Father-son feud plunges $28.5 billion family empire into crisis

Hong Leong Group employs more than 20,000 people and has assets of more than S$40 billion. It’s the largest hotel owner in Singapore and has a huge presence across Asia, owning the St. Regis Singapore and JW Marriott Hong Kong. The family, through Kwek Holdings, controls about 49 per cent of CDL. Other investors include BlackRock, Vanguard Group and the Government Pension Investment Fund Japan, according to data compiled by Bloomberg.

When third-generation heir Sherman Kwek took the reins of CDL as CEO in 2018, it seemed the family had managed to pull off a succession feat, avoiding any major drama for decades.

Educated at Boston University, Sherman had worked within the family empire for more than two decades, following a stint at Credit Suisse First Boston.

However, his tenure soon became overshadowed by missteps in China. Sherman spearheaded an investment into Sincere Property Group in 2019, in a deal touted as “game-changing” for its expansion in Asia’s largest economy.

A year later, it became a cautionary tale. After the country’s unprecedented property meltdown, CDL’s billion-dollar bet was almost written off completely. The “debacle” led to a S$US1.9 billion loss in 2020, the elder Kwek said in his letter.

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The pandemic pinched business further. Travel restrictions caused revenue to decline at the firm’s hotel operations during lockdowns. Kwek Leng Beng also said “poor investment decisions in the UK property market” made by Sherman caused significant financial losses. He said CDL’s shares have consistently underperformed peers since his son took over.

As the business suffered, internal disputes started arising. One of the family’s second generation scions, Kwek Leng Peck, quit the CDL board in 2020 due to disagreements over the investment in China.

“Sherman Kwek had a tough job from the outset,” said Dieleman. “This episode led to family fractures, doubts about the leadership, and a weaker balance sheet.”

Open feud

Kwek Leng Beng said in his statement that he had sought to dismiss his son from the CEO position earlier in February due to what he alleged were “serious lapses of corporate governance.” Kwek, along with three other board members and CDL on Tuesday filed a lawsuit in Singapore’s courts against Sherman and six other directors, a move the chairman said was done “to set things right.”

In particular, the elder Kwek objected to the appointment of two directors who were added to the board this month without going through the typical nomination process, according to his letter. CDL appointed Jennifer Duong Young, who spent 21 years at Credit Suisse, and Wong Su-Yen to the board, according to earlier statements.

“His role in circumventing good governance and consolidating power through the irregular appointment of two new directors was the latest of a long series of missteps,” Kwek said in his letter, referring to Sherman.

Kwek said the firm’s “commitment to long-term value creation and corporate stability” is now under attack. “The reckless actions of a faction seeking to consolidate unchecked control not only undermine the foundations of CDL’s governance but also put at risk the very legacy we have built over the decades.”

Sherman responded by saying in a statement that he and a majority of CDL’s board were “incredibly disappointed.” He said extreme actions were taken by his father and a minority of the board over disagreement around its size and make-up. He said their goal has always been to improve governance.

CDL said Sherman remains the group CEO “until such time as there is a board resolution to change company leadership.”

Trump battle

Leng Beng is no stranger to open battles. During his more youthful years, he upstaged Donald Trump by turning down the US tycoon’s request to keep managing the Plaza Hotel in New York, as part of his investment into the asset.

“As a father, firing my son was certainly not an easy decision. I accept that business decisions are difficult and young people may make business mistakes in their careers and that is understandable, but circumventing corporate governance laws is a red line,” Leng Beng said in his statement.

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The elder Kwek said certain members of the board are still aligned with him, and “committed to upholding the highest standards of governance and accountability.” He added that Kwek Eik Sheng, CDL’s chief operating officer and Sherman’s cousin, will serve as interim CEO “if and when Sherman is removed,” until a professional is appointed to lead the firm.

“The markets are very sensitive to family feuds,” said Mandy Tham, academic director of master of science in wealth management at Singapore Management University. “Family feuds are unlikely to be resolved speedily, and some could not be resolved at all.”

Bloomberg