En bloc sales: Have safeguards against conflicts of interest

I REFER to Ms Susan Prior's letter, 'Relook en bloc rules' (April 4), and fully agree with her views. There has been a lack of proper governance over en bloc sales.

I am glad the Court of Appeal has taken issue with both the sales committee and the Strata Titles Board (STB), even if it is now too late to stop other en bloc sales that may have been engineered by sales committees and approved by STB panels against which similar questions could be raised.

En bloc sales are too important, in terms of the dollar amounts and the impact on people's lives, for their approval to be left to a poorly governed STB, which does not pay enough attention to conflicts of interest.

In one case, a managing director of a property consulting company that is one of the most active in en bloc sales sat on the STB panel approving a transaction. Objections were casually dismissed with a rather flippant 'in Singapore, everybody knows each other'.

While I understand the need for expertise on STB, expertise coupled with conflicts of interest - without adequate safeguards to manage such conflicts - will often lead to biased outcomes.

In a recent overseas study on corporate governance, the results show that boards with investment bankers on them undertake acquisitions that perform three times worse than those made by boards without such bankers.

Clearly, boards with investment bankers have greater expertise. However, even if his firm is not directly involved in a particular transaction, the investment banker is more likely to be sympathetic to acquisitions, even those that destroy shareholder value, because investment banks make a lot of money from acquisitions.

Similarly, a property consultant sitting on the STB panel would have a strong vested interest in successful en bloc transactions.

It may be quite a while before we again see a flurry of en bloc transactions. Next time, we better get the governance of the entire en bloc process right, without minority owners having to go through what those in Horizon Towers had to undergo.

Mak Yuen Teen

Source: Straits Times, 6 Apr 2009