Responsible investors flagged governance concerns at Sino-Forest

Shareholders engaged with forestry firm before scandal

Sino-Forest Corp., the Toronto-listed Chinese forestry firm at the centre of fraud allegations, was already being engaged by responsible investors over corporate governance issues.

The company, due to release its first-quarter financial results today (June 14), is now being investigated by the Ontario Securities Commission following research firm Muddy Waters’ controversial note on June 2 that Sino-Forest “massively exaggerates its assets”.

In the furore, the company’s share price plummeted 75% and it has hired PWC to “examine and review” the allegations.

But the company was already on institutional investors’ radar screens over governance failures even before the saga erupted.

For example, the British Columbia Investment Management Corporation (bcIMC), the Canada Pension Plan Investment Board (CPPIB) and Northwest and Ethical Investments (NEI) made a joint shareholder proposal on director elections at the firm earlier this year.

Shareholders had an opportunity to demonstrate their concerns about the company in their voting at Sino-Forest’s annual general meeting, held on May 30 – just days before the Muddy Waters report hit the headlines.NEI, for example, withheld its vote for seven Sino-Forest directors. APG, the Dutch pension giant, voted against four directors. Fellow Dutch fund PGGM said it withheld its votes because of bundled director nominees and a series of what it identified as “corporate governance, compensation or performance concerns”.
Director Simon Murray – who also chairs commodities giant Glencore – had just 18% attendance rate for board and committee meetings and is “overboarded”, PGGM reckons. It also noted that the offices of chairman and CEO are not separate.
In the event, Murray’s appointment was approved – by 96.7m votes to 32m.
The Florida State Board of Administration withheld its vote for six directors at the meeting while the Alberta Investment Management Co. (AIMCO) withheld votes for five. In 2010, Christian Brothers Investment Services withheld its votes against the directors and the reappointment and remuneration of auditors Ernst & Young.
As far back as 2007, the Ontario Teachers’ Pension Plan (OTPP) highlighted the lack of chairman/CEO split – and the poor attendance record of Murray and fellow director Kai Kit Poon. It withheld its vote against the entire board.