Rift over pay, underperforming core business led to Cordlife CEO's departure

CORDLIFE Group's board decision not to renew Jeremy Yee's employment contract, which terms included an annual payout of up to 10 per cent of company profits, and its dissatisfaction over the growth pace - or lack thereof - of the firm's core business were key factors that led to his sudden resignation as chief executive in March.

These fresh details, among others, emerged at a highly-spirited and at times, even angsty session, between Cordlife's board led by Dr Ho Choon Hou and some 50 shareholders - some visibly more disgruntled than others - at an over hour-long dialogue session organised by the Securities Investors Association of Singapore (SIAS) to clear the air on Mr Yee's puzzling and abrupt resignation as CEO.

"This is a board of independent directors...certainly, not a rubber-stamping board...who had thick courage to do what was seemingly unpopular in the market. If we do nothing, if we don't enhance Cordlife's position in the market, perhaps next year, this indecision and inability to move would cost us," said Dr Ho, referring to the firm's underperforming core operations.

Shareholders who were present at Wednesday's session were visibly eager to hear the board's explanation on why Mr Yee had left a firm he perceivedly had led well as its boss since mid 2011.

There were also questions that stemmed from concerns over the independence of the board and six recent appointments which had turned a five-member board into an 11-member one - deemed far too large for a company like Cordlife, and perhaps even "dysfunctional" and could run the risk of creating "camps" as Mano Sabnani, a seasoned and activist investor who was also present, put it.

"There is no two camps. There is only one camp - the Cordlife camp," replied Dr Ho.

When pressed to shed more light on the events surrounding Mr Yee's departure, Cordlife's independent director and remuneration committee chairman Dr Goh Jin Hian picked a forthright and surprisingly blunt route.

"While Jeremy's compensation matters as CEO were by and large fine, there was a particular clause in it since IPO days (2012) which I had to grapple with," explained Dr Goh, in reference to an automatic renewal clause in the contract which entitled Mr Yee to up to 10 per cent of the profit earned subject to the discretion of the remunerating committee.

"So, we had this discussion on how much payout he was deserving of. If all (our profits were) core profits, we'd have definitely paid him according to contract but a bulk of it was non-core. We had to take a stand," he elaborated, saying that Mr Yee was instead paid just under 3 per cent of the company's annual profits over the years.

"This is where there was some misalignment as he wanted full 10 per cent. So, we definitely needed to terminate the contract and negotiate a new one but he took the decision that he didn't want to renegotiate...this also gave us an opportunity to look at other potential candidates ," Dr Goh added.

"Would it have been in shareholders' interest to take the easy way out and just renew? No," he explained.

Based on slides presented at the session, Cordlife's core profit before tax from operations has been slipping from S$7.8 million in financial year 2013 to S$6.1 million in 2015; for the nine-month period ended March 2016, this came up to S$3.8 million.

The group's just-released results drive home the point further. For the third quarter ended March 2016, Cordlife swung into the red with a net loss of S$2 million, largely owing to the absence of a fair value gain on its investments in US-listed China Cord Blood Corp (CCBC. As at end March 2016, Cordlife is sitting pretty on a net cash of S$61.3 million which according to Dr Ho will be used to grow core business, invest in new technologies to expand the firm's mother and child products or acquire strategic businesses that are "not one off" but can provide sustainable income. "Or, if we can't do any better, the cash will go back to shareholders," he said.

Responding to a question by a representative of Robust Plan - the Hong Kong-incorporated firm owns just under 7 per cent of Cordlife - on whether Cordlife's board was serving the interest of all shareholders by not having considered its "pretty solid" offer last year for Cordlife's stake in CCBC which was higher than the US$6.40 apiece offered by Golden Meditech Holdings (GM), Dr Ho said that the board was already bound by an agreement with GM.

"We weighed the cost and benefits of accepting the offer (by Robust Plan) and decided not to. This board will not break a contract once it's signed. You can't come here and tell us to break a contract," said Dr Ho.

The oft-times fiery session was moderated by SIAS honorary secretary Harold Woo while Cordlife's vice-chairman and lead independent director Ho Sheng was also present.


This article was first published on May 12, 2016.
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