Address by Mr David Gerald, Founder, President and CEO, SIAS at Launch of Inaugural Corporate Governance Conference 2018, Bangkok, 19 September 2018 at Grand Hyatt Erawan – Building Trust in a Transforming Economy

Date: September 19, 2018

Mr Rapee Sucharitakul, Secretary-General, SEC

Mr Veerasak Kositpaisal, Expert on Corporate Governance and Social Responsibility, SET

Dr Bandid Nijathaworn, President & CEO, Thai IOD

Distinguished speakers from near and afar

Ladies and Gentlemen

Good morning … Sawadee Kap

Thank you for inviting the Securities Investors Association of Singapore (SIAS) to collaborate with the Securities Exchange Commission and the Stock Exchange of Thailand to conduct the inaugural Corporate Governance Conference in Bangkok. We are indeed honoured.

At SIAS, corporate governance is one of the key pillars in our vision for building an empowered and enlightened investing community. It is with the investors in mind that SIAS continues to promote good corporate governance practices and standards through various initiatives. Together with the boards, senior managers, professional institutions and regulators, over the last 19 years, we have established a good collaborative environment of “in the boardroom and not the court room” to achieve this objective. This has resulted in establishing investor relations peace in Singapore that has helped develop our capital markets.

For the market, high standards of corporate governance facilitate investment and growth through transparency, thus creating confidence in the market. For the company, pursuing high corporate governance standards facilitate capital raising, and reduces the cost of capital. For the investors, they enjoy safety, higher valuations and better liquidity of the shares of the companies they are invested in. Therefore, it is with this in mind that SIAS continues to push for greater standards in corporate governance practices.

Building Trust

The theme for the conference is today is “Building trust in a transforming economy”. It is important for companies to maintain that trust as investors track your performance and return closely. To ensure that companies continue to keep the trust of shareholders and stakeholders, it is imperative that good governance practices and internal controls are put in place as part of the culture of the organisation.

How then can boards and senior managers ensure that the organisation is building trust with the correct corporate culture? Today, we are all too familiar to the corporate scandals of Lehman Brothers, Volkswagen and Enron. Here is where I would like to highlight the role of internal auditor.

Importance of Internal Audit

The Singapore Institute of Internal Auditors defines internal audit as “an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.”

The Institute then goes on to state that internal audit is a cornerstone of good corporate governance in organisations and plays an important role in providing the Board of Directors, Audit Committee, Chief Executive Officer, senior executives and stakeholders with an independent view on whether an organisation has an effective risk and control environment, while acting as a catalyst for a strong risk and compliance culture.


In my view, the key word in that last sentence is “culture’’.  Although the Institute was referring to risk and compliance, we can all appreciate that the overall organisational culture is of crucial importance in determining success or failure; and it all starts with the “tone from the top”.

How then, should companies go about building trust and fostering the right culture? Like everything else associated with good governance, it starts at the top with the Board. The importance of having the right culture is recognized and enshrined in the introduction of Thailand’s Corporate Governance Code states that the Code “is developed as practice principles for the board of directors, as the leader and governing body of a listed company.”

A culture which consistently places ethical considerations and client interests at the centre of business decisions helps protect employees as well as investors, and preserves the integrity of the markets. Conversely, significant cultural failures can impose substantial harm on organisations, including fines, penalties, and loss of reputation and public confidence; and it all starts with the board.

It would not be too far off the mark to say that internal audit’s primary task is to act as the eyes and ears of the Board and to tell it like it really is, without fear or favour so as to ensure the company stays on the right path.

By extension, and bearing in mind that internal auditors’ primary accountability is to the Board who in turn are responsible for cultivating the right culture, this means that internal auditors should constantly remind themselves of a need to ensure the culture is strong, ethical and geared towards establishing trust with stakeholders from inside and outside their organisations.

Apart from regularly assessing and analysing an organisation’s operational and financial framework, internal auditors should also do the same for its culture, values and ethical practices with a view of providing feedback to the board and management. By doing so, Board and management would be apprised on the health of the culture and the early warnings would enable them to quickly address the potential risks which might lie ahead.

