasurer Zainal Abas Ramlan as salary payment to Lam and one other full-time staff on January 15 has come under fire by the current management committee who claim that they did not authorise any internet banking transactions. Additionally, just three days before the transfer, the Committee had held a board meeting to cut Lam's salary by more than half. It has never been a necessity for approval of pay to be obtained from the board, even with the past board. Payslips have always been signed by me. As (the) amount to be transacted is verified to be correct, there was no reason (for me) to seek

2 further approval, Mr Zainal said in a media statement. ~ Adapted from Youth Challenge found lacking in transparency, corporate governance, 23 January 2007; Inquiry finds poor governance at Youth Challenge, Business Times Singapore, 24 January 2007; Youth Challenge's treasurer says new board aware of electronic transfer, www. channelnewsasia.com, 29 January 2007; Who okayed Lam's pay?, 30 January Home Depot CEO Resigns Amid Outcry Over Pay Package; Company Revises CEO Pay (NEW YORK) The resignation of Bob Nardelli, chairman and chief executive of home improvement chain Home Depot, has delivered victory to the shareholder activists who have criticised him for accepting hefty pay increases while the share price of the company slumped. Nardelli, who had infuriated investors by refusing to answer questions over his pay package at the company's annual meeting, had received more than $120m in compensation, including stock options, during his first five years as chief executive while the share price dropped. According to his employment contract, Nardelli was also entitled to a severance package worth $210m. A lawsuit filed by a group of shareholders requesting to temporarily block the company from paying Nardelli any more of his $210 million severance package has been denied by the court. Meanwhile Nardelli's successor Frank Blake will be paid only a fraction of what his predecessor earned. In a regulatory filing, the company said that Blake could earn as much as $8.9 million in total compensation this year. Nardelli earned $25.7 million a year on average, excluding stock options. The company also announced that Blake's compensation arrangement does not provide for payment of severance upon termination. ~ Adapted from Nardelli quits Home Depot with $210m deal, Financial Times, 4 January 2007; Demolished by investor activism, Financial Times, 4 January 2007; Judge won't block Nardelli's severance pay, 22 January 2007; Home Depot draws line on CEO pay, 25 January Thai Institute Of Directors Compiles Chartered Directors List (THAILAND) A rise in the demand for professional directors has prompted the Thai Institute of Directors Association (IOD) to compile a list of chartered directors, with the first 30 to be named by March. According to IOD president Charnchai Charuvastr, chartered directors will be able to serve any listed company, represent any shareholder or be independent directors. A chartered director, screened by the review and interview panel, is a director of a company or any organisation who currently serves exclusively as a director. He or she is dedicated to developing knowledge and skills in performing duties as a director especially those related to corporate governance, he added. Mr Charnchai also said that chartered directors could represent any shareholder group on a board to ensure fair treatment for stakeholders. They can sit on the boards of up to five listed companies and their chartered status will be reviewed every three years. ~ Adapted from New IOD list will help firms fill board seats, 23 January 2007.

3 Survey Finds Directors Lack Control Over Executive Pay (NEW YORK) A survey conducted by PricewaterhouseCoopers and the Corporate Board Member magazine by surveying more than 1,300 directors of US companies has found that board members still do not have as much control over corporate dealings that many believe is needed to curb high executive compensation. About twothirds of the respondents believe that US company boards are having trouble controlling pay. A third of those surveyed also believe that investors are the group most likely to get pay reduced. Despite the push in corporate America for an independent board chairman, 59 percent said that they do not want the chairman position to be held by an independent director. About one in five directors also said that they do not know what the CEO would collect if the person is terminated, retires or should there be a change of control. ~ Adapted from Survey finds directors are in the dark on CEO pay, 31 January Durai Admits Liability In NKF Trial (SINGAPORE) After just two days in court, former National Kidney Foundation CEO T T Durai admitted that he breached his duties as CEO and a de facto director, a fiduciary and senior employee of the NKF and his duty of care to the charity. The new NKF board had brought a civil suit against Durai and four other related parties for alleged breach of duty and causing damage and loss to the organisation. Others charged in the case include former chairman Richard Yong; former treasurer Loo Say San; former board member Matilda Chua; and Pharis Aboobacker, a friend of Durai. Yong and Loo have indicated they will continue to fight the case while the other two defendants have not indicated any position. The new NKF board would be seeking to recover from Durai: $4.08 million of donations to the NKF deemed to have been lost due to the 2005 public scandal involving Durai; $5.28 million paid by NKF to Pharis Aboobacker's companies, Forte Systems and Protonweb Solutions, for services that were not properly rendered; and $550,000 paid to Durai's lawyers for the defamation suit he brought against Singapore Press Holdings. Meanwhile, lawyers of Yong and Loo had sent Durai a notice to name him as a third party in the NKF trial which means that even if Yong and Loo are found liable of making improper payments to Matilda Chua, Durai still has the right to contest the actual amount that he should pay. Durai has responded to the suit but details are yet to be disclosed. The trial continues. ~ Adapted from Durai thrown in towel, admits liability, Business Times Singapore, 11 January 2006; Former NKF CEO Durai responds to suit naming him as third party, 24 January 2007.

