All on board for SMRT's revival?

This story was first published in the Straits Times on July 22, 2013

News that SMRT Corp's former chief executive Saw Phaik Hwa forfeited an entitlement of at least 200,000 shares must surely comfort shareholders who had called for a clawback of her bonuses.

The clamour for a clawback was heard - loudly - at the company's last annual general meeting in July last year, six months after Ms Saw quit.

The very shareholders who demanded blood had forgotten too quickly Ms Saw's role in growing the company during her tenure. Not to mention the handsome dividends they received as a result.

Rightly or wrongly, voluntarily or otherwise, the former CEO had since taken the rap for a series of rail breakdowns that brought SMRT to its knees.

The buck did not stop just there.

A number of changes to senior management positions have also been made in recent months, as current CEO Desmond Kuek seeks to put SMRT back on track as, first and foremost, a rail operator.

Which brings us to another group of people whose specific role was to safeguard the long-term interest of SMRT: the board of directors.

On Dec 22, 2011, the board apologised to the public for the two massive breakdowns that affected more than 220,000 commuters a week earlier, triggering a lengthy and costly court inquiry.

It was a grand gesture, but no director relinquished his or her post on the board as an act of contrition.

Save for a couple of changes, the board remains pretty much intact despite the December 2011 breakdowns, and the spate of breakdowns that followed just months after, as well as an embarrassing strike by SMRT bus drivers last November.

It is not uncommon for directors elsewhere to take responsibility for problems of similar proportions by stepping down.

In April, Mr Ray Lane relinquished his position as Hewlett-Packard chairman after the US tech giant made an overpriced acquisition that led to a US$8.8 billion (S$11.2 billion) writedown. Two other directors have also quit.

SMRT's financial woes may not be as massive in absolute terms as HP's, but its capital expenditure is expected to spike and remain high in the coming years as it gets its rail systems back in shape.

As a result, its debt level - already the highest in recent years - could rise further.

Shareholders have already started to bear the brunt of this outcome. SMRT's stock price is now close to its lowest since 2010. And for the last financial year ending on March 31, SMRT directors declared a final dividend of one cent per share - 82 per cent lower than the previous corresponding payout of 5.7 cents.

Analysts are not holding their breath for an improvement in the near term.

The indelicate question here would be: Could the board have averted this state of affairs, when signs of trouble were flashing well before December 2011?

Breakdowns and delays had been rising in intensity, if not frequency, and the group was gradually losing its engineering focus. By chairman Koh Yong Guan's own admission, engineering expertise was lacking in the mid and senior levels.

Mr Koh revealed this when he took the witness stand at the public inquiry into the December 2011 breakdowns. He said he had put in place a number of initiatives to fix this, including setting up a Trains Board. This new board got no mention in SMRT's latest annual report.

Shareholders attending the next annual general meeting on July 29 would do well to satisfy themselves that members had discharged their fiduciary duties well, and are able to contribute meaningfully to SMRT's return to the fast track.

They should do this before deciding which member should be re-elected, and who is less deserving of the $800,000-plus the board receives in fees. The amount is noticeably more than what directors of ComfortDelGro Corp - a much larger group - are paid.

This story was first published in the Straits Times on July 22, 2013

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