Will The Boardroom Tussle Effect The Company Performance Finance EssayCorporate tussle and board fight are not new to the corporate world. This board tussle happened due to many factor such as merger and acquisition (M&As), power struggle between management and director, or because of disagreement between shareholder on the corporate strategy. Corporate tussle also happened when a new shareholder try to get control of the company.There are lots of interesting stories on the board tussle in Malaysia. Some of the big cases of board tussle is takeover of KFC Holding, Tan Chong Motor, Ho Hup and recently Petra Perdana.CompanyFeuding partiesResoluation1Tan Chong Motor HoldingDatuk Tan Kim Hor and his family against descendeat family of his younger brother, the late Tan Sri Tan Yuet FohA settlement has been agreed. Believe to give Kim Hor's fraction its share and the late Yuet Foh's family remain control in the group.2KFC HoldingA team led by Tan Sri Nik Ibrahim Nik Kamil against Kulim.Kulim emerged as the controlling shareholder and installed its own management team3Petra Perdana & Petra EnergyFounder & CEO Tengku Datuk Ibrahim & other directorsTg Datuk Ibrahim was ousted as CEO in the EGM.4GBHFounder family & MD Tony Goh Tai Seng & single largest shareholder, Tan Sri Robert Tan Hua Choon.Tan Sri Robert Tan secured 82.5% stake & Mr Tony resigned as MD.5Ho HupManagement & major shareholder on the sale of land for debt restructuring.Sale of land approved in the EGM but now under court battle.Some example of board tussle in MalaysiaSome of the above board tussle already completed so that the company can focus to grow and moving forward. Anyway there are also some cases of board tussle which now continue in court. In this tussle, the party who would like to win the tussle must have at least simple majority of 51% votes of the shareholder during the AGM. This is stated under Section 132 of the Company Act.In this concept paper, there is one elements that I would like to presentWill the board tussle effect the company performance?2:0 DefinitionsDefinitions of Corporate GovernanceShleifer & Vishny (1997) define Corporate Governance as the way suppliers of finance to corporation assure themselves of getting return of their investment. Or it also means the process or structure used to direct and manage the business affair of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long term shareholder value, whilst taking account the interest of other stakeholder.This corporate governance is the main pillar of business philosophy which not only applied to the shareholder but also to the stakeholder as well.Definitions of Board of DirectorThe board of director is the highest authority in the management of the company and they are playing a critical role in the company governance. The members are elected by the stockholder who jointly oversee the activities of company organization.Member of board of director is called director. Director is individual which can be owners, managers or other individual that appointed by the shareholder.There are a few type of director. Executive director is referred as director who also is involved in day to day operation of the company. Director who is not an owner and not involve in management is called independent director or non-executive director.

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Want to know more about our services?Take a look at ourWriting & Marking Service Index >The board of director will be headed by Chairman. Chairman is also elected from the board of director members.Chief executive officer (CEO) is the highest ranking of corporate officer incharge of total management of the company. CEO of a company reports directly to the board of director.Definitions of Extraordinary General Meeting (EGM)EGM is a special meeting called by a board of director or a group of shareholder to discuss important things that needed board of director and shareholders attention and approval urgently. Shareholder and director only can call the EGM if he/she held at least 10% share or 10% of the voting right. This EGM only can be attended by the shareholder of the company. Director need 14 or 21 days notice to inform the shareholder about the EGM.3.0 Why board tussle happened?There are many reason of why board tussle happened. In this paper we will look into 3 different perspective of why the board fight happened. And from this example, we also will check on how the company performance after the tussle ended.3.1 Mergers and acquisitions (M&A)Mergers and acquisitions (M&A) is one way for the company to increase their shareholder value. This was done by buying other companys share to become a major shareholder. The target of M&A normally a company which is profitable, can add more value to the existing business or acquired a company for their know how or technology. For example Proton acquired Lotus to get an automotive technology more faster.There are also some cases where the M&A is due to takeover of the direct business competitor. This is to ensure the company can monopolize or reduce the competition in their business segment.Normally the M&A was done through negotiation between the buyer and the seller on the price and other obligation and both party agreed for the M&A.Anyway there are also some cases where the M&A was done without the consent of some stakeholder or board of director. This issue normally lead to the boardroom fight or corporate tussle. One example of the M&A is the fight to control KFC Holding between Kulim and other shareholder lead by Tan Sri Nik Ibrahim.KFC Holding is the biggest fast-food operator in Malaysia. KFC operates 475 outlet restaurants such as KFC, Pizza Hut and Ayamas with turnover about RM 2.3 billion in 2009. With the strong business based and cash flow, it has created an appeal to other company to control KFC. A company who is looking for any new investment will see KFC as a good company to invest and control.That is one of the reason why KFC was involved in takeover and boardroom tussle in the 1990s until 2005. The tussle ended when Kulim (Malaysia) Bhd, which is Johor state government group bought 43% of the share from QSR Brand Bhd in 2005. Anyway it takes Kulim about 1 year to successfully regain control of KFC after the tussle was brought to court.In the case of KFC, the share price was not really performing when they are plague with boardroom tussle from 1990s until 2006. This is due to uncertainties in the company future prospect to grow. However KFC share price is almost double once the board tussle ended in 2006.