4 Former Auston CFO Sentenced To Seven Months' Jail (SINGAPORE) Chua Peck Wee, former chief financial officer of Auston International Group, has been sentenced to seven months in prison for his role in the falsification of the company's accounts four years ago. Chua had pleaded guilty to helping further former Auston CEO Ken Yeo Poh Siah's plan in April 2003 to falsely classify certain expenses in Auston's accounts. He admitted to sending falsely created documents to an Auston accounts staff, with instructions to record a payment of $268,525 as academic cooperation fees to the upper Iowa University for FY2003. The amount had in fact being a payment made by Auston to the University of Wollongong for university fees for FY2002. By recording the amount as academic cooperation fees, Auston could classify it as a development cost and amortise the amount over three to five years from FY2003, instead of recording the full amount as an expense in FY2002 which made its performance that year look better. Chua is the first of three parties to be convicted and sentenced in the Auston accounting scam. The company itself and its former CEO are yet to enter their pleas for their respective charges. ~ Adapted from Ex-Auston CFO gets seven months' jail, Business Times Singapore, 12 January Former Cendant Executives Sentenced In Fraud Case (US) Former chairman of Cendant Corp, Walter Forbes, was sentenced to 12 years and seven months in prison and ordered to pay $3.275 billion in restitution for orchestrating the largest accounting fraud of the 1990s. Forbes was accused of inflating earnings by $252 million at CUC International, where he was chief executive officer, and which merged with HFS in 1997 to form Cendant. When the scandal surfaced in early 1998, the company's market capitalization plunged by $14 billion in one day. Meanwhile Cendant's former chief financial officer Cosmo Corigliano was spared prison time and was sentenced to three years of probation, including six months of home confinement with electronic monitoring, and 300 hours of community service. Prosecutor Michael Martinez and Senior U.S. District Judge Alan H. Nevas said Corigliano played an indispensable role in the case and was the only cooperating witness who was able to implicate Forbes. Corigliano had testified in the trials that ultimately led to the convictions of Forbes and former vice chairman E. Kirk Shelton. Shelton was sentenced to 10 years in prison in August 2005 and was ordered to pay $3.275 billion in restitution. ~ Adapted from Ex-Cendant chairman gets 12+ years, 18 January 2007; Former Cendant Controller gets probation, 30 January 2007; Former Cendant CFO spared jail time for his role in accounting scandal, 30 January Former Gemstar CEO Ordered To Pay $93.6 Million (LOS ANGELES) An arbitration panel has ordered former chairman and CEO of Gemstar-TV Guide International Inc

5 Henry C. Yuen to pay the company $93.6 million in damages, salary and other costs. The panel also ruled that Yuen was not entitled to collect $30.9 million that has been frozen since he was fired in 2003 over charges that he and other executives were behind a scheme to inflate the company's revenues to meet financial targets. Yuen had argued in a wrongful termination claim against the company that he was entitled to those funds under his employment contract. Instead, arbitrators concluded that he had breached representations and warranties that he had made to the company, for which the panel awarded Gemstar $80.6 million in damages. The remainder of the total $93.6 million Yuen has been ordered to pay includes $6.1 million in salary paid to him since he was fired and about $6.9 million in attorneys' fees and costs. Gemstar said it will also seek an additional judgment for its attorneys' fees. The panel also ruled that Gemstar could offset payments it owes Yuen under a patent rights agreement against the funds he was ordered to pay the company. ~ Adapted from Arbitration panel orders Gemstar's ex-ceo to pay $93.6 million, 22 January Former Red Cross Official Charged With Fraud (LOS ANGELES) Karen Shuerger, former assistant director of accounting at the Orange County Chapter of the American Red Cross, has been charged with misappropriating more than $100,000 over the final five years of a 17-year career at the chapter. According to the indictment, Shuerger had used the chapter's traveler's checks and a credit card issued by the organization to make purchases for herself at places that included a gambling hall in Nevada, a beach resort in Hawaii and the San Diego Zoo. The embezzlement was uncovered when Shuerger, who had been in charge of monitoring money received by the chapter and preparing financial records, retired in the fall of An audit was conducted in 2006 when her replacement noticed discrepancies in the accounting books. The results were turned over to the Federal Bureau of Investigation, leading to Shuerger's indictment. She is being issued a summons to appear in court next month. ~ Adapted from Ex-Official of Red Cross is charged with fraud, 18 January This newsletter is prepared by the Corporate Governance & Financial Reporting Centre, NUS Business School, National University of Singapore and sponsored by Federal Insurance Company (FIC), Singapore. Federal Insurance Company is the largest writing company of the Chubb Group of Insurance Companies, and as at 1st April 2004, carries a financial rating of AA by S&P and A++ by AM Best. Federal Insurance Company is a leading insurer for Directors and Officers Liability Insurance. For more information, please contact their insurance broker or agent or Federal Insurance Company,18 Cross Street, #11-08 China Square Central, Singapore Telephone: +(65) , Facsimile: +(65) To unsubscribe from this newsletter service, please send us an stating your address at which this e-newsletter was sent. The news summaries are based on original reports in various media including newspapers, publications, websites and other sources. The views, opinions and content expressed herein are those of the authors and do not necessarily represent the views of National University of Singapore, NUS Business School, Corporate Governance and Financial Reporting Centre, or any insurer within the Chubb Group of Insurance Companies. The information should not be relied on as legal or other professional advice or a definitive statement of the law in any jurisdiction. For such advice, an applicant, insured, listener or reader should consult their own legal counsel or other professional adviser. It is not our intention to infringe on any copyrights in any way. Should we have done so unintentionally, please let us know by with the necessary guidelines. Thank you. Corporate Governance and Financial Reporting Centre, NUS Business School, 1 Business Link, Singapore Telephone: +(65) , Fax: +(65) , cgfrc@nus.edu.sg