Unlucky Shareholders

While investors are still trying to make sense of the unauthorized forex deals made under spurious circumstances that forced the company to make record provisions, to the tune of HK$15.5 billion, questions have arisen about how much the company chairman’s daughter knew in her position (or former position) as director, group finance. Putting aside the extent of her alleged involvement, the mere claim that high-risk, high-volume foreign exchange transactions were being carried out without the knowledge and authorization of top management is simply mind-boggling. Minority shareholders have every right to question the company board members’ integrity and on whether they have properly carried out their fiduciary duty, although, given Hong Kong’s lax and non-binding corporate governance rules (such as “Non-Statutory Guidelines on Directors’ Duties” and “Guide on Disclosure of Price-Sensitive Information” ), they have little recourse but to sell the company’s shares in disgust, as they did right after the shocking announcement.

As David Webb, an independent commentator and a former HKEx director, aptly concluded in his commentary:-

“This episode has revealed deeply defective internal controls at a member of Hong Kong's blue-chip index, as well as disregard for the need and obligation to promptly inform Investors of price-sensitive information. Investors should attach a discount for this, as should credit ratings agencies.”

Over at the controversial AIG Group, executives seem to show utter insolence and contempt not only for the company’s shareholders, but also for American taxpayers. As NYT columnist Maureen Dowd pointed out in “After W., Le Deluge”:-

“Just when we thought executives of A.I.G., the insurance giant bailed out by taxpayers for $123 billion, had been shamed into stopping their post-bailout Marie Antoinette spa treatments, luxury sports suites, Vegas and California posh resort retreats, we were dumbfounded to learn that some A.I.G. execs were cavorting at a lavish shooting party at a British country manor.

London’s News of the World sent undercover reporters to hunt down the feckless financiers on their $86,000 partridge hunt as they tromped through the countryside in tweed knickers, and then later as they ‘slurped fine wine’ and feasted on pigeon breast and halibut.

The paper reported that the A.I.G. revelers stayed at Plumber Manor — not the ancestral home of Joe the Plumber, a 17th-century country house in Dorset — and spent $17,500 for food and rooms. The private jet to get there cost another $17,500, and the limos added up to $8,000 more.”

In Hong Kong, it would seem that disgruntled small shareholders of a company which is poorly managed have little alternative other than selling its shares. But in rushing for the exit, they often have to step over bodies or worse still, be stepped over.

In the AIG case though, shareholders or taxpayers could at least get the vengeful satisfaction of watching the New York attorney general slapping an order on the company to stop all unnecessary expenditures and to recover monies that were improperly spent in the past, threatening to take legal action if the company does not cooperate.

As always, in good economic times, many unscrupulous and fraudulent practices can easily be glossed over. The con men and the conned all revel in bliss. But when the bad times roll around, it is always the conned who are left holding the bag while the con men can get away unpunished in most cases. History never fails to repeat itself. The con men are becoming ever greedier in the predatory game, because they know they will never lack easy targets and because the capitalist world has done everything it can to avoid putting up necessary preemptive regulations.