Let Public Have First Bite Of Property Before Directors

Source : The Business Times, February 5, 2008

IT was reported recently that a listed company had sold a property it had developed to the relatives of a director.

What was unusual this time was that the relatives were walk-in customers during a public sale which was held after the sales preview for invited guests.

The sale was also on the same terms as those offered to members of the public.

I feel that this approach to transacting properties with directors and their related parties represent a standard of corporate governance for other listed companies to follow.

I am sure that shareholders have no qualms about directors buying properties that were left unsold after having been launched to members of the public or even if directors purchased them during the public launch.

However, if directors were given preference to units during the pre-launch, as is often the case, these transactions should be disclosed by the company in a clear and transparent manner.

At the outset, companies should state if these property sales, or the profits from any subsequent resale by the directors, are meant to be part of their remuneration.

If they are, then the amount should be determined and, if necessary, approved at annual general meetings.

Also, if the directors were related to the major shareholder, then minority shareholders should get a chance to vote on it.

If the company's view is that the sale was not part of their remuneration, then there should be a test of valuation or a governance guideline to be followed to ensure that revenues were maximised in the sales to directors.

The reason being, even when properties are sold at list prices without discounts, it is not clear to shareholders that the properties were sold at the best possible price.

If directors were responsible for setting prices and would also likely to have had the first pick of the best units, it is difficult for shareholders to be certain if the launch price was correctly priced to begin with.

The only way to be confident that a company got the best price for the property is if the properties were first open to third parties for purchase or bidding.

Therefore, the guideline for sales to company directors should be that the directors make purchases after the public launch, or at the very least, during the launch.

This will clear doubts on whether the transactions involving directors were in the interest of shareholders.

Ang Hao Yao