EXECUTIVE SUMMARY

In our economy a good corporate governance has become a crying need now a days. Due to deviant
nature of human being, they are always interested to maximize their own benefit. In this process
of maximizing own benefit, board of directors of a company or the members of management board
of a company may involve in such an activity which may bring positive result for them but might
be harmful for shareholders who are the real owners of the company. In other words, owners are
concern about long term gain while agents are concerned about short term gain. In this mismatch
of objectives, the issues of agency conflict arises. Researcher claims that, strict corporate
governance policy is required to solve this problem. Again this corporate governance policy vary
from industry to industry, economy to economy and country to county. So to know what types of
corporate governance policies will be fit for an industry, study must need in this field. This report
was assigned to us to gather knowledge in this aspect. We have selected “The failure of C.K Tang”
as our key topic. We have tried to find out the cause and different areas of issues where corporate
governance failed throughout the report.

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 Contents
Executive Summary ..........................................................................................................................
Chapter- 01: Introduction to the Report .......................................................................................... 1
1.1 Introduction: .......................................................................................................................... 1
1.2 Objectives of the report:........................................................................................................ 1
1.3 Methodology of the report: ................................................................................................... 2
1.3.1 Data Collection Procedure ............................................................................................. 2
1.3.2 Data Processing and Analysis ........................................................................................ 2
1.4 Limitation of the report: ........................................................................................................ 2
Chapter- 02: Review of Literature .................................................................................................. 4
Chapter- 03: Company Overview ................................................................................................... 8
3.1 About C. K. TANGS:............................................................................................................ 8
3.2 Evolution of The Brand: ..................................................................................................... 10
3.3 Present Day: ........................................................................................................................ 10
Chapter- 04: Failure of C.K. TanG ............................................................................................... 11
4.1 Role of the Board of Directors: ........................................................................................... 11
4.2 First Privatization Attempt: Scheme of Arrangement ........................................................ 12
4.2.1 Reasons for failure of First attempt: ............................................................................ 12
4.3 Second Privatization Attempt: Unconditional Cash Offer.................................................. 12
4.3.1 Reasons for failure of second privatization attempt .................................................... 13
4.4 Third Privatization Attempt: Voluntary Delisting .............................................................. 13
4.5 C.K.Tang: The Fight towards Privatization ........................................................................ 14
4.6 Key Area of Controversy: Tangs Plaza .............................................................................. 14
4.7 Unhappiness amongst Minority Shareholders .................................................................... 15
4.8 The Capital Reduction Exercise.......................................................................................... 15
4.9 C. K. Tang: Corporate Governance Issues: ........................................................................ 15
Chapter- 05. Conclusion ............................................................................................................... 19
References ..................................................................................................................................... 20
 CHAPTER- 01: INTRODUCTION TO THE REPORT

1.1 INTRODUCTION:

Corporate governance is the system of rules, practices and processes by which a company is
directed and controlled. Corporate governance essentially involves balancing the interests of the
many stakeholders in a company - these include its shareholders, management, customers,
suppliers, financiers, government and the community. Since corporate governance also provides
the framework for attaining a company's objectives, it encompasses practically every sphere of
management, from action plans and internal controls to performance measurement and
corporate disclosure. Since business world started to become complex, the importance of imposing
regulation more and more has been felt by the business people. Because this extended complexity
brings also scope to take some illegal advantages or doing any corruption.CG Guideline or
Corporate Governance Guideline is one of the tools imposing a restriction on such illegal
advantages or doing any corruption. Corporate Governance is the control of management in the
best interest of the company. We have assigned this report with a view to fulfilling the objective
of knowing about corporate governance issue relating to C.K. Tang Limited. To meet the
requirement of this report we have selected C.K. Tang Limited.

1.2 OBJECTIVES OF THE REPORT:

Broad Objective: Broad objective of preparing this thesis report is to know about the overall
scenario of our country regarding corporate governance guidelines.

Specific Objective: Without meeting above single line broad objective, this report will help me to
fulfill a list of sub ordinate objectives, those are:

❖ To know about Corporate Governance and to know its importance.

❖ To analyze the necessity of having a structured and detailed corporate governance
❖ To find out should independent directors be primarily concerned with the interests of the
minority shareholders?
❖ To evaluate the independence of C.K. Tang’s board during the third privatization attempt.
❖ To find out whether the basis of valuation was fair.
❖ To suggest improvements that would help protect minority shareholders in the future.

