SINGAPORE (July 30): News that activist investor Jerry Low could be sued by the company he owns shares in is alarming. In May, Low wrote an open letter to the board of Asiatic Group (Holdings) on behalf of minority shareholders. Their grievances included management remuneration, the poor performance of several operating assets and the stock’s decline. This was followed by two other emails that were also made available to The Edge Singapore.

On July 20, Asiatic announced that it had engaged RHTLaw Taylor Wessing to commence legal proceedings against Low for “defamatory and injurious remarks”. RHT sent Low a cease and desist letter and asked him to apologise for his remarks and pay damages.

See also: Snuffing out the open flames of dissent at Asiatic

Asiatic is not the first locally listed company to turn to the court of law for respite from pressure in the court of public opinion. In 2012, agricultural commodities supply chain manager Olam International commenced legal action against Muddy Waters Research and its founder Carson Block over allegations about Olam’s debt and its accounting practices. Olam later decided to drop its suit.

In 2015, commodities firm Noble Group sought damages against Arnaud Vagner and his company Enlighten Ace over comments published online by Iceberg Research. The lawsuit is ongoing — something Iceberg has expressed incredulity about, given Noble’s debt and interest burdens. Iceberg also says the lawsuit has merely strengthened its resolve to keep up its criticism.

From the perspective of Noble’s shareholders, then, the Iceberg lawsuit does not appear to be a good use of company cash or resources. Shareholders at Olam apparently had similar ideas. In its statement announcing it was dropping its lawsuit, Olam said: “After considering feedback received from several of its shareholders, Olam has decided it should now move forward and focus resources and management attention to deliver value for its continuing shareholders and other stakeholders.”

Asiatic is going a step further than Olam and Noble, though, in that it is considering legal action against its own shareholder. In this case, it is more than just company cash and management resources that are at stake. Asiatic’s actions could corrupt a market mechanism that is essential to proper corporate governance.

At its AGM, Asiatic’s chairman Tay Kah Chye said: “The board and the company feel that the shareholders’ questions should be answered at the appropriate venue such as this AGM, as opposed to [being] publicly debated.” But how can minorities canvass other shareholders for a proxy vote if they cannot discuss concerns publicly?

Courts are supposed to interpret the law, not judge management’s success. The latter job is best left to the owners of the company, who need to be able to submit proposals or demand change. Without this ability, they would lose control of the very company they own.

As The Edge Singapore had pointed out previously (Can we improve corporate governance without onerous rules on companies and directors?, Issue 837, July 2), corporate governance is primarily about overcoming the problems related to the separation of ownership and control.

Company owners must have a way to keep managers accountable. This mechanism exists and functions through a combination of the press, research groups, well-informed directors, shareholder votes and a corporate governance code. The threat of legal action can hinder nearly all of those elements, and it should not be an acceptable means to any end.

Interestingly, Asiatic seems to consider itself defamed by Low’s letters and his comments to the press. Yet Low, as a shareholder of the company, could have little interest in reducing the value of Asiatic shares.

Asiatic’s actions should also be considered against a backdrop of increasing investor focus on environmental, social and governance matters. As this issue of The Edge Singapore shows, ESG is quickly becoming as important an investment consideration as profitability or indebtedness. Demand for ESG-linked investments is so great that there is currently a shortage of eligible assets. Companies that are willing to improve their ESG scores are even accorded premiums by the market.

The demand for such investments continues to be strongest among institutional investors and high-net-worth individuals. So, the companies that take ESG reporting seriously tend to be the larger ones. Smaller companies tend to find the ESG reporting process costly and time-consuming. There is also a perception that retail investors are less concerned with carbon emissions or labour rights.

Certainly, there is some merit to the argument that ESG reporting is cumbersome and has become a box-checking exercise — requiring a company to report its ESG practices does not guarantee the company’s compliance with those practices.

However, shareholders could gain something from paying more attention to these ESG reports. Doing so may enable them to ask better questions and demand better answers at shareholder meetings. Directors, meanwhile, should think of the ESG reporting template as a stewardship guide that will help them better execute their duties.

Finally, there will be instances when regulators will need to step in. When a market mechanism isn’t working as it should, corrective action will benefit all. 

This article first appeared in The Edge Singapore (Issue 841, week of July 30). Subscribe here


Update on Aug 1: On Tuesday night, Asiatic announced its board has decided not to follow up on the cease and desist letter sent to dissenting shareholder Low Chin Yee.

“The board noted that Mr Low has since removed his statements from the public domain. As such, after considering the best interests of the Company, the Board has decided not to pursue the matter any further,” says Asiatic in its filing.

Asiatic Group moves to sue dissenting minority shareholder Jerry Low for defamation
“The Board would like to assure all shareholders that it continues to welcome all constructive feedback that are made in a responsible manner,” adds Asiatic.

The Edge Singapore also understands from Low that the three Tan brothers who helm Asiatic have also decided not to follow up with the cease and desist letter against him.

Asiatic minority shareholder Jerry Low hit with second defamation claim from executive directors