Date: September 18, 2017
Sir Win Bischoff, Chairman of the Financial Reporting Council, United Kingdom
Mr JY Pillay, Chairman of the Council of Presidential Advisers
Distinguished guests and colleagues
Ladies and Gentlemen
Good morning, a warm welcome to our Global Corporate Governance Conference and the 8th Corporate Governance Week. We also extend a warm welcome to all our overseas guests.
I have been asked why is SIAS concerned with corporate governance and why we reward listed companies with the Singapore Corporate Governance Award? There are many scholarly discussions on investors’ role in pushing for better corporate governance practices. The short answer is investors need to trust the investee company and ultimately, this hinges on its quality of disclosures and honest communication with stakeholders.
Purpose, Values and Culture
Much has been discussed over the years about Board Independence, Remuneration, Sustainability and Related Party Transaction. Yet, the intrinsic principles of “Purpose, Values and Culture”, which ought to be the core and of our organisations has had little attention. Beliefs and behaviour determine the interaction between its employees and management as it can build a unified sense of values. They also have great sway on how business transactions are conducted. Often, organisational culture is implied, not expressly defined, and is knit into the fabric of the Organisation over time from the cumulative traits of the people in the company.
Business leaders would agree with this, no doubt, as they would have directly experienced this phenomenon. Yet, very few organisations intentionally address their culture, which if nurtured conscientiously, can have the profound effect of propelling an organisation forward or if neglected, can be a huge hindrance. A poor Corporate culture has also been linked to many corporate scandals. Therefore, there is a need to better understand how boards are addressing culture in their Organisation.
Improving quality of disclosure
Our analysis over 200 annual reports of companies so far, mainly in the mid and small caps, to pose a minimum of 3 questions, revealed a lack of quality in the disclosures. Just to give you one example, we found that the first 33 pages of a company’s annual report used generic business terms that offered no information nor insights into the company’s actual business, which by the way appeared only in the director’s profile and in the key audit matters in the independent auditors report. Another instance of lack of reporting quality is in the area of related party transactions. Companies comply with the letter of the law and not in the spirit of the law by disclosing only the particulars of the party but not the nature of the transaction.
In our view, the characteristics of independent directors can drastically improve corporate governance influences such as disclosure quality. Some company boards still have independent directors who have served them for 15 to 18 years of tenure. Maybe it is time these independent directors are called upon to demonstrate to their stakeholders how far they have influenced disclosure quality. Further, our research with NUS Centre for Governance, Institutions and Organisation also revealed:
Collaboration for effective communication Increasingly today, more corporations that are embarking on corporate actions are seeking SIAS’ assistance to engage shareholders. Our “in the boardroom and not the courtroom” ethos brings together different, sometimes widely divergent, views to achieve the best outcome for the stakeholders. This has brought some calm and assurance to the investor relations realm in Singapore, thus preserving the value of the company and shareholder investments. For example, the privatisation of SMRT, ARA Asset Management, The Croesus Retail Trust, acquisition of Healthway Medical by Gateway and others.
One area that SIAS recently ramped up, is representing individual bond holders in a default and / or restructuring situation by, providing a platform for them to aggregate and facilitate active engagement to work towards a win-win solution. These are trying times for a lot of the companies in the maritime, oil and gas sector, there is a real need for all stakeholders to work together. The stakes are high and if the only solution were to be liquidation, there will be no winners.
Importance of Ethics
Ultimately, good corporate governance is about the behaviour of people in leadership position. The various codes, laws and regulations can only help to nudge or push people in the direction of good behaviour. If the leaders choose not to adhere to high ethical standards, then no amount of rules and regulations would be sufficient. Singapore has earned the global reputation, as a clean city with high governance standards, but there will always be a few who will be challenging this hard and well earned reputation.
Richard Bistrong, a formerly convicted for corruption, turned FBI informant and currently a consultant to companies and regulators, shared at our Corporate Governance Week a few years ago that leaders in the front line sometimes think that bribery is perceived as a “win-win” situation. They think “I make my “bonus” and the company gets the sale. Who really loses here?” A lot of these leaders, in the frontline, negotiating these “bonuses” usually get a distorted view and think they can get away with it. Getting caught is usually the least on their mind and perhaps they think they wouldn’t get caught! Ethics is thrown to the wind, perhaps until a call from the Commercial Affairs Department. Today, Richard Bistrong is an advocate helping compliance personnel to calibrate their rules and regulations to meet the real world risks that businesses face, in order to give leaders tips to stay on the right side not the dark side. Many know that sitting in the dark cell is no walk in the park!
Good corporate governance behaviour should be a tone set from the top. Rules and regulations help set corporations in the right direction but they are not enough; they need to backed by ethics. After all, God has given us good conscience.
I would like to end by sharing an extract from Richard Bistrong’s book:
“I realize how I lost sight of the importance of strong family and personal relationships during the years of conduct to which I pleaded guilty. My dedication to those bonds, which was once extremely strong in my life, had been replaced with the never-ending want and accumulation of material things. “Getting caught” by the government stopped that downward spiral in my life, and set me back on a course of reconnecting with what is truly important, and on a path of reconciliation.
We all face dilemmas in our lives and work, but if we share them, we can address and unpack them together, reducing the power and probability that they will lead to a ‘tipping point’ to the wrong side of ethical conduct, to everyone’s peril.” Today, we are pleased to have with us Sir Winfried Bischoff, Chairman of the UK Financial Reporting Council who will be sharing his insights and the UK experience on this topic. I trust you will find the discussions at today’s Conference enlightening and thought provoking.
Have an enjoyable conference.