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 ❖ To explain three different privatization methods
❖ To explain how these different methods work and the pros and cons of these different
methods from the viewpoints of the shareholder(s).

1.3 METHODOLOGY OF THE REPORT:

This report is a descriptive in type which does not include any quantitative data rather it
includes pure qualitative data. So this paper only requires qualitative techniques of the research
methodology. The study is performed based on the information extracted from different sources
collected by using specific methodology. Total methodology is divided into two major parts:

1.3.1 DATA COLLECTION PROCEDURE

To complete this research, secondary sources of data might deem appropriate. To some extent
published journal, research paper, and journal or newspaper article, reference books were used to
gather theoretical and practical information.

Secondary data: The secondary data were collected from internet. Sources of secondary
information can be defined as follows:

❖ Corporate Governance Guideline

❖ Official website of the company

❖ Published journal, article, research paper, references book

1.3.2 DATA PROCESSING AND ANALYSIS

Collected data have then processed and complied with the aid of MS Word.

1.4 LIMITATION OF THE REPORT:

On the way of preparing this report, we have faced following problems that may be termed as the
limitation of the study:

❖ Limitation of Scope: Policy of not disclosing some sensitive data and information for obvious
reasons posed an obstacle.

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❖ Personal Limitation: This includes inability to understand some official term, decorum etc.

❖ Time Limitation: It was one of the main constraints to make the report more informative.

Despite these limitations we have tried our best to meet the entire requirement to prepare a
complete report.

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 CHAPTER- 02: REVIEW OF LITERATURE

Corporate governance importance arises in modern corporations due to the separation of

management and ownership control in the organizations. The interests of shareholders are
conflicting with the interests of managers. The principal agent problem is reflected in the
management and direction related problems due to the differential interests of firm’s stakeholders.
There is not a single definition of corporate governance rather it might be viewed from different
angles.

Berle and Means (1932) and the even earlier Smith (1776). Zingales (1998) defines corporate
governance as “allocation of ownership, capital structure, managerial incentive schemes,
takeovers, board of directors, pressure from institutional investors, product market competition,
labor market competition, organizational structure, etc., can all be thought of as institutions that
affect the process through which quasi-rents are distributed”.

Shleifer and Vishny (1997) define corporate governance as “the ways in which suppliers of
finance to corporations assure themselves of getting a return on their investment”. OECD in 1999
defined corporate governance as "Corporate governance is the system by which business
corporations are directed and controlled. The corporate governance structure specifies the
distribution of rights and responsibilities among different participants in the corporation, such as,
the board, managers, shareholders and other stakeholders, and spells out the rules and procedures
for making decisions on corporate affairs. By doing this, it also provides the structure through
which the company objectives are set, and the means of attaining those objectives and monitoring
performance.” The Ministry of Finance, Singapore (CORPORATE GOVERNANCEC 2001)
defines corporate governance as “the processes and structure by which the business and affairs of
the company are directed and managed, in order to enhance long term shareholder value through
enhancing corporate performance and accountability, whilst taking into account the interests of
other stakeholders. Good corporate governance therefore embodies both enterprise (performance)
and accountability (conformance).” A number of studies on the state of corporate governance were
undertaken. Studies have discovered number of reasons for malpractices of corporate governance
(CG) in companies listed with the Stock Exchange. One of the principal reasons for poor corporate
governance (CG) is that most of the listed companies are family oriented (Ahmed and Yusuf, 2005)

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and these companies prefer to keep ownership holdings within the family connections (The Daily
Star, May 17, 2006), i.e., these companies are closely held. As a result, small group of shareholders
own or control the majority of shares and by using that majority, control the decision-making
processes of the companies (Bangladesh Enterprise Institute 2003).

“In an overwhelming majority of the non-bank listed companies, sponsor shareholders, who
generally belong to a single family, heavily dominate the Board of Directors. The Board of
Directors is actively involved in management. Most independent directors represent current or
former government officials or bureaucrats. They are appointed directors to assist company in
getting licenses or as payback for previous favors” (Ahmed and Yusuf, 2005).

