Home >Companies >People >David Gerald | The persistent shareholder activist

Singapore: For 10 months starting September 1998, during the Asian financial crisis, about 172,000 Singaporean investors did not know how to react or fight back. The Malaysian government led by the then Prime Minister Mahathir Mohammed had decided to freeze the Central Limit Order Book (CLOB) shares of Singaporean investors worth around $4.47 billion.

Singapore residents had been using CLOB, an over-the-counter-market set up in 1990 that enabled them to trade in companies listed on other exchanges, to buy Malaysian shares. The Singapore government and its exchange refused to intervene.

Among those affected was David Gerald, a lawyer, former magistrate and prosecutor, whose broker had put all the $5,000 he had set aside to invest in shares, into Malaysian companies.

When Gerald formed the Securities Investors Association (Singapore), or SIAS, to take on the Malaysian government on the CLOB shares issue, he remembered what his mentor David Marshall, a criminal lawyer who led the early political struggle for Singapore’s independence, had told him: “Whatever case you are involved in, fight with it with fire in your belly."

Malaysia, which was severely affected by the Asian financial crisis, imposed capital controls after it froze CLOB shares as its government tried to prevent money from being transferred out of the country. Some Malaysian businessmen, encouraged by the government, offered to buy out CLOB shares at 50% of their value and about 359 Singaporean investors accepted the deal for fear of losing everything, Gerald said.

With support from local businessman Arumugam A. Munisamy, who had lost over $500,000 when CLOB shares were frozen, Gerald began engaging the Malaysian government. Over 50,000 Singaporean investors joined SIAS, and the organization decided to approach Malaysian courts to free up CLOB shares.

At the same time, the Singapore government also said it would take this dispute to the World Trade Organization. After a year of discussions, CLOB shareholders, through SIAS, reached a settlement with the Malaysian authorities.

“Singaporeans got back their shares, but many lost value. The shares of some of the companies never reached the prices they were at, before they were frozen," he said.

The end of the CLOB saga also posed a fresh challenge for SIAS and Gerald—should he disband the organization as it had achieved its goal?

“I was at a crossroads and was thinking if I should get back to law. When I had been campaigning on the CLOB issue, I found that retail investors had very little knowledge of the shares and companies they invested in, and it was like gamble for them," he said.

He then decided to get into investor education and increase awareness on investment processes and opportunities. SIAS also ventured into helping individuals with financial planning.

Simultaneously, the organization also entered its next phase of representing minority shareholders in their disputes with companies—a space where it has made its mark since 2000.

Born in Johor, Malaysia, Gerald’s father had sent the family back to Jaffna in Sri Lanka in 1946 after World War II. He spent about 13 years there and life took a turn in 1958 when Sri Lanka had its first racial riots.

“When my father came to visit us, trains did not want to enter Jaffna due to racial tensions and he had had to walk the last part of the journey. He was distressed with the situation in Sir Lanka and took us back to Singapore," Gerald said.

As a student leader in the university when doing his law in Singapore, Gerald said fellow students and he were initially opposed to the policies of then Prime Minister Lee Kuan Yew, who is considered the founding father of the city-state. He became a convert.

“As students, we failed to see the big picture. We were concerned that employee rights such as minimum wages and powers by unions to strike were not being extended to citizens after the British left. We failed to see that 148,000 Singaporeans lost their jobs when the British left. Lee Kuan Yew was focused on only one thing—improving lives of Singaporeans by providing jobs and enhancing Singapore’s defence forces, and he charted a future where he did not want strikes and disruptions to impact companies. We needed foreign investment to survive. It was a compromise Singapore had to make as it transformed itself, from swamps into industrial estates. The first cabinet—the founding fathers—ensured Singaporeans had jobs, food, owned houses, had bank balances and enjoyed the luxuries that the West had," he said.

