Hyflux Innovation Centre at Bendemeer.
SINGAPORE — The woes of water-treatment company Hyflux, once a market darling and much-vaunted trailblazer in Singapore's entrepreneurial space, have been festering for some time, market watchers and corporate governance experts said on Wednesday (May 23).
However, the company and its board failed to pay enough attention to its finances as it put the pedal to the metal in expanding its footprint, the observers told TODAY.
On Tuesday, Hyflux announced it was seeking court protection to reorganise its business and deal with its liabilities. It also suspended trading of its shares and related securities.
The aim was to allow the company to focus on ongoing talks with strategic investors, optimise operations, nail down areas for growth and complete projects to generate steady cash flow, said the company, which recently posted its first-ever yearly loss since its public listing in 2001.
Associate Professor Lawrence Loh, from the National University of Singapore (NUS) Business School, called the reorganisation "long overdue", as the signs were clear for some time: Hyflux's stock has tumbled to about S$0.20 a share, one-tenth of the price in its heyday. "But it's better late than never," said Assoc Prof Loh.
Synonymous with the company, its founder and group chief executive Olivia Lum, who is also executive chairman, has over the years built a steady record and propelled the firm to global prominence, with operations and projects spanning the Asia-Pacific, Middle East, Africa and the Americas.
Hyflux founder Olivia Lum speaking at the opening ceremony of Singapore’s second and largest desalination plant, Tuaspring Desalination Plant. TODAY file photo
Despite her stellar record, observers have raised questions over whether corporate governance and risk management practices had been adequate.
Assoc Prof Loh, who is director of the NUS Business School's Centre for Governance, Institutions and Organisations, pointed out that Hyflux's risk management committee met only once in the 2017 financial year.
By contrast, its audit committee met four times, and its investment, nominating and remuneration committees each gathered twice in the same financial year, checks by TODAY showed.
Assoc Prof Loh said the company needs to beef up its risk management, as it has to make large and risky investments at times.
NUS corporate governance expert Mak Yuen Teen said it was "not enough" for a risk management committee to convene just once a year. "I would ask whether they were actually effective, because what can you do once a year?" he said.
The nature of Hyflux's business, its heavy debt pile and rapid growth meant that risk management was key for the company, added Assoc Prof Mak. "Most committees, I expect them to meet at least three or four times in a year to be meaningful," he said.
Then there is also the issue of whether Hyflux's board of directors had asked the right questions and challenged corporate decisions in the face of a dominant figure like Ms Lum, who has "strong ideas and a strong mind", said Assoc Prof Mak.
He noted that in companies helmed by founders, there was the chance that the founders would either fail to listen to the views of their directors or do not have the "right kind of directors" serving on their boards, because they want to push their ideas through.
Hyflux's eight-member board includes two former employees. Non-executive independent director Christopher Murugasu was Hyflux's senior vice-president for corporate services and Mr Gary Kee, a non-executive non-independent director, was its executive director overseeing areas such as corporate finance and information technology.
Assoc Prof Loh said that in general, it was not good practice to have ex-employees serve on boards, because boards are meant to "represent the shareholder, and monitor the management and employees". "It doesn't square with the fundamental purpose of a board," he said.
Agreeing, Assoc Prof Mak said former employees are also unlikely to question Ms Lum's decisions. "If they are former employees, would they feel that they are in a position to challenge management?" he asked.
TODAY has reached out to Ms Lum and some of the company's independent directors for comment. When contacted, law professor and independent board director Simon Tay declined comment.