Mr David Gerald’s Speech On Promoting Good Corporate Governance Through Market Initiatives At MOA Signing Ceremony Between SIAS And SMU SKBI

Date: March 14, 2012

Professor Arnoud De Meyer,
President, Singapore Management University

Distinguished guests

Ladies and gentlemen

Good morning.

1. I am tasked today to speak about Promoting Good Corporate Governance Through Market Initiatives.

2. Why does SIAS place so much importance in corporate governance?

3. For investors, corporate governance failures can wipe out entire life savings. The Lehman Brother’s collapse saw many investors lose their life savings. Singapore has had it’s fair share of such corporate governance failures and scandals. The Barring collapse and the CAO debacle are some recent examples. And more recently, the Olympus scandal in Japan, only reminds us of the grim prospect of a similar scandal happening here.

4. At the same time, there is empirical evidence that adopting good corporate governance practices also improves financial performance. Research by Lipper & Governance Metrics International in 2004 showed that managers of large-cap mutual funds tend to overweight companies with above – average corporate governance profiles. In addition, those funds which were heavily over-weighted in well-governed companies outperformed the average fund in both three– and five-year holding periods.

5. McKinsey in 2000 surveyed 200 institutional investors in Asia and 89% reported that they would pay more for the shares of a well-governed company with comparable financial performance.

6. In Singapore, results of Pricewaterhouse Coopers Corporate Governance Survey of Institutional Investors in 2000, indicated the need to continuously improve Singapore’s standard of corporate governance to meet the increasing expectations of investors and provide a climate conducive to the orderly development of the capital markets.

7. “If a company lists in a market where corporate governance and transparency requirements are not as demanding as USA, investors will factor that risk premium into the valuation of the stock” commented a senior Managing Director of NASDAQ.

8. However, there are difficulties in analyzing whether good corporate governance practices translate into better performance. Firstly, many companies still practice the ‘box-ticking’ style of corporate governance and it is difficult to measure the real quality of corporate governance in companies. Secondly, many factors affect measures like P/E ratios. While governance is one such factor, but the soundness of the business model, qualify of management, efficiency in managing operations, and internal control are all equally important.

9. More recently, in 2008, a study of listed companies in Asia undertaken by Associate Professor Jeremy Goh, Lee Kong Chian School Of Business, of SMU, found that good corporate governance practices does result in long term better corporate performance and the study is consistent with many international studies in USA and Europe.

10. What are the market initiatives that promote corporate governance?

11. Since 2000 SIAS has acknowledged the importance of governance and transparency in the development of our capital market. We launched the Most Transparent Company Award and in 2003 with the development of the Corporate Governance Code, we launched the Singapore Corporate Governance Award to recognize companies that best meet both the letter and spirit of the Singapore Code, from the investor’s perspective.

12. Since SIAS’ first Investor Choice Awards launched in 2000, there have been other initiatives that also recognize good governance and performance.

13. More recently, to meet the changing global landscape following the last financial crisis, SIAS together with industry partners, launched the Singapore Corporate Governance Week in 2010 to create greater awareness of the importance of improving corporate governance standards and providing a platform to bring together the regulators, the big 4 accounting firms, Corporate lawyers and Corporate governance practitioners.

14. Additionally, SIAS also launched in 2010, for the first time, as part of the Singapore Corporate Governance Week, a pledge by listed companies and other professional bodies to publicly pledge to support good corporate governance standards. I am pleased to announce that to-date, 40 companies have already pledged to support good governance, although we are some six months away from the next Corporate Governance Week.

15. SIAS is pleased announce today, that we are commissioning SMU Sim Kee Boon Institute to develop a new score card for the selection of the Singapore Corporate Governance Award. This new score card will include OECD principles, the latest revision on the Singapore Code, and initiatives relating to investor rights.

16. We are indeed pleased to be working closely with SMU Sim Kee Boon on this important market initiative.

17. So what is the next step in improving corporate governance?

18. Good corporate governance is a journey and not a destination. Thus at SIAS, we continue to find ways to help listed companies improve good corporate governance standards and also communicate them by engaging them.

19. I am also pleased to announce that SIAS would embark on helping investors to identify the Top 100 Singapore listed companies who excel both corporate governance and performance.

20. The SIAS Top 100 companies will be tracked based on their performance and corporate governance practices and highlights will include the major areas of concern to investors, such as independence on the board, separation of Chairman and CEO, internal audit procedures and controls, risk management and remuneration policies.

21. These market initiatives will go a long way to help investors make informed investment decisions. It is only through market initiatives that we gain the support of corporations to willingly raise standards in corporate governance rather than just the legislative route.

22. The focus on corporate governance from the investors perspective, will therefore, provide a foundation for the development of our capital markets and help investors build wealth.

Thank you.

David Gerald