Rift knocks another chip off HK credibility
By Kent Ewing
and Olivia Chung
HONG KONG - A fierce family feud that has split the boardroom of Hong Kong's
biggest property developer, Sun Hung Kai Properties Ltd (SHKP), climaxed on
Tuesday with the ousting of chairman and chief executive Walter Kwok
Ping-sheung, 57, and his replacement by his mother, Kwok Kwong Siu-hing.
The battle was triggered when Walter reportedly tried to bring his long-time
lover onto the board of SHKP, whose 88-story International Finance Center
dominates the harbor as the city's
tallest building and is at the core of Hong Kong's business life. The
developer's 118-story ICC Tower will be the world's third-tallest building on
completion in 2010.
The conflict, drawn out over several months, has provided plenty of
entertainment and grist for the tabloid gossip mill. The US$24 billion combined
wealth of the Kwok brothers, according to Forbes magazine, makes them second on
the 2007 Forbes list of Hong Kong's richest people, behind only Li Ka-shing,
chairman of the multinational conglomerate Cheung Kong Holdings and the world's
richest man of Chinese descent.
It has also caused concern and embarrassment in a business community whose
corporate ethics are already under attack.
Walter's younger brothers, Thomas and Raymond, vice chairmen of the company,
were on the opposite side of the corporate fight to oust Walter, eventually
backed by their mother, SHKP's largest shareholder. The younger Kwoks won a key
victory against their brother on Monday, when Walter lost his appeal against a
ruling in Hong Kong's High Court allowing a SHKP board vote to remove him as
chairman. That set the stage for a board meeting on Tuesday, at which Walter
was ousted and in a humiliating comedown, appointed as a non-executive
director. According to a SHKP statement in Chinese, Kwok's 79-year-old mother
will be appointed, with immediate effect, as chairman and non-executive
director "until shareholders' annual general meeting in December".
On May 15, the High Court granted the eldest Kwok brother an interim injunction
blocking this week's decisive meeting, but that injunction was lifted last
Friday, prompting the doomed appeal.
Two days prior to Friday's ruling, Walter also filed a defamation suit against
his brothers for allegations he says they made against him in three letters
addressed to their mother and to SHKP directors. According to the suit, the
letters suggested that the chairman suffers from bipolar affective disorder
(popularly known as manic depression) and is a liar who is unfit for his
position. Walter has demanded "a full and unequivocal public retraction" from
his brothers, claiming that his reputation has been seriously impaired and that
he has "suffered grave distress, anguish and embarrassment". He remains an
executive director on a number of other boards of listed companies and is a
standing committee member of the National Committee of the Chinese People's
Political Consultative Conference.
The eldest brother has also filed a report with the Hong Kong police against
US-based psychiatrist Jose Maldonado, who reportedly diagnosed him as bipolar,
for allegedly practicing medicine in Hong Kong without a license and for
prescribing unlicensed medicine to him. The tycoon says that Maldonado's false
diagnosis was cited in his brothers' letters to SHKP directors declaring him
unfit for his duties.
Walter had returned to his role as SHKP chairman this month following a
three-month leave of absence for what the company called "personal reasons".
According to news reports, however, this was a forced leave prompted by his
relationship with Ida Tong Kam-hing, a Hong Kong lawyer five years his senior
whom the tycoon has known for more than 30 years, pre-dating his marriage to
his wife, Wendy.
The Standard newspaper went so far as to compare the Kwok-Tong relationship to
that of Britain's Prince Charles with his present wife Camilla Parker-Bowles,
which also predated his marriage to the late Diana, Princess of Wales.
Quoting anonymous sources, the paper reported that, as a young man, the tycoon
broke off his relationship with Tong because his father, Kwok Tak-seng, who
co-founded SHKP in 1969 and served as chairman at the time of his death in
1990, disapproved of her. The relationship bloomed again, the paper said, after
Walter was kidnapped in 1997 by gangster Cheung Sze-keung, aka "Big Spender".
While the Kwok family never admitted the kidnapping took place, Cheung
reportedly confessed to blindfolding and locking up Walter for five days until
a ransom of HK$600 million (US$77 million) was paid. It was after the kidnap
that an apparently traumatized Walter, while retaining his title as SHKP
chairman, handed over many of his executive duties to his brothers.
It was also around this time that Tong re-entered his life and, according to
The Standard, gradually began to play an increasingly assertive role in SHKP
affairs. Finally, when Walter moved to seat Tong on the company board, the rest
of the family decided to sideline the eldest brother. That was in spite of the
fact that since Walter took over the reins of the company its value has
increased about 10-fold.
Some Chinese papers have cited sources as saying disagreements among the
brothers on investment projects might have been a cause of the board rift. At a
board meeting last Thursday, Raymond and Thomas raised 17 grievances about
Walter's actions, which included that their eldest brother made some major
management decisions, some of which turned out to be unwise, without consulting
them.
While the boardroom battle has provided great entertainment to the casual
observer, it raises serious questions about business practices in Hong Kong and
elsewhere in Asia, where family dynasties are commonplace, especially in the
region's big property companies.
In Hong Kong alone, Henderson Land Development, Great Eagle Holdings, Wheelock
and Co and Hysan Development are all dynastic in structure. And Victor Li
Tzar-kuoi serves as managing director and vice chairman of Cheung Kong
Holdings. (The gangster Cheung was sentenced to death in 1998 in the mainland
city of Guangzhou on charges that included also kidnapping Victor Li.)
What happens when family loyalty turns to family feud? In the case of SHKP, the
company's market value dropped $4.6 billion over a seven-day period ending last
Friday. The shares recovered 2.2% on Monday as it became clear Walter was on
his way out. They closed on Tuesday up less than 1% at HK$126.80, about 27%
down from their 12-month high of HK$175.40 on January 8.
Domestic squabbling is a poor business model for Asia to offer the world.
The scandal involving the Kwoks' HK$325 billion company coincides with other
disturbing business stories in Hong Kong, the most prominent of which involves
David Li Kwok-po, chief executive of the Bank of East Asia in Hong Kong, who
resigned in February from his position on the city's elite Executive Council
after agreeing to pay US$8.1 million to the US government after an
investigation into an insider-trader deal. The US Securities and Exchange
Commission had accused Li, a member of the Dow Jones board, of passing
privileged information to a friend ahead of Rupert Murdoch's News Corporation's
bid for Dow Jones and Company. Li admitted no wrongdoing but nevertheless
agreed to pay the fine.
More recently, corporate gadfly David Webb, who strongly urged Li's Exco
resignation following the SEC findings, himself resigned this month from the
board of Hong Kong Exchanges and Clearing, the city's stock exchange, accusing
the bourse of practicing poor corporate governance and succumbing to political
influence. Other exchange officials dispute Webb's claims.
Corporate governance issues also featured in the Kwok feud, with Walter
alleging in one of his writs that Thomas and Raymond repeatedly disagreed with
his attempts at improving corporate governance and that his brothers sought to
remove him from his positions to gain control of the board.
A highly successful, Oxford-educated financier, Webb chose to retire 10 years
ago, at the age of 32, to become a crusader for better corporate ethics in the
city. Companies he took on included Henderson Land Development, Sun Hung Kai's
partner in the International Finance Center and whose chairman, Lee Shau-kee,
is also the non-executive director of Sun Hung Kai.
Kent Ewing is a teacher and writer at Hong Kong International School. He
can be reached at kewing@hkis.edu.hk.
Olivia Chung is a senior Asia
Times Online reporter.
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