In the context of Bangladesh, independent directors do not act as an advocate of majority

shareholders or as a source of innovative ideas (Bangladesh Enterprise Institute 2003). But
ironically, the companies Act 1994 provides for many stringent rules regarding any negligence,
default, breach of duty or trust on the part of director, manager or officer of a company. But these
rules are “more honored in the breach than observance” (Ahmed and Yusuf, 2005). In addition to
this, annual general meetings (AGM) of many listed companies are not held in time, which also
implies poor corporate governance (CG) practice.

Ahmed and Baree (2000) summarizes the principles and standards of corporate governance as
agreed and put forth by Organization for Economic Co-operation and Development (OECD)
,Cadbury committee (UK) and other international committees. The authors identified problems of
implementing international corporate governance norms in Bangladesh and finally make certain
recommendations for reform of corporate governance as well. The article recommends three
substantive actions be taken to improve corporate governance scenario in Bangladesh. First, a
‘high powered committee’ including members from government, regulatory agencies, companies
and ICAB should write a code for corporate governance in Bangladesh. Second, amendments to
existing laws should be adopted to enforce corporate governance norms. Third, academic and
professional institutions should include corporate governance principles in their syllabus.

Sarkar and Ahmed (2007) depicted the scenario of corporate governance disclosure by listed
public limited companies in Bangladesh. They identified some information items which companies
tend to disclose much such as ‘disclosure of remunerations committee’. They observed that there

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are some information items, which companies tend to disclose less or try conceal purposively, such
as ‘stock code’. They observed that 25 companies out of total 257companies as listed on DSE up
to June 30, 2005 reported Corporate Governance Report in the annual reports voluntarily. The
mean disclosure of corporate governance items is 40.84 percent. Sarkar, Khan and Alam (2007)
studied the response rate of different companies (industry-wise) with a special reference to the
SEC corporate governance guidelines and the compliance rate for corporate governance guidelines
by the companies who have reported the compliance with such guidelines in 2005-06 and 2006.

A comprehensive diagnostic study was conducted by Bangladesh Enterprise Institute (2003) as a

project, which seeks to focus on the key areas that have been identified internationally as important
to good corporate governance. Weak regulatory system has also been identified as a roadblock in
the way of achieving sound CG. The existence of weak regulatory system prevents the current
laws and statutes from being implemented.

Incompleteness of Board committees hinders good CG in Bangladesh. Board committees which

are very important for sound CG are composed of Audit Committee, Remuneration Committee,
and Nomination Committee. The Audit Committee monitors the integrity of financial statements,
reviews internal financial controls, recommends appointment of external auditors and reviews
auditor independence and objectivity and audit effectiveness. The Remuneration Committee is
responsible for reviewing the remuneration of directors and senior management and advising the
Board whether the amounts are reasonable in comparison with industry and corporate yardsticks.
The Nomination Committee is responsible for proposing new nominees to the Board and advising
the Board on the core competence required of new directors (Michael Seamer, 2002). Despite
significant importance of the Board committees, new boards (except of banks) have been found to
have audit committees and almost none has been found to have nomination or remuneration
committees in Bangladesh (BEI, 2003).

Discrepancy between International Accounting Standards (IAS) and Bangladesh Accounting

Standards (BAS) and inconsistency between the Companies Act, 1994 and IAS are other factors,
which have been found to be responsible for poor CG practices. The Institute of Chartered
Accountants of Bangladesh (ICAB) adopted 30 IAS as BAS but subsequent amendments of these
BAS were not made and consequently, BAS significantly differ from IAS in material aspects. The

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situation aggravates when provisions regarding preparation and presentation of financial
statements, disclosures and auditing that are mentioned in the Companies Act, 1994 are
incompatible with IAS, which are required by the SEC. The Companies Act, 1994, for example,
does not require the preparation and presentation of a consolidated Balance Sheet for a holding
company, but it is required under the IAS.

In order to improve the present situation and to raise the awareness of the need for good CG
practices, a number of initiatives have been taken at the non-governmental level. The establishment
of the Center for Corporate Governance and Finance Studies (CCGFS) at the University of Dhaka
is one of the examples of the most recent initiatives. The CCGFS, DSE, the OECD and the Asia
Foundation jointly organized an international conference on corporate governance on July 30 and
July 31, 2005 for the first time in Bangladesh. The Federation of Bangladesh Chambers of
Commerce and Industry (FBCCI) organized another conference on the same topic. The Task Force
on Corporate Governance of Bangladesh Enterprise Institute (BEI) undertook a project supported
by Department for International Development, World Bank and the OECDD and developed the
“Code of Corporate Governance for Bangladesh” in April, 2004.Butat the government level, the
SEC has made the most important move by issuing the corporate governance guidelines on
February 20, 2006 and making them mandatory on the listed companies on “comply or explain”
basis.

