Can SP Setia afford the cost of PNB’s dawdling?

By Khairie Hisyam

While majority shareholder Permodalan Nasional Berhad takes its time in naming a permanent chief executive officer to take the reins, SP Setia is facing losses in opportunity costs as talent leaves the company in droves.

_____________________________________________________________________

Since the turn of the year, SP Setia has not announced any new land acquisition, though launches are still progressing albeit with reduced fanfare. While this does not conclusively point towards a stagnation, it raises the question of whether the ship is floundering without a permanent captain.

The underlying implication is that time and opportunities lost would be the biggest costs of majority shareholder Permodalan Nasional Berhad (PNB)’s dawdling over the appointment of a permanent CEO.

Counting opportunity costs

To be sure, the CEO position is vital in any property development company, as he or she is responsible for driving the company forward in the proper direction.

A developer requesting anonymity told KiniBiz that in the property business a company’s progress is based on the company’s direction, which in turn is set by the CEO in charge. However this is dependent on stability at the senior management level, which in recents years has been lacking at SP Setia.

“It is compulsory for a developer to have a managing director or CEO driving things in order to progress,” opined a property developer to KiniBiz. “Not having a permanent guy in charge for a prolonged period is detrimental.”

Clarifying further, the developer explained that while the directors comprising a company’s board may have their own differing ideas and input over the company’s plans and proposed projects, the CEO would be the figure that balances these different considerations into a coherent forward direction.

In other words, the CEO calls the shots, but this would be hampered if the CEO’s position isn’t permanent.

“If there is no permanent CEO, who’s going to take ownership and make the big decisions?” said a property industry observer to KiniBiz.

As for SP Setia, lacking a permanent CEO after the departure of long-time chief Liew Kee Sin meant things have been unclear in terms of the company’s future direction. With other rivals in the market pressing on with their individual strategic direction, the current state of affairs indicate that SP Setia is at risk of incurring opportunity costs and losing time in the market.

Among others things this has hurt the company’s share prices which indicates that shareholders and investors are losing confidence in the company.

“We believe until there is a clear direction of the company’s strategy i.e. starting by stability of key management at the top, the discount given on the stock might persist, if not widen despite the good fundamentals,” said Public Bank in a research note last week.

Lacking vision?

In addition to the absence of a final authority to make big decisions, the effects of not having a permanent CEO in charge is especially poignant for property developers such as SP Setia given the nature of the industry.

“Property is very much a people-driven industry,” said a property developer to KiniBiz. “You need key experience and expertise to move projects, enhance and add value to raw land.”

While this implies the importance of project conception, sales and marketing, among others, the underlying implication in terms of senior leadership is the importance of having vision, a key ingredient among entrepreneur-led property developers.

In turn strong project management and execution, which comes from a strong management team that follows the CEO’s lead, is also a key determinant for the success of any property development company — examples abound in corporate Malaysia such as Leong Huoy Kam’s Mah Sing Group, Jeffrey Cheah’s Sunway Group and Tong Kooi Ong’s Sunrise, though the last has since been taken over by UEM Group.

Given this factor, the absence of a permanent leadership in SP Setia, with the implications of no one really taking ownership of strategy and direction, is alarming.

The question that emerges is whose vision will drive SP Setia forward in the interim — if there is any. More worrying is the possibility that when a permanent CEO is finally named, the new CEO’s vision might be drastically different from SP Setia’s current direction, which in turn means SP Setia would have lost time pursuing the wrong direction.

Worse, the company may need further time to reorient itself accordingly to progress and this means SP Setia may lose further ground in keeping up with other property players.

Bleeding expertise

While PNB takes its time over SP Setia’s leadership issue, the company continues to bleed talent and expertise — notably to fast-emerging rival Eco World Development Group Berhad, which is increasingly looking like SP Setia reborn.

A glance at Eco World’s senior management line-up brings a sense of deja vu for those familiar with SP Setia over the years. Except for Liew Tian Xiong, who is long-time SP Setia CEO Liew Kee Sin’s son, the board and senior management all have roots in SP Setia.

Overall nearly 300 people have left SP Setia directly to Eco World, according to RHB Research in a research note earlier this year. Market talk puts this figure as high as 500 but this is unverified.

“SP Setia is an empty shell now,” opined a property market observer familiar with the company, adding that some of those who left can’t be directly replaced through new hires because they were groomed in a unique company culture. “You would have to groom the replacements from scratch because SP Setia’s environment was unique to Liew’s personal leadership.”

This raises questions on talk of ensuring continuity at SP Setia post-Liew, given that there is a growing vacuum of established expertise in the company due to the talent exodus that started well before Liew’s official last day in late April this year.

Even if SP Setia had appointed a permanent CEO to take over immediately from Liew, things would not likely have stayed the same in that sense, added the property market observer.

“Different CEOs have different styles,” said the market observer to KiniBiz, asking anonymity. “Liew was people-oriented, while IOI Group’s Lee Shin Cheng had tremendous respect for costs, for example.”

This meant a new CEO would likely have brought changes to SP Setia’s internal environment and driving values, clarified the observer.

And therein lies another dimension to the time cost of PNB’s delay over SP Setia’s leadership issue — if a new permanent CEO had been brought in immediately, SP Setia would have been further along in its realignment according to the new CEO’s personal vision.

In that sense, SP Setia would not have lost unnecessary time in progressing forward amid ever-changing market conditions, to which every player in the industry needs to continually adapt to.

SP Setia declined to provide any input for this article, while PNB did not respond to emailed questions. Phone calls to SP Setia chairman Zaki Azmi and PNB CEO Hamad Kama Piah went unanswered.

KiniBiz previously examined Eco World’s rapid emergence, history and links to Liew senior in a three-part issue series here.

Yesterday: SP Setia in leadership crisis

Tomorrow: Is Eco World rising at SP Setia’s expense?