After stints with different government ministries, Gerald decided to go into private practice in 1980, and six years later, returned as a senior magistrate for a four-year stint. He then left for Australia in 1990 to be with his children when they pursued their studies there and practiced law in Melbourne for six years. He returned as a lawyer to Singapore, but gave up his private practice when he founded SIAS in June 1999.

Over the last decade, SIAS has made its mark in helping minority shareholders resolve issues with listed companies. These include Golden Agri-Resources and SIAS working to resolve a dispute over directors’ fees, working with China Aviation Oil to revive the company after it fell into a crisis, and helping Citiraya Industries with its restructuring, among others. SIAS was also involved in finding solutions to shareholders’ disputes in firms such as Yellow Pages, Isetan, NatSteel and Longcheer Holdings.

Gerald says SIAS advocates the Asian approach of engaging with companies, regulators and authorities to resolve issues, as against rushing to courts. “If you discuss issues over tea, doors will open and chairs will be given for you to sit down and have a conversation—we have always followed this model," he added.

Edited excerpts:

Unlike the US and to an extent, Europe, why has shareholders’ activism not taken off in many parts of Asia?

In many Asian regions, there were no associations or groups to represent retail shareholders. Malaysia now has a minority watchdog that is funded by the government, but they track governance in government companies. In this region, there was also never an issue like CLOB before. In most Asian countries, you will find that politicians don’t allow collective representation in capital markets. In Thailand now they are encouraging investors to raise issues in meetings. But to sue collectively, the thinking may be investors don’t want to waste their time and money on suing companies. It is expensive in many countries. It takes a lot of time. Unlike the West, hedge funds have not been historically involved in this region and they have only come in the last five years.

Across Asia and even in India, selecting board members is often done by the promoters of the companies. What can be done to ensure that minority shareholders, too, have a role to play in nominating and selecting board members? How can board diversity be enhanced?

I would use the word “pathetic" to describe the situation. Companies, when they list, are often afraid to bring board members who are not known or are not friendly with the owners and the controlling family. Companies want board members who are safe hands, and this continues to prevail in Asia, while the situation in the West has changed. In Western countries, the participation of pension funds as shareholders has helped. There has to be more focus towards corporate governance. One way of changing it is through the regulatory framework of having a minimum number of independent directors, who are not interdependent in any way, and ensuring that they are prepared to stand up for minority rights. We have said that a fully employed person should not sit on the boards of more than four companies and, if unemployed, it should be restricted to seven companies. When you serve on many different boards, you are not going to do justice to shareholders—you are not fulfilling your role in being a hawk to keep watch on behalf of the shareholders. Women did not come into workforces in Asia until recently, and it is changing. To legislate or mandate women on the board is a wrong move. The business of the board is to select the most suitable person to sit in the board. The selection has to be merit based and not gender based. There are a lot of women in senior management today to choose from, be it in India or Singapore.

Why did SIAS venture into giving transparency awards to companies? You have also set up a dispute resolution company.

Transparency and governance have to be pushed. We got the National University of Singapore Business School Corporate Governance centre to grade every listed company in Singapore against a scorecard. S&P (Standard and Poor’s) joined us and we came up with this scorecard. These were investors’ choice awards. We have industry partners like the Association for Fund Managers, CFA (Chartered Financial Analyst) and accounting bodies to vote when it comes to identifying the most transparent companies. Yes, SIAS has a dispute resolution committee. Our team first looks at whether the complaints from retail investors and others should be sent to this committee. When there is misuse of funds or trading malpractices, then we take it up.

You have given awards to companies such as China Aviation Oil, which later collapsed due to criminal offences by it management.

China Aviation Oil’s management allowed it to run losses of $900 million, more than three times its net worth. Here the company’s chief executive officer was found betting on oil futures and most of its management and independent directors were not even aware. When people ask me why we gave awards to such companies, I give the illustration of a policeman who is law abiding. But sometime in the future, if this same policeman violates the law, what can we do? SIAS was closely involved in reviving and restructuring China Aviation Oil after it had collapsed.

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