The Dhaka Chamber of Commerce and Industry (DCCI) has been implementing a project,
entitled Economic Reform and Research Enterprise, in co-operation with The Center for
International Private Enterprise (CIPE) - an affiliate of the US Chamber of Commerce,
Washington D.C. Haque, Jalil and Naz (2007) studied that one of the objectives of this project is
to prepare economic policy papers on selected business sectors. DCCI requested to prepare a paper
on “Principles of Corporate Governance for Public and Private Enterprise in Bangladesh.
“According to the Term of Reference (TOR) the scope of the study was limited to analyze the
situation of corporate governance in the three types of Enterprises: Public limited companies-
Financial and Non-Financial institutions and State Owned Enterprises (SOE).

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 CHAPTER- 03: COMPANY OVERVIEW

Tang Limited is a company that specializes within Singapore’s retail market, with its flagship
store TANGS located on Orchard Road, Singapore. For many, TANGS is regarded as a principal
shopping destination in the city, comparable to Bloomingdale's in New York City and
Selfridges in London. The oldest home-bred department store in Singapore, TANGS was founded
by Tang Choon Keng, popularly known as CK Tang, in 1932.

3.1 ABOUT C. K. TANGS:

An icon of Singapore, TANGS is a leading player in the retail industry that has its fingers
constantly on the pulse of the ever-changing consumer wants and trends. With the flagship TANGS
at Tang Plaza's transformation completed, Singapore's most distinctive and beloved shopping
destination raises the bar in retail, stepping up its role as a curator of a spectrum of exciting Asian
as well as international brands, and redefining the shopping experience with a refreshed store
concept. TANGS is present in Singapore and Malaysia with six stores, namely, TANGS at Tang
Plaza, TANGS Vivo City, TANGS 1 Utama, TANGS Empire Subang, and TANGS Gentling and
TANGS the Shore, Melaka.

1923

C.K. TANGS’ founder, CK Tang, was born in a town in the Chinese province of Swatow to a
Presbyterian pastor and his wife. As an itinerant pastor, CK Tang’s father frequently travelled the
region, leaving his wife to run the household with his meager income. To get out of the cycle of
poverty and struggle, CK Tang journeyed to Singapore in 1923, which was then under colonial
administration. Armed with two trunks – one tin and one leather case filled with lace and linen –
CK Tang set off on his arduous journey. Upon his arrival, he hired a rickshaw puller and peddled
his wares to the resident expatriates with tenacity and uncompromising principles.

1932

Nearly a decade after his arrival, CK Tang decided to shift from door-to-door selling to opening a
store, renting a shop unit on River Valley Road. This was a bold move, considering his customers
were used to his coming to them. The gamble paid off – his loyal customers followed and brought

8
new customers with them. The retail business was good for him, after gradual expansion CK Tang
was able to buy a piece of land in 1939 on River Valley Road and build a three-storied structure
as both a business and a dwelling. With this additional space, he expanded his product offerings
to include other merchandise from China such as jeweler, baskets and assorted Chinese curios.

1958

From his time as an uneducated 21-year-old, CK Tang showed great vision. But perhaps the most
famous of his visionary decisions was expanding his store on River Valley Road and buying the
land on Orchard Road. Then, Orchard Road was relatively quiet, and faced a Chinese cemetery.
“People used to tell me this is not a nice place to start a business. Why buy such a deserted place,
and one in front of the graveyard? I would tell them, ‘One day this place will boom. “His decision
to buy the land stemmed from a vision he could clearly see and articulate – a thriving Orchard
Road, with TANGS at its center. He was right; it was the perfect location as the expatriate
community had to pass his store when travelling from their homes to the financial center. Over
time, other stores sprouted around and outwards, making Orchard Road a thriving shopping
destination and one of the busiest, most well-known shopping streets in the world. TANGS itself
grew from strength to strength, becoming the store of choice for Western brands entering
Singapore and a purveyor of quality Chinese crafts, offering something for everyone and earning
CK Tang the moniker “The Curio King”.

