Date: October 7, 2022
Minister Alvin Tan, Minister of State, Ministry of Culture, Community and Youth & Ministry of Trade and Industry
Dr Tony Tan Keng Yam, Former President, Republic of Singapore & Chief Patron of SIAS
Mr Daniel Teo, Chairman, SIAS
Distinguished Guests,
Ladies and gentlemen,
Good evening and welcome.
I am indeed happy to see so many of you present in person here this evening. There are about 650 of us here comprising of corporate leaders, regulators, industry partners, friends, supporters and the media. We have not been able to meet like this, unmasked, for a couple of years. It’s nice to see smiles again. However, we cannot take this for granted. While we are much stronger and better prepared now, we must always stay vigilant, ready to tackle new risks.
Not unlike advancing good corporate governance!
This is the 23rd edition and we are gathered here this evening to honour companies that have adopted exemplary corporate governance practices. We started this in Year 2000.
Tonight, I have both good news and bad news. The good news is that overall corporate governance scores of companies have improved during the Covid pandemic. The bad news is that the pace of improvement lags behind other markets. In its 10th biennial CG Watch Report, released in May this year by the Asian Corporate Governance Association (“ACGA”), although Singapore ranked joint second with Hong Kong, this honour comes with the description “Enforcement firming, rules improve, company disclosure disappoints”.
Let me now bring you the very good news, especially for the Singapore Corporate Governance Award winners:
Good Corporate Governance Pays – Good News!
We are a body that exists to advance the interests of investors. Surely, this Award exercise must be in their interests.
Let me proof our case to you that corporate governance not only benefits the investment community at large, it also contributes to investors’ bottom line. To test this hypothesis, we constructed a portfolio comprising of winners of SIAS’ Singapore Corporate Governance Award (SCGA) and tracked its performance from 10 January 2008 to 28 September 2022. Using market capitalisation as portfolio weights and adjusting for all kinds of corporate actions over the past 12 years, we compared the total returns of SIAS’ SCGA portfolio with that of the STI companies.
Based on calculations done on Bloomberg, we are pleased to announce that Mr Benjamin Goh, Head of Research and Investor Education at SIAS, has found that the SIAS SCGA portfolio produced a cumulative total return of 110% vs the STI’s 59% over the period mentioned earlier. On a risk-adjusted return basis, the Sharpe ratio of the SCGA portfolio was 0.65, which is more than double that of the STI’s 0.25. This is an excellent result!
What about the risks, you may ask? The total risks of the SCGA portfolio, as measured by standard deviation, are a bit riskier with a standard deviation of 17.85 vs the STI’s 16.88. All told, a portfolio comprising high-quality, well-governed companies, outperforms the STI over time and the Portfolio’s beta is 0.94 which suggests that it is slightly more defensive compared to the STI.
SIAS’ SCGA Model Portfolio or Index
Ladies and gentlemen, with these findings, I can think of no better example of how important corporate governance is to investors. Both from the perspective of “doing good” and in terms of “making a dollar”. In the coming months, SIAS will be looking to construct a Model Portfolio or even an Index comprising SCGA Winners.
While I have been asked why SIAS conduct these awards, the result of our study is a testament to the impact we bring to helping investors invest better – in recognised, high-quality and well-governed companies!
I would like to congratulate all our winners for their commitment to improving the level of governance and transparency. Tonight, we celebrate excellence in corporate governance and sustainability!
CG Advanced during the Pandemic
The overall corporate governance scores of companies improved during the pandemic, with the mid and small caps improving at a faster rate. The increases were due to better performance by companies in the rights of shareholders, accountability & audit, as well as disclosure & transparency.
It must be noted that these improvements were facilitated by the regulators who responded swiftly during the pandemic. ACRA’s move to introduce legislation for companies to hold online AGMs and SGX RegCo’s move to require companies to address questions raised by stakeholders at meetings were welcome catalysts to shareholder engagement. They helped to drive the improvement of corporate governance scores of companies.
Companies should embrace the importance of practising transparency and corporate governance, as it has been shown that companies with good corporate governance practices are well-placed to withstand external shocks and perform better than those that don’t.
Still Room for Improvement
However, there is still room for improvement. Let me share some areas that companies can improve:
I. Independent external assessment of board or directors
Very few companies use an external party to conduct board or individual director appraisal. As such wider-reaching appraisals are only truly independent if conducted by unrelated third parties, I urge more companies to adopt this practice to enhance board effectiveness.
II. Linking remuneration with risk management
Only 19.4% of companies disclosed that remuneration committees had linked risk management and remuneration, ensuring that the level and structures of remuneration were aligned with the long-term interest and risk policies of the company. More companies should consider adopting this measure.
III. Key risks disclosures
Sadly, only 27.8% of companies disclosed their key risks, including operational risks, and how these risks were assessed and mitigated.
