Date: October 9, 2008
EMBARGOED UNTIL 7PM, 9TH OCTOBER 2008
9th October 2008
ADDRESS BY DAVID GERALD, PRESIDENT & CEO, SIAS AT THE SIAS 9TH INVESTORS’ CHOICE AWARDS 2008, AT RAFFLES BALLROOM, RAFFLES CITY CONVENTION CENTRE
Mr S Iswaran, Senior Minister of State For Trade and Industry, Mr JY Pillay, Chairman SGX, Mr Hsieh Fu Hua, Chief Executive Officer, SGX, distinguished guests, Ladies and gentlemen, a very good evening and welcome to the 9th Investors” Choice Awards Ceremony and Annual Dinner.
Over the last few weeks, the media has been highlighting numerous negative news about the financial markets such as “Credit crunch deepens” “Financial markets in turmoil”, Indonesia suspends trading”, Japanese share prices dive”, Singapore stocks dive again”, “grey skies ahead”. Clearly there is a breakdown in the global financial system. Whilst the common view is that there is a breakdown in business responsibility, I attribute part of it to the lack of good corporate governance practices amongst some of the fallen financial institutions.
Therefore, it is timely that SIAS tonight is focusing on recognising good corporate governance practices by Singapore listed companies.
The Singapore Corporate Governance Awards Committee’s research this year shows that there is a marked improvement in the quality of disclosure. I will highlight a few of the major findings:
- More companies (43% compared to 21%) have disclosed their process for the search and nomination of new directors.
- The disclosure on the roles and responsibilities between the Chairman and the CEO has increased to 46% compared to 5% last year.
- The disclosure of the process of board evaluation has also increased from 48% last year to 77% this year.
- 60% of the company now have a whistleblowing policy compared to 36% last year.
- More companies are now willing to disclose the remuneration of executive directors in exact amount (8% compared to 5% last year).
Whilst there has been a marked improvement, several areas still require improvements. For example, companies need to provide clear indications as to whether there is a relationship between the Chairman and the CEO, only 35% compared to 58% last year.
- There has been a 12% (80% compared to 92% last year) decrease on the number of companies having clearer terms of reference for the nominating committee.
- Only two companies (one from mainboard and one from Catalist) have their financial statements certified by either the CEO or CFO.
Tonight SIAS is launching a new award, called the Board Diversity Award. The Singapore Corporate Governance Award selection committee decided to introduce the Board Diversity Award to recognise companies which have carefully considered the need to have a good balance of backgrounds and competencies on their Boards, so that there is a healthy diversity of viewpoints on the Board.
While research has pointed to marked improvements in areas of disclosure, companies must also be forthcoming in their disclosure of relevant information that impacts their business and financial performance.
Let me now move on to a current issue that’s upsetting some retail investors.
I refer to the recent newspaper articles on complaints relating to losses suffered by retail investors from purchasing structured products like the Lehman mini bonds. The investors allege that they were not sufficiently advised on the risk factors.
The growing sophistication of products offered to retail investors in Singapore demands that several initiatives be taken:
- Creators and distributors of these products must make clear the risks in clear and unambiguous language. The risk factors should be clearly highlighted and visible, like the health warnings on cigarette packets. Big and bold.
- Relationship managers, bank salesmen and financial planners who market these products should know the risk profile of their customers and make clear to them the risks the products have. They must do more to explain all aspects of the products, especially the risks. I will go one step further: get the retail investors, who insist on buying these clever products, to acknowledge that they understand the risks involved. Marketers have a quota to meet and they will do everything they can to achieve their target. I too almost fell victim to one of these clever and charming sales representatives.
In the quest for higher returns, investors may not have considered the downside risks. I do not think it is good to make it available to the aged retirees who depend on high yield investments for their living. The old and feeble should not be exposed to these complex products.
- This saga further emphasizes the need for retail investors to educate themselves on the products they buy prior to making their investments. SIAS will strengthen its education programs working in close collaboration with SGX Academy and experts from the securities and financial industry.
- SIAS will also establish a Grievance Panel to address their concerns and help those who really need help.
- It also reveals that investor education in Singapore is not at the adequate level needed. Investor education at a broader level, with deeper reach, is needed. Otherwise, Singapore can never really become a major financial hub when the retail investing market remains at a basic level of knowledge investing in only basic investment. They need to move beyond this for Singapore to emulate the retail sophistication found in other major centres like New York, London, Frankfurt, Tokyo, Australia, Hong Kong, and others, because they all have much more sophisticated retail investor basis. There is no escaping from the reality, which is, more and more structured products with promise of high yield will target retail investors. They must therefore arm themselves with knowledge and information, the two pillars of successful investing.
- Regulators need to provide oversight and ensure that the above steps are followed through but also consider the suitability of these clever products for the retirees, who vulnerable to aggressive marketing.
- The financial media also have a key role in helping to educate investors on such complex products. They must also understand the complexities of these products and ask tougher, more challenging questions.
At the end of the day investors should remember if it’s too good to be true, it is because it is too good to be true. They must not miss the fundamental principles of investing which is caveat emptor. If they do not understand it, they should simply not buy it. As Dr. Tony Tan said, GIC did not buy CDOs because they did not understand them well enough. And Warren Buffet did not buy tech stocks during the dotcom era because he did not understand them enough.
I would like to thank the Minister for gracing our event as Guest of Honour, Mr JY Pillay for being our Special Guest, Our distinguished Guests for gracing this event, Professor Steen Thomsen for coming all the way from Denmark to share his knowledge and experience with us, SGX for supporting this event as event sponsor, all our prize sponsors (CMC Markets, SingTel, and Sincere) and supporters, our corporate friends, Brokers and Professional Institutions for your strong support tonight.
Finally, I congratulate all winners of Investors’ Choice Awards and wish you many more years of success. I wish you all an enjoyable evening.