1982

In 1982, the new 33-storey Tang Plaza, incorporating The Dynasty Hotel and a 5-storey shopping
complex, was opened. At the same time, the retail landscape was changing; international travel
had exposed shoppers to what the world had to offer, and independent brands were arriving in
Singapore.

TANGS repositioned itself as a hip destination for modern, international shopping, creating a space
filed with international brands. The superstore created so much attention in the retail scene that
international brands paid attention to Singapore, with the likes of Estee Lauder, Paloma Picasso,
Isabella Rossellini and Tyson Beckford headlining launches and events. At the same time, TANGS
began its legacy of supporting local talent, showcasing the works of multiple local designers

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through the Society of Designing Arts Singapore (SODA). This retail revolution brought TANGS
to a new territory – fashion – and brought the store to new heights.

3.2 EVOLUTION OF THE BRAND:

In the 1980s, TANGS launched the tag line "All the Best under One Roof" to showcase their
diversification of products.

The company was known as a fair employer and was closed on Sundays (a rare thing in Asia) as
C.K. Tang himself was a staunch Christian. This was implemented so that so his family and
Christian staff could attend church services.

In the late 1980s and early 1990s one of CK Tang's sons, Tang Wee Sung took control of the store.
He went on to become chairman of the company in 2000 after his father’s death, and his
appointment gave rise to changed operating policies, such as permitting the store to remain open
on Sundays and introducing marketing strategies to increase consumer choice.

In 2012, TANGS announced an S$45 million, 3-year transformation plan to its flagship store on
Orchard Road.

3.3 PRESENT DAY:

Upon its 80th Anniversary, TANGS began a large-scale transformation of TANGS at Tang Plaza,
its flagship store along Orchard Road, across all concepts to reinforce its position as a leading
retailer and Singapore’s iconic, world-class shopping destination. Presenting a mix of carefully
curated international and Singaporean brands across all concepts of Beauty, Home, Fashion and
even Food & Beverages, TANGS appeals to the modern shopper who seeks to distinguish
themselves with our blend of international, modern heritage, exclusive and quality offerings.

Designed to offer the best of brands in the intimacy of a department store, the revamp also provides
a truly immersive customer experience, with services and flourishes available at every corner,
dining and rest spots on almost every floor, a comprehensive loyalty rewards programme, 24-hour
shopping via www.tangs.com, and even an exclusive members-only rest in the form of the
Preferred Lounge at SEVIIN AT TANGS. The result – an updated TANGS, rooted in its heritage
and commitment to its customers, with its sights set firmly in the future.

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 CHAPTER- 04: FAILURE OF C.K. TANG
In 1975, C.K. Tang was listed on the then Singapore Stock Exchange, which later became the
Singapore Exchange (SGX). However, since 2003, the Tang family had been trying to delist and
privatize the company. After two failed attempts, the Tang family finally succeeded and the
company was delisted on 24 August 2009.

In 2011, C.K. Tang made an offer to about 500 minority shareholders who had held on to the
shares of the delisted company. This offer represented a 15 per cent premium over its fair value
and well above the price offered to other shareholders for the delisting in 2009. However, some of
these minority shareholders were still unwilling to take up the share buyback offer, and were
holding out for a better offer. A very brief summary of these privatization attempt is presented
below:

Privatization
Year Means Offered price Premium Result
attempts

Scheme of S$0.42 per

1st Attempt 2003 35 % Failed
arrangement share

Unconditional cash S$0.65 per

2nd Attempt 2006 16.1 % Failed
offer share

S$0.83 per
3rd Attempt 2009 Voluntary delisting 22 % Succeed
share

4.1 ROLE OF THE BOARD OF DIRECTORS:

During the third and successful privatization attempt, the board of C.K. Tang was chaired by Ernest
Seow, a former PricewaterhouseCoopers (PwC) partner. Apart from Seow, there were three other
directors with experience in accounting, business management and the retail industry. Among the
four directors, three of them were serving as non-executive independent directors.

During the company’s history, there was at least one Tang family member on the board. However,
in 2008, Tang Wee Sung, CEO and the majority shareholder of the company since 1987, stepped
down from the board, after he was alleged to be involved in an illegal organ trading scandal.

