"" THE ROAD NOT TAKEN: The true story of Sime Darby — Dr Chan Chin Cheung

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Wednesday, 19 May 2010

The true story of Sime Darby — Dr Chan Chin Cheung

May 19, 2010

MAY 19 — Poor Datuk Seri Ahmad Zubir Murshid, I sympathise with his present predicament. He was not the first executive of Sime Darby to be mired in circumstances which went beyond his control — the force of historical circumstances which dated back to November 1976.

All these began on Jan 2, 1972 when I proposed to a high government official that Malaysia would be well-placed to have a conglomerate of its own at the inception of the New Economic Policy (NEP) conceptualised by the team led by the Father of Development, Tun Abdul Razak, a statesman.

At that point, I had not the faintest idea what it was all about. All I knew was that my Malay contemporaries were very keen to do business. They grew up with me in the environs of higher education in the United Kingdom in the 1950s. We were all fired up with the things we could do in a socio-economic way.

Eventually, we all returned and I by force of circumstances became a planter. Then, I could see my Malay friends were quite poor compared with myself. Also, I realised the British dominated the banking, the plantation and tin mining sectors, because the biggest rubber estate owned by a Chinese then was only 7,000 acres and the non-Malays from the urban areas did all the menial business and the hard and unrewarding work at the leading edge of the nascent ‘independent’ Malaysian economy.

The change came with the NEP which promised to give all Malaysians a new beginning.

I thought without a huge business entity controlled by the Malays with the co-operation of the non-Malays, we, the Malaysians, would be mired in unhealthy competition socio-economically amongst ourselves.

This would lead to self-destruction because 70 per cent of the Malaysian economy at that point was still controlled by the British, not the Chinese. We would be getting at each other’s throats for third class assets.

Without Sime Darby, which eventually became the flagship of the Permodalan Nasional Berhad, non-Malay billionaires, some of them foreigners, would not be created during the NEP period.

Hence, I proposed that a Malaysian-owned and managed conglomerate should be established or acquired.  By chance in October 1973, Sime Darby was involved in its first scandal concerning its chief executive, and Pernas Securities moved in with the tacit support of the Minister of Finance and the Prime Minister, who both had this great foresight to do what was best for Malaysia on free market terms.

This was their finest hour to agree to take-over a British conglomerate at fair market prices. Arising from this proposal, Tan Sri Taib Andak, the Chairman of Maybank, and myself were appointed as non-executive directors of London-based Sime Darby PLC in October 1974.

But, at that time, there was not much money available for the Bumiputeras. Without informing anyone, I managed to garner the support of important investors residing in a neighbouring country, who entered the fray and helped us to win against all odds by November 1976.

During this period, the British were at their weakest being beset with political turmoil, by the weak pound and a disinterested City in ex-colonial assets. Malaysian control was achieved with a few million ringgits, about RM 23 Million.

Unfortunately, at the crucial moment, our prime minister, Tun Abdul Razak passed away. Then, my view was: Who pays the piper calls the tune.

In other words, Malaysians should be put immediately in place to steer this great ship with a purpose that some national sovereign funds only set out to do in the 21st century.

But from this point onwards, no one asked me for my views and this was the theme of the executive management to the day. I was asked to resign 18 years later by the executives who benefited from my concept.

It was all fine and dandy if there were no financial mishaps. The executive management reigned supreme over the Board to this day. This anomaly must now be rectified in the interests of the shareholders. This is not ethical and more.

The management was not “Malaysianised” until 1982.
By 1982, the best assets of Sime were sold in haste, e.g.
  1. the beverages firm Shaw Wallace of India, an Indian monopoly, with the valuable Assam frontier tea-estates. It is believed the son of the purchaser became a billionaire of India and owns the Kingfisher Airline.
  2. the two Orchard Towers, Singapore which are still standing even though the management urgently advised with photos that these would collapsed any moment and had to be sold back to the contractor for S$23 Million quickly.
  3. the Amoy Canning land in Hong Kong, which Sime tried to auction off but failed due to the fact that only the Hong Kong Government auction-off lands to balance its books. Eventually, a joint venture was formed with a member of the property syndicate operating there. This property became the MRT terminus!
And only the 200,000 acres of plantation remained. Lastly, Wisma Sime Darby does not belong to Sime because the company had no money at its completion in early 1980s as the Board was told.

In 1981, a foreign business paper reported that I was instrumental in helping in the sale of Benta Berhad to a well-known gentleman. Unfortunately, I took legal steps too late to clear my name. The famous Singaporean lady lawyer told me that I was a non-starter.

In 1982, as a Director of Consolidated Plantations Berhad I proposed that Sime should enter the China palm oil market. But only a small palm oil refinery was established at Port Said, Egypt.

In fact, in 1972, at another institution, I was urging my colleagues to take note that eventually, palm oil would overtake petroleum in the years ahead for Malaysia. By the early 1990s, all the vital port facilities in China were controlled by other Malaysian palm oil producers but not Sime. We went west instead of east. And sometimes, Sime’s physical stock of palm oil was sold to traders who were caught short.

In 1990, I heard in the market place and from friends who gave me a quizzical look that the well-known gentleman who purchased Benta in 1982, acquired a parcel of plantation land from Consolidated Plantations known as Bukit Berutong for RM4 million.

I asked the executives in charge why this sale was not presented to the Board for approval and was told that since the sale was so minuscule, less than 2 per cent of the total assets of the Company, there was no necessity to do so. From the gentleman, this property was warehoused in a public-listed company and finally sold at the top price of RM 88 Million.

Ironically, the Edge exposé of Sime dated May 17, 2010 also carried the story of the disgraceful state of affairs at Bukit Berutong. I also asked the executives why the valuable property was not sold to Sime-UEP. There was no answer.