Further, companies are still paying lip-service to the law and rules, satisfied with just ticking the boxes of compliance. There is an urgent need to move from the letter of the law to the spirit of the law. Let me share 2 examples:
1. AGMs
During the Covid pandemic, virtual AGMs was the norm, with questions submitted and Q&As posted prior to the general meetings. Notwithstanding the fact that safe management measures and the return to normalcy have made resumption of physical meetings possible, many companies continue to hold virtual meetings or, at best, hybrid meetings.
Shareholders must be accorded their right to attend, ask questions and share their views and comments.
SIAS is therefore very pleased that SGX RegCo has mandated companies who choose to continue to hold virtual or hybrid general meetings must continue to engage shareholders directly, by facilitating real-time electronic communication and real-time electronic voting. As SIAS has stated previously, a hybrid meeting is the preferred mode.
2. SIAS Q&As on Annual Reports
The SIAS Q&As on Annual Reports is designed to help shareholders better understand the company as the questions focus on 3 areas – business strategy, financial statements, corporate governance and sustainability. The questions are broad ranging but company-specific, depending on their business and/or unique circumstances. The objective is to help shareholders better understand both the macro and micro/operational issues of the companies, and improve the quality of engagement between the boards and shareholders at meetings
The focus areas relate to strategic matters, operations, finances, corporate governance (including executive remuneration), and sustainability. There was an increased focus on sustainability this year, with questions in the areas of the company’s commitment to net-zero emissions, reduction of scope 1, scope 2, and scope 3 greenhouse gases (GHG), decarbonization, and even greenwashing.
Whilst we have seen the response rate to the questions improve to 80 percent during the pandemic, some responses lack depth. Here are some “highlights” from SIAS’ Q&A initiative:
Adequacy of internal audit
Company A replied that a single individual was in charge of the internal audit for the group which comprises 21 offices and 13 warehousing facilities in several key Asian markets, and over 5,000 customers. Revenue for the year was US$895.9 million. Subsequently, SGX RegCo also queried the company on the adequacy of its IA. The board has stated that it will consider co-sourcing as an option to support the in-house internal auditor.
Material variances between audited and unaudited financial statements
Company B disclosed material variances every year for the past 7 years. Questions were asked of the audit committee and the in-house financial reporting team. This should be a big red flag to investors and shareholders have to scrutinise the audit committee members when they go for re-election. If the directors are not discharging their duties, then it is the right, or some would say the duty, of the shareholders to vote against such directors who do not value-add.
Management/board’s oversight after a waste management company was fined twice for illegal discharge
Company C, a leading industrial group with environmental services as one of its core businesses, was fined by PUB, because the company made illegal discharges into the public sewers) a second time for illegal discharge into public sewers. The company’s subsidiary had also tampered with the monitoring equipment to avoid detection by PUB. These are important issues that SIAS will continue to raise at AGMs. Companies and boards may find it hard to talk about these but by highlighting these deficiencies, SIAS arms shareholders with critical issues that they can raise at AGMs. For a start, can shareholders trust the company’s 28-page sustainability report when the company has been fined TWICE for illegal discharge?
Advancing Investor Interests: Early Warning to Investors
Due to the collapse of organisations like Noble, and more recently, Hyflux and Eagle Hospitality, where many retail investors lost their investments, and some even their retirement funds or life-savings, SIAS has been studying ways to try and help investors avoid such “investment blackholes”.
While it is easy, in hindsight, to identify the causes of corporate failures, it is much harder before the fact. But would it not be better if shareholders and investors could foresee or better predict corporate issues or failures before they happen?
To help them navigate the challenges in managing their investments, SIAS will be exploring ways to monitor companies, their performance indicators, and corporate governance to educate and bring relevant information to investors.
Power of Collaboration
With respect to resolving issues affecting shareholders, I would like to reiterate that SIAS’ philosophy of “in the boardroom and not the courtroom” still prevails. The lessons from the China Aviation Oil scandal in 2004 highlight the importance of collaboration between boards and shareholders to overcome adversity. In that situation, instead of suing the company, SIAS and the board worked together to allow the company to bring in new investors to revive the company. CAO has since morphed into a different company.
Today, SIAS actively facilitates dialogue sessions between many companies, boards, together with their senior management, and their shareholders and bondholders on numerous corporate issues and developments. By actively engaging shareholders and educating them about the challenges the companies face and their planned corporate actions, shareholders are enlightened to make more informed decisions. Through such proactive shareholder engagement, complex corporate actions are better explained to allow stakeholders to work together.
Tonight, we are introducing another important award, the Investors’ Choice Outstanding CEO Award for the first time. This is to recognise CEOs of public listed companies who have demonstrated high level of competency, integrity, excellent communication, good corporate governance and financial performance. This must interest all investors. We will be recognising 4 outstanding CEOs tonight.
In conclusion, I must thank NUS CGS and our panels of judges who have worked hard to select our SMART STARS in corporate governance. Our Investors’ Choice Awards!
Our deepest appreciation first of all, MOS Mr Alvin Tan, for being with us tonight, to all our donors, sponsors, endorsers, and supporters of today’s event and our Corporate Governance Week 2022, including the SIAS team that has worked tirelessly to make this event a success.
Thank you and enjoy the evening!