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With this development, for the first time in the company’s history, there was no Tang family
member on the board. According to C.K. Tang’s Corporate Governance Report in 2009, the board
would be responsible for enhancing long-term shareholder value and the overall management of
the Group. This includes reviewing the Group’s performance, approval of corporate strategies and
promoting high standards of corporate governance. The board delegated some of its functions to
the board committees, namely the audit committee, nominating committee and remuneration
committee.

4.2 FIRST PRIVATIZATION ATTEMPT: SCHEME OF ARRANGEMENT

On 29 October 2003, Tang Wee Sung offered minority shareholders S$0.42 per share via a scheme
of arrangement. This represented a premium of about 35 per cent above the average closing price
over the last five trading days. This price also meant a 19.2 per cent discount against the company’s
net tangible assets as at 30 September 2002. However, the resolution failed to pass, as the
shareholders felt the offer price was too low and wanted more information on the company’s
prospects.

4.2.1 REASONS FOR FAILURE OF FIRST ATTEMPT:

However, the resolution failed to pass as the shareholders oppose this.

• The shareholders felt the offer price was too low.

• They wanted more information on the company’s prospects.

4.3 SECOND PRIVATIZATION ATTEMPT: UNCONDITIONAL CASH OFFER

In December 2006, Tang Wee Sung and his brother Tang Wee Kit, offered shareholders S$0.65
per share through Kerith Holdings, a company equally controlled by the brothers. This second
attempt was in the form of a voluntary unconditional cash offer. The S$0.65 per share offer
reflected a 16.1 per cent premium to C.K. Tang’s latest closing price at that time. It also represented
a 9.4 per cent premium to the company’s net asset value, based on its annual report for the financial
year ending 31 March 2006. When the offer deadline expired, insufficient acceptances had been
received. The reason was widely believed to be the undervaluation of the commercial property
Tangs Plaza. As a result, the company continued its listing on SGX.

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On 15 July 2008, at an Annual General Meeting (AGM), minority shareholders questioned the
board about the company’s financial losses, as well as its plans to delist the company from SGX.
The board declared that a privatization exercise is solely the decision of the majority shareholder.
The board said it owed a fiduciary duty to shareholders, which is to look after the business of the
company. Attempts to vote against standard resolutions such as advance payment of directors’ fees
were defeated, because of the Tang family’s majority holdings.

4.3.1 REASONS FOR FAILURE OF SECOND PRIVATIZATION ATTEMPT

• The reason was widely believed to be the undervaluation of the commercial property Tangs
Plaza.

4.4 THIRD PRIVATIZATION ATTEMPT: VOLUNTARY DELISTING

On 8 May 2009, the Tang brothers made their third privatization attempt through an investment
holding vehicle, Tang Unity Three, which submitted a delisting proposal to the company.
Voluntary Delisting occurs when a company decides that it would like to purchase all of its shares
or move to an OTC market while in full compliance with the exchanges. The remaining
shareholders were offered S$0.83 per share, which represented a 22 per cent premium over the
company’s last traded share price of S$0.68 prior to the offer, and a 21 per cent discount to the
firm’s net asset per share price of S$1.05 as of 31 December 2008. The board recommended that
the minority shareholders accept the offer, based on an evaluation of the offer provided by the
independent financial adviser PwC. At an Extraordinary General Meeting (EGM) held on 31 July
2009, minority shareholders questioned if the offer was reasonable, given that the shares had
closed at a price above the offer at that point in time. Nonetheless, the board retained its
recommendation, saying that market prices typically varied. This was despite earlier statements by
the Tangs saying that the privatization offer was to allow shareholders to monetize the value of
their investments at a premium over its historical trading prices. Shareholders also reproached the
directors for failing to clarify with the Tangs about their redevelopment plans for Tangs Plaza after
its privatization. They expressed disappointment with the independent directors, saying that they
had insufficiently analyzed the issue.

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4.5 C.K.TANG: THE FIGHT TOWARDS PRIVATIZATION

Doubts were raised about the independence and neutrality of the CEO of the company at the time,
Foo Tiang Sooi, because he was personally related to Tang Wee Sung. Foo had worked under
Tang from 1999 to 2006. He and Tang were also former schoolmates. However, he dismissed these
facts as irrelevant. Foo also added that he was related to the shareholder who posed the question,
but this fact was irrelevant as well.

