The main characteristics of good corporate behavior are a company that protects the interests of its shareholders and board members who act in good faith when establishing a company's operational strategies and overseeing major capital expenditures.
Sadly, none of these characteristics were present at Asia Pacific Broadband Telecom Co (APBT).
As long as it remains under the notorious Rebar Asia Pacific Group -- which is now infamous for its poor track record in corporate governance -- the key question that will need to be answered is not why or how the company managed to perform so badly, but rather how APBT was able to exploit the legal loopholes that allowed this situation to obtain in the first place.
Founded in May 2000 with a paid-in capital of NT$65.68 billion (US$2 billion), the fixed-line operator chose not to become a public company. The reason? The law says that an unlisted company does not have to publicly disclose its financial statements.
Perhaps the most troubling issue that has come into focus is Article 156-4 of the Company Law (
Article 156-4 was added in November 2001 -- a year after the company was created. However, the previous regulation, which took effect in November 2000 and was valid at the time, stipulated that companies with a capitalization of NT$500 million had to issue public shares.
So shares went public. What has yet to be determined is whether the scandal resulted from lax management within the government, corporate bad practices or simply shrewdness on APBT's part.
APBT is unlikely to change its non-listed status so long as Rebar family still controls 22 of the company's 33-seat board. With Rebar Group's obvious control of the board, no resolution will be adopted that would prevent Rebar from usurping APBT's capital to invest in other affiliates. And it certainly will feel no obligation to ensure accurate disclosure and transparency.
The news on Friday that APBT had decided to book some NT$30 billion in asset impairment -- most of which was derived from the purchase of junk bonds from other Rebar affiliates -- did not come as a surprise. With that, APBT would see its net value decline to around NT$5 per share, from NT$9.18 in 2005.
Now that the government has appointed the Small Business Integrated Assistance Foundation and KPMG International to audit APBT's finances, it is hoped that accountants will help clarify the methods used by management to determine the fair value of those impaired assets and enable investors to understand how reliable the management's assumptions and calculations are.
Despite this in-depth look at the company, APBT will be unable to continue operations absent changes in its board. The government should pressure the Rebar Group to relinquish its board control to allow such changes to happen.
While the government should act to plug the legal loopholes and punish government-appointed board directors for their lax governance, it should not go as far as taking over the company, as it might have done in the past. Whatever the government does, it should do at arm's length.
Safeguard shareholder benefits, protecting the interests of subscribers and securing the working rights of APBT employees are all important objectives. But above all this, the government's main responsibility is not to board members, subscribers or investors.
It is to taxpayers.
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