Noble accounting saga: It’s the message that counts, not the messenger
28 July 2015
Business Times Singapore
MS Christie Loh (“Iceberg does not deserve the legitimacy it is being given”, BT, July 23) displays an unhealthy trait of shooting the messenger. In criticising all and sundry for writing about the accounting and corporate governance issues in Noble Group, she did not offer any evidence to refute what has been said about Noble. One may question her motivation for her missive against Noble’s critics.Let me now address the writer’s specific comments about why I have chosen to write about Noble only now when the problems have existed for many years. Frankly, it’s an odd question to ask. Does it mean that if one suddenly knows about corporate governance or accounting shenanigans that have been hidden for a long time that one should no longer comment about it? I do not look at the corporate governance of every single company, and sometimes, corporate governance issues have existed in a company for a long time before I look at them. Recently, two independent directors resigned noisily from a listed company after failing to fix a flawed bonus plan that was in place since 1999. Does it mean that they should just leave the problem unfixed because it has existed for 15 years?
Noble’s corporate governance became particularly relevant after I had read Iceberg’s first report and felt that there was at least possible evidence of aggressive accounting. For example, there are certainly questions about Noble’s decision to classify Yancoal, a 13 per cent investment, as an associate because it affects the accounting policies, which in turn affect the reported financial numbers. The great disparity between the market value and carrying value of Yancoal is also highly questionable. Analysing Noble’s corporate governance practices and disclosures can tell us a few things.
First, does its corporate governance show the signs of a company trying to skirt around the corporate governance rules, which would add more weight to allegations of skirting around accounting rules? I found that Noble did not comply with key areas of the Code of Corporate Governance or paid lip service to it. We also now know that Noble has a long-standing waiver from the Singapore Exchange (SGX) and does not have two Singapore-resident independent directors, unlike other overseas companies listed here that I have looked at.
Second, could its corporate governance have contributed to the accounting and valuation issues that have been raised? My analysis of two key areas – its board composition and its remuneration practices – suggests that they might very well have because the board may not be an effective check and balance and its remuneration policies may promote aggressive risk-taking and short-termism.
Third, is its corporate governance likely to help it to overcome not only the immediate problems it faces, but also allow it to survive and thrive again in the long term?The answer is no, unless it fundamentally revamps its practices. Making small incremental changes will make little difference.
My decision to write a commentary on Noble’s corporate governance was certainly influenced by my reading of Iceberg’s reports. However, my focus was very much different from Iceberg, which did not say much about Noble’s corporate governance. Therefore, I did not write to legitimise what is in Iceberg’s reports.
Finally, I look forward to Ms Loh providing substantive evidence to defend Noble’s accounting and corporate governance practices, and also disclosing her background. It would be nice for her to focus on the message, rather than the messenger.
Mak Yuen Teen
IN response to the letter by Christie Loh (BT, July 23) asking me a specific question, I would like to make the following points. First, I have no economic or otherwise stake in Noble Group and all my comments are mine and mine alone with the objective of seeking answers and protecting investors and employees.
Second, I confer no legitimacy on Iceberg, whoever they are. They should stand up and be counted in my opinion. However, I do confer legitimacy on the questions raised not just by Iceberg Research but by many others. It is the message that counts, not the messenger, and this is why the shares are at S$0.63, down from a 52-week high of S$1.46.
Third, the lead independent director of Noble, David Eldon, was a “senior advisor” to PricewaterhouseCoopers (PwC) for nine years, leaving only last year. Also three of four members of the review committee currently sit on the audit committee and thus are reviewing themselves.
Due to the PwC conflict and the review committee’s complete and total conflict of interest, this process should be shut down and disbanded. Anyone interested in what a real independent accounting review committee looks like should study that just used by Toshiba. The SGX has again let down investors by “welcoming” Noble’s conflicted insider and completely misnamed “independent” committee.