Another shareholder called for a vote of no-confidence against the board chairman. After
consulting with legal advisors, the board rejected the motion, with the chairman saying that the
action was an attempt to frustrate the meeting. Even as shareholders tried to probe further, the
chairman called for the vote to be taken. The resolution to privatize the company was passed with
96.25 per cent of votes in favor of the proposal.

4.6 KEY AREA OF CONTROVERSY: TANGS PLAZA

The Singapore Code on Takeovers and Mergers (the Code) governs all takeover activity in
Singapore involving public companies. Under Rule 26.2(a) of the Code, “a property which is
occupied for purposes of the business must be valued at the open market value for its existing use”.
However, Rule 26.2(c) provides for the case in which “such a property is valued for an alternative
use. For such a case, the costs of conversion and/or adaptation should be estimated and shown”.
During all three privatization attempts by the Tang brothers, the offer price reflected an
undervaluation of Tangs Plaza. The board stood by its stand of valuing the property according to
its “existing use”, as there was no intention of deviating from it. One investor had brought up the
fact that in C.K. Tang’s 2007 annual report, a property valuation report had taken into
consideration the redevelopment potential of Tangs Plaza. In response, the board’s legal adviser,
Yeo Wee Kiong, said it was not legally required to put a redevelopment valuation on the report.

PwC stated that the property was valued at S$340 million on 25 May 2009. This was much lower
than other nearby sites. In contrast, minority shareholders contested that the site was easily worth
at least S$400 million, according to an independent valuer. This value did not take into account
the potential value arising from redeveloping the site, and did not consider the potential value from
sub-dividing the site into small retail units and leasing them to specialty tenants. The board,

14
however, stated that regulators had told the directors that any such redevelopment was not
applicable

4.7 UNHAPPINESS AMONGST MINORITY SHAREHOLDERS

Several shareholders were unhappy about the perceived undervaluation of the Tangs Plaza site, as
well as the fact that the offer price was less than the company’s net asset per share. Thus, they met
with the Securities Investors Association (Singapore) (SIAS). SIAS stated that it objected to the
exit price and that the minority shareholders had been treated with no dignity. SIAS had also called
for regulators to intervene. Ten shareholders had also signed a petition to SGX and the Ministry
of Finance questioning the basis of the valuation on the property’s “existing use”, in a bid to
convince the regulators to allow them to obtain an alternative valuation report. SGX’s reply was
that C.K. Tang’s move to delist was purely commercial, and that the company had complied with
the listing and delisting rules.

4.8 THE CAPITAL REDUCTION EXERCISE

On 19 August 2011, C.K. Tang embarked on a capital reduction exercise to cancel out all
remaining shares held by minority shareholders. C.K. Tang would pay each investor S$1.30 per
share, which represents an increase of 56.6 per cent on the exit offer in 2009. PwC had indicated
that the S$1.30 offer is 15 per cent above its fair market value. The rationale behind the exercise
was to reduce administrative burdens. Additionally, the company reaffirmed that there are no plans
for the redevelopment of Tangs Plaza, and the buyout had no hidden agenda.

However, only 39 per cent of the minority shareholders in attendance agreed to the price for the
share buyback, far below the 75 per cent required. Some minority shareholders cited the
undervaluation of the Tangs Plaza property as the reason for rejecting the offer. C.K. Tang would
have to do more to convince these shareholders for the buyout to succeed.

4.9 C. K. TANG: CORPORATE GOVERNANCE ISSUES:

After successfully operating for more than 70 years, C.K. Tang had multiple corporate governance
issues to have been risen up. Most of these issues related to the privatization attempts made by the
board of directors, the activities of the CEO, Mr. Foo Tiang Sooi and to some extent the role of

15
the board of directors were also not cleared whether they are protecting the minor shareholders or
not.

The unlawful Valuation Method:

Every business entity that is established and operated in a particular country needs to follow the
rules and directions provided by the regulators in terms of its business operation and the
management of that entity. C.K. Tang is one of the most renowned firm in Singapore in retailing
business. According to The Singapore Code on Takeovers and Mergers (the Code) governs all
takeover activity in Singapore involving companies. Under Rule 26.2(a) of the Code, “a property
which is occupied for purposes of the business must be valued at the open market value for its
existing use”. However, Rule 26.2(c) provides for the case in which “such a property is valued for
an alternative use. For such a case, the costs of conversion and/or adaptation should be estimated
and shown”

