Opening Address by Mr David Gerald, President and CEO, SIAS at opening of 7th Singapore Corporate Governance Week at Mandarin Orchard on 26th September 2016

Date: September 26, 2016

Guest-of-Honour, Mr. Ong Chong Tee Deputy Managing Director (Financial Supervision), Monetary Authority of Singapore

Distinguished guests from near and afar

Good morning and to our overseas guests, a warm welcome to Singapore

This is the 7th Corporate Governance Week that SIAS is organizing. I am indeed glad to see that we have globalized the Conference with participation from UK, Europe and of course from here in Asia too.

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, we have established a good collaborative environment of “in the boardroom and not the court room” consultation 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 facilitates investment and growth through a level of transparency and, thus, creates confidence in the market. For the company, pursuing high corporate governance standards facilitates 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 through responsible shareholder activism.

Shareholder activism does benefit companies

One of the ways of improving shareholder activism in Singapore is to improve the level of engagement between the company and shareholders besides accountability and transparency. All of these will facilitate responsible shareholder activism. To facilitate this engagement, SIAS 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. This exercise has also drawn keen interest from institutional investors and SIAS will be circulating the responses to them as well.

Companies are encouraged to address the questions at the AGM and also publish the answers on SGX Net. Thus far, about one third of the 25 companies reviewed have published their responses to the questions. 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 in February 2015, highlighted in its publication that the California Public Employees’ Retirement System (CalPERS) was one of the first major institutional investors to embrace shareholder activism and the companies it invested in appear to have benefited. Wilshire Associates, the pension fund’s primary consultant, claims that five years ago the companies CalPERS engaged 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. Therefore companies in Singapore and in Asia should embrace these engagements.

Companies should also 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 create havoc.

Insights into Corporate Governance Practices of Singapore listed companies

This year, our research into the corporate governance practices conducted in collaboration with NUS Business School’s Centre for Governance, Institutions & Organisations (CGIO), highlighted that companies made improvements in

i) Assurance from CEO and CFO that financial records have been properly maintained and regarding the effectiveness of the company’s risk management and internal controls – almost 90% of the companies disclosed this.

ii) Companies having an effective investor relations policy to regularly convey pertinent information to shareholders; almost 60% disclosed this.

Nevertheless, improvements are still lacking particularly in the areas of companies providing opportunities for shareholders to ask questions and recorded those questions and answers in their AGM minutes; only 14.4% did so and companies that made AGM minutes publically available on their website or SGX Net was only s meagre 1.7%.

This is not surprising as companies here have yet to embrace the importance of shareholder activism