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Want to know more about our services?Take a look at ourWriting & Marking Service Index >3.2 Family feudIn Malaysia, about 43% of Bursa Malaysia main board was controlled by family members. This is significant to the study by Claessens et al. (2000) that corporation in East Asia is control by family members. This fact also supported by Abdul Rahman (2006) who indicates that many listed firm in Malaysia are owned and controlled by family member which they inherited from their own descendants.That is why, Malaysian corporate scene also saw many board tussle due to family feud to control the company that once built by their older generation. This happened when some of the family member who also a shareholder feel marginal from the promotion or left out from the management of the company. This issue normally happened when second or third generation starting to involve in the companys management.When one side of the family feels that they are poorly protected, one way of securing better protection is by becoming a control shareholder.Some of the famous stories of board tussle involving family members are between uncle and nephew to control Tan Chong Motor Holding. This issue was plaguing Tan Chong Motor for about 10 years already. Tan Cong Motor was established by Kim Hor and Yuet Foh about 45 years ago. They inherited a small business from their father before that and both of them continue to drive the company to be one of the biggest company in Malaysia which oversees interests in 10 countries in Asia with annual revenues exceeding more than RM 3 billion.The tussle began after Yuet Foh died in 1985 and then replaced by his son Heng Chew who was accused by Kim Hor of making major business decisions on his own. In 2002, Kim Hor, the co-founder of Tan Chong Motor was ousted from the board of director during their annual general meeting. He was 78 years old and need at least 75% of the votes cast to re-elected as the board of director. This is due to Malaysian law stated that directors aged over 70 years old must be re-elected each year with 75% support. The battle was not only in the boardroom but also continued to the court. After a long battle, the agreement was reached where the companys management still remained under controlled by the late Yuet Fohs family.Even though the tussle continued for almost 10 years, the company remains strong. The net profit keep increasing from 2006 until 2008. This performance is mainly contributed by a strong sale of Nissan cars in Malaysia.3.3 Dispute involving directorAs we elaborate before, the board of director is consisted of executive director who involved directly with the management of the company and non-executive director who is not involve in the management. There also some cases where the director is also a Chief Executive Officer (CEO) of the company. The study shows that dispute is more likely to happen when the CEO is more powerful than board of director. Hermalin and Weisbachs (1998) model suggested that the power structure between management and directors evolves over the CEOs tenure, with the CEO generally gaining more power over time. The CEO also more powerful if he is the founder of the company of he is a family member of the founder of the company.

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Want to know more about our services?Take a look at ourWriting & Marking Service Index >There are also cases where CEO also taking the position of Chairman. Malaysia Institute of Corporate Governance (MISG) recommended that the CEO and the Chairman should be held by a different person. Mcknight and Mira (2003) found out that the duality role will have negative impact on the company performance compared to those firms where the CEO and Chairman is a different person.In the case of Petra Perdana and Petra Energy, the CEO, executive chairman and also co-founder Tengku Datuk Ibrahim was ousted during the EGM in Feb 2010. The tussle between Tg Ibrahim and Koh brothers happened due to disagreements on how the company and their assets should be managed. Koh brothers are director and also co-founder of Petra Perdana.The issue started when Tg Ibrahim used his executive power to sell 5.3% Petra Energy stake at a loss of RM500,000 and also disposed 25.03% stake in Petra Energy for about RM93 million without the consent of other board of director. These exercises were done to meet short term financial obligation and cash flow problem. Anyway some of the board of director, Mr Koh brothers and executive director, Mr Shamsul is against the sale of these share.These boardroom dispute create uncertainties to the investor and resulted the share stock price reacted negatively. Until today the share price is hovering around RM1.30 compared to the highest of about RM3.10 in June 2009. Even though the tussle was solved by the EGM with the removal of Tg. Ibrahim, investors still lack of confident due to the fact that Tg Ibrahim has about 20 years of experience in Petra and new CEO will take a longer time to grasp the whole situation.ConclusionIt is understood that board room tussle is part and parcel of the corporate world. It happened due to many factors and we cant say that it is bad for the company performance. Normally in the short term, the share price will be depressed due to the lack of uncertainty.Some of the examples showed that it can bring company performance in the long run because the non-performing director was ousted and replaced with more credible director.

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