In 1992, I was requested to sign a Board resolution authorising the purchase of an oil palm estate in Sabah which no one wanted for many years, for a sum of RM32 million. This money was used to purchase the Sabah Shipyard for RM 22 Million.

I refused to sign because as I was knowledgeable about the plantation industry and was aware that this plantation was hawked around for much less for many years previously.

I was asked to resign the following day by the executives. In 1974, the late Tun Abdul Razak and Tengku Razaleigh Hamzah supported me, not Tun Tan Siew Sin who had died in 1989.

Thereafter, the Sandestin Golf Resort, Florida was purchased for US$72 million and it was reported in the press that the purpose was to train Malaysians to manage hotels even though the Mara college was already founded in the 1960s.

After the crash of 1997, Sime announced that the resort was sold for the same sum in ringgit, arising from a depreciated ringgit. The loss in US dollars was not announced.

A bankrupt British refrigerator company was purchased and an attempt was made to revive it in the Philippines. I believe it was written off together with an investment in Mindanao.

And then came the cataclysmic events of 1996.

In the early 1990s, I travelled across the Atlantic by Serendipity Air and sat next to a German gentleman who claimed to be the head honcho of the family business of Hitler’s chief spy. I asked him why he did not travel by Lufthansa. He told me that for every US $100,000 he spent with this airline, he got a kick-back of US $30,000. His comment struck a bell in my mind as I noticed that someone was always encouraging the top executives to fly by Serendipity Air.

And Sime through its benevolence followed the executives of the travel division overseas where it has become a favourite watering place for privileged Malaysians connected with Sime. I heard they are doing great things via  Hong Kong and other parts of Australia without fanfare. It is a small world!

Sime Darby was unfortunately caught by the historical circumstances which surrounded its early promise at the beginning. From November 1976, to the present, its leadership was provided by the executive management which enjoyed its magnificent perks.

It takes a company to develop its own culture over a period of at least 10 years. Sometimes, this did not succeed, as in Sime. Apart from its beautiful advertisements, Sime’s real core business is in its plantations with attempts at financial engineering from one company to another to create profits.

Thus, Consolidated Plantations was hollowed out and had to be sold as a shell for whatever the reason! Any analysis of Sime will show it did not do anything since 1976 but was embroiled in scandals of seismic proportions after 1992!

The real substantial shareholders had no say. Because of this, once anything goes wrong in Sime, it goes very wrong. It pays to have a look at divisions where it is difficult to control usage, buying and selling or overseas.
The travel business is one of the most difficult to manage and control because it is a cash business from which Sime should keep clear and has no reason to sully its reputation.

The real purpose and the contribution Sime could make to the corporate life of Malaysia were that it could have acquired worthwhile international companies overseas during the 1970s and 1980s. It was alleged that 10 per cent of Harrisons Crosfield was available for Sime to control this conglomerate world-wide, which would have provided valuable expertise in engineering and other fields for training and transfer.

But somehow, we ended up owning the Golden Chersonese estates in Kelantan for a similar price. The lucky person who was involved, retired to the Scottish Highlands to shoot pheasants.

In my wildest dreams, I did not expect Sime to undertake directly such stupendous engineering works and before this, owned a commercial bank which went bankrupt.

As a born optimist, I say Sime Darby is still the valuable company which the late Tun Abdul Razak and Tengku Razaleigh envisioned it to be — a major flag bearer of Malaysia overseas.

It must undertake to do the right business tasks with the right business personnel, i.e. round pegs for round holes, square pegs for square holes.

The business focus of the company has to be reviewed in line with the socio-economic environment at its base and its colourful historical past, notwithstanding the vital and living world in which we do business to make money.

To take a quantum step in catching up, Sime has to co-operate with others or own specialist companies without losing sight it has to contribute to the up-lift of all Malaysians in terms of transfer of knowledge, jobs and a reasonable return to its shareholders in a businesslike manner with transparency.

It definitely should not compete with local business entities as far as possible, e.g. property development, motorcars, travel, vegetable gardens, etc. This was not my vision at all times from 1972.

Sime has better businesses to do overseas.. And greenfield projects should be avoided because many shareholders are Trusts. Decisions should not even reach the risk management stage as information is readily available in today’s world.

By this normal approach, Sime Darby will be recognised world-wide unlike now, a bull-frog in a small pond which only has a feel-good feeling by its wonderful advertisements expounding maybe non-existent overseas businesses which should all be closed down!

In passing, the chief executive of another conglomerate rang me up and said, “Doc, I think we should buy a yacht to entertain our principals.” I replied, “Sorry, Tommy, I am not into yachts for self-entertainment. But if the other Directors agree, I have no objections.” I did not hear from him again.

Not too long afterwards, I was standing by the Star Ferry, Hong Kong, one winter in the early 1990s. A huge yacht berthed beside me. Two young expatriate families disembarked with an Indian butler and matron in attendance.

At the aft, below a huge Hong Kong flag, I saw the words “Sime Darby”. I did not know Sime had a yacht.

Later, I asked the management why we had a yacht in Hong Kong, and I was told this was one way to make the expatriate staff happy.

The question logically arose in my mind: What did the management do to make the Directors and the shareholders happy?

In the 1980s, it was alleged that the governor of Hainan Island and two local Hong Kong employees went to jail for illegal business activities.

It is never too late for Sime Darby to do serious business to support, contribute and work within the policies of our Prime Minister Datuk Seri Najib Razak and his 1 Malaysia Concept for the good of the country and the company’s shareholders.

It can be done if Sime is focused on its responsibilities to the Nation and its shareholders.

* Dr Chan Chin Cheung was a director with Sime Darby between 1974 and 1992

* This is the personal opinion of the writer or publication. Naz - The Road Not Taken  does not endorse the view unless specified.

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