Thursday, December 17, 2009

On Bad Management

Basically, bad management doesn’t have the shareholders in mind. Or if the bad management is the majority shareholder, they don’t have other shareholders’ interest in mind. Their policy is about “Screw You and I Get My Bonus” or “I Win, You Lose”.

On bad management, CK Tang’s recent saga definitely comes to mind. It’s a long story that probably deserves a book trilogy starting with the great CK Tang himself, who built a solid business based on virtues like good customer service, treating employees well etc. His business approach was a very traditional, fundamental approach that sadly had lost its touch in today’s Singapore.

The poor management began shortly after his death some 10 years ago perhaps. Over the past 10-15 years, CK Tang had been able to deliver annual sales of S$160-220mn sadly without very significant growth. Singapore’s GDP has probably doubled in that span of time.

The story for profits is even worse. Net income was negative for the most part with some years losing as much as S$40-50mn. The company did not pay dividend for the most part of the past 10 years and kept throwing money into wasteful ventures, like new CK Tang outlets in KL, Vivocity etc.

If the story had ended here, we are not in a position to scold management too much. Well, admittedly, the world has changed. Department store was a good concept in the 80s and early 90s. High quality lifestyle products all under one roof and brands fight for space in the stores. But the retail scene had since evolved, with brands like LV, Nike, Jimmy Choo having their own stores. And shopping at dept stores wasn’t trendy anymore. People preferred shopping malls, specialty stores and newer stuff.

CK Tang’s management was of course unable to stop this global change. But what was unforgivable was their attempt to take the company private at ridiculously low prices (well that’s subjective, let’s see my argument first ok?). They attempted thrice. During the first two tries, the minority shareholders screwed them by refusing to let go. On the third try, the no. of shareholders that agreed to sell hit the minimum no. and the co. was taken private. Well most people gave up after 10 years I guess.

The co. was taken private at a price of roughly S$200mn. This is lower than what CK has as its equity of S$220mn. Of course CK Tang paid only S$20-40mn to buy out the remaining 10-20% of shareholders. Official valuation of the land that CK Tang has in Orchard Road was about S$340mn (last done some time back). Based on $1200psf - a value that I think represents fair value for property in Singapore, the property alone is worth S$190mn, ie CK Tang’s management thinks that its department store business is worth nothing and they are paying the minority shareholders $1200psf for their portion of the Orchard Road land. Btw, Orchard Road land is now going for $2000psf or is it $3000? Geez I can’t even keep up with the no.s.

So the land value that CK Tang has on its books could be easily more than half a billion if today’s prices were used, or if the land was redeveloped. Basically, the minority shareholders got taken out at a cheap price.

Of course, CK Tang maintains that there is no plan to redevelop its Orchard Road flagship, they think what they paid the minority shareholders is fair. It would be really interesting to see if they announce plans for redevelopment in the future. Then it would confirm that they were all-out to screw shareholders all along.

In my opinion, CK Tang is a complete dud as a shareholder entity. Even as a consumer, I would think twice shopping at CK Tang after seeing that is how management treats people. It IS a good thing that it’s gonna get delisted and hopefully never file for listing again.


  1. Hi 8percentpa,

    Thanks for your article. Nice summary of the infamous CK Tang saga. I also think the whole thing was a sham by Management to swindle shareholders. No dividend still OK, but to buy them out at ridiculous prices really takes the cake!

    As it is, the title should not just read "bad management", it should be "rogue management". Haha.


  2. That is the risk that retail shareholders have to take for this type of biz-owner controlled listed company. And Tang will not be the last company to screw miniority shareholders

  3. Ya,

    GM shareholders were all almost wiped out when they declared bankruptcy in USA. It's share become 27 cents.

    That is the risk of investment. But when this type of things happened, you can bet investors will remember these companies like CK Tang.


  4. There are various kinds of bad management. Some are bad because they have large vested interest in the company and thus want to take out other investors tilted much to the balance of their own personal gain. Some others are bad because they are terrible managers who are seated atop in their ivory tower and people can only bring news their want to hear. Some are just simply inept and cannot make changes fast enough. Some want to make changes but are hamstrung by say, unions which are a tough sell, so management who did not bite the bullet hard enough is killed by the bullet, and together, sink with the company (like, GM).

    In the end, the management of GM was not, afterall, bunch of greedy fellows that profited from investors for their own gain. Rather, it is a combination of one lousy decision after another that causes GM to sink and not making strategic and hard labor decisions to cut its fat fast enough. After it all, all stakeholders suffer, labor have to accept lesser in the end, got a smaller share of the company, common shareholder got a huge huge haircut, probably almost close to wiping all out.

  5. Hi all,

    Thanks for sharing all these valuable knowledge. Yes beware of bad management. There are always too many of these around to do more harm than good! Invest only in management that we are comfortable with!