In other words if culture is a key contributor to corporate performance, both positive and negative, it is important for auditors to constantly bear in mind the need to nurture the right culture, to incorporate consideration of culture in every audit project that is undertaken and perhaps even to figure out how to periodically perform a corporate culture audit.

The problem of course, is that culture is intangible, complex and therefore challenging to measure and quantify, let alone audit, so it not surprising to know that auditing culture has been an area viewed with hesitation by the profession. Culture can be so subjective that it can take auditors—who are processed oriented and seek objective measures—out of their comfort zone.

However, just because a task is difficult, doesn’t mean it shouldn’t be done. There is growing awareness within the internal audit world of the importance of auditing culture – the UK’s Chartered Institute of Internal Auditors’ (CIIA) recently undertook a survey of Heads of Internal Audit across all sectors to understand the extent to which the profession is involved in auditing culture.

The results showed that Internal Audit functions are taking responsibility for auditing culture, or have at least taken notice of the expectation for them to do so – of the 220 responses, 55% of Internal Audit functions are attempting to audit culture in one way or another.

In its accompanying guidance note, the CIIA stated “Boards and senior management need to understand whether the culture they want for their organisation is actually the one that exists in practice’’.

Over in the US, the Institute of Internal Auditors (IIA) in 2016 published a new white paper encouraging its members to take a closer look at the culture that can impact its business. The paper makes the case that too many high-profile compliance failures in recent history can be tied to cultures that encouraged, allowed, or looked past bad and illegal behaviour. The IIA recommends that culture be added to the internal audit workload, “Because auditing culture helps the organization manage it.”

The message is therefore clear – the internal audit function should think seriously about auditing corporate culture into its daily tasks. I leave it to the professionals to do the research on how this can be accomplished as there is plenty of fresh and growing research to tap – for example, one method which is said to be very effective in gauging culture is employee surveys that allow anonymity.

Whatever the methods, the overall governance of any organisation, can only be strengthened if the Board and its operational eyes and ears, that is, the internal audit function, bears in mind the need to establish and foster the right culture in everything it does. I am sure the expert speakers we have gathered today, from Europe and Asia, would be adding more depth and colour to as to how your company can build a culture of trust.

Facilitate shareholder activism

Before I end, I would encourage all shareholders to actively participate at company meetings responsibly.  I also call on all companies to facilitate responsible shareholder activism as it helps to improve accountability and transparency, while putting pressure on companies to improve the quality of their engagement with investors. To facilitate this engagement, SIAS, in Singapore, has commenced the review of annual reports and issuing a minimum of three questions on the company’s business strategy, financial statement and corporate governance. This exercise is to help focus discussions at shareholder meetings and help companies to provide better accountability to shareholders.

Companies are encouraged to address the questions at the AGM and also publish the answers on SGX as part of their disclosures. Thus far, about one third of the companies have published their responses to the questions and we are now extending to cover 500 companies in the next 12 months. In our review thus far, companies need to communicate their strategy more effectively in order to keep shareholders on side, given that their individual goals may not always align.

The International Bar Association publication in February 2015, highlighted that the California Public Employees’ Retirement System (CalPERS) was one of the first major institutional investors to embrace shareholder activism, and the companies it invests in appear to have benefited.

Wilshire Associates, the pension fund’s primary consultant, claims that five years ago the companies CalPERS engages with were underperforming their index peers by about 36 per cent, but that after five years of active engagement with the investor, the same companies returned about 11 per cent above the industry average. While this is encouraging, it is noteworthy in itself that CalPERS has chosen to engage actively with the companies it owns, perhaps a sign of the times.

Similar results are also seen in Singapore. SIAS conducts research on the corporate governance and transparency practices of Singapore listed companies annually, rating and rewarding them. Based on research conducted by the Singapore Management University in 2015, over a period of 4 years, the winners of the SIAS Singapore Corporate Governance award consistently outperformed the returns of the Singapore benchmark index, the STI. Therefore companies should embrace these engagements and not treat shareholders as a nuisance.

Nevertheless, companies should be well aware, that lurking in the side lines are also unscrupulous opportunistic short sellers, looking to take advantage of such shortfalls in transparency and governance to create havoc. Be vigilant!

Wish you all an enjoyable conference.

Thank you.