C.K. Tang did not comply with the Code enforced by authority, The Singapore Code on Takeovers
and Mergers, and directly overturned the code for their own purpose. For valuing the most
important property, “Tangs Plaza”, the board always use “existing use” method to value the plaza
during its three attempts on privatization. The only purpose was to undervalue the Tangs Plaza so
that board can offer lower price per share to minority shareholders. Different minority shareholders
questioned the valuation method as the method was a clear violation of code provided by
regulators. Furthermore, the management of C.K. Tang did not show the costs of conversion and/or
adaptation procedure in the annual report as required by the code. According to the PwC, the
holding company assigned by the C.K. Tang to value the Tangs Plaza was S$340 milllion but
minority shareholders claimed that the value of the plaza site was easily worth at least S$400
million, according to an independent valuer. The minor shareholders stated that the PwC valuation
did not consider the potential value arising from the redeveloping the site. The board, however,
defended itself by stating that regulators had told the directors that any such redevelopment was
not applicable.

The Bias role of Independent directors and Chief Executive Officer (CEO):

The board of Director of C.K. Tang was consist of CEO and three other directors with experience
in accounting, business management and the retail industry. Among the four directors, three of

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them were serving as non-executive independent directors. It is one of the core principles of
corporate governance is that the independent directors will be acting on behalf of the shareholders
especially for the interest of the minor shareholders but doubt was raised among the shareholders
that the independent directors and CEO overlooked the minor shareholders interest and they were
concerned to the interest of the Tang’s family. Further claim had been made by the shareholders
that the directors failed to clarify with the Tangs about their redevelopment plans for Tangs Plaza
after its privatization. Shareholders expressed disappointment with the independent directors,
saying that they had insufficiently analyzed the issue.

Low offered rate:

The Tang family who is the major shareholders of C.K. Tang since its inception made three
attempts to privatize the Tang and tried to delist the company from Singapore Exchange (SGX).
The rate they offered to the minority shareholder through board meeting were lower than the actual
price of each share. The C.K. Tang management followed defective valuation method that
undervalued firm’s property and tried deceive the minority shareholders showing that, they were
given higher than the actual price. In 2009, though Tang family successfully delist the firm from
SGX, many of the shareholders were dissatisfied for the poor offered rate of the management.

Absence of proper disclosure:

A public company requires to follow the disclosure guidelines provided by the regulatory
authority. The adequate disclosure of financial and non-financial data helps an investor to take
decision whether s/he will invest into the company or not. Proper disclosure is not only important
for creating an efficient market with symmetric information, disclosure provides important info to
the regulators about the management and financial condition of the business entity. C.K. Tang did
not properly disclose the information of its own in annual reports especially information relating
to the valuation of the assets during the privatization attempts. Though, Tang’s 2007 annual report
included the detail property valuation procedure, this practice was discontinued by the
management of Tang.

Lack of accountability to shareholders:

The management is responsible to board of directors and board of directors is responsible to

shareholders. The board of directors always need to act for the interest of the shareholders of the

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firm. Things are not same in Tang, the board of directors always tried here to maximize their
benefit sacrificing the fair payable of the shareholders. They tried to show their asset undervalued
to pay less to the shareholders. They have set a minimum exit price for the shareholders. A call for
non-confidence to the members of the directors by one of the shareholders had been diverted into
irrelevant matters to protect their own interest.

Finally, it is the best example of having poor relationship between shareholders and board of
directors. The eternal conflict between manager and the owner of the company was the main theme
in the C.K. Tang.

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 CHAPTER- 05. CONCLUSION
It is very common phenomenon that owner has a different feeling for the company and thus have
a very different viewpoint for the company compared to the board of directors. This different
viewpoint leads to different objectives. So while difference of objective rises, it results a conflict
of interest. This conflict can be resolved by formulating proper corporate governance guidelines.
But merely formulating a corporate governance guideline cannot be a tool to resolve this problem.
Application of this rules must be ensured. Form this analysis of Tang, we see that sometimes
controlling authority become indifferent to solve the problem. They can easily be manipulated by
bribery or involving them into benefit. If this problem of corruption in highest level cannot be
eliminated, no fair and sophisticated corporate governance guidelines can solve the agency conflict
regardless of the standard and quality of the rules and regulation. However, proper corporate
governance should be practiced from the root level to top tier hierarchy in a corporation so resolve
the problem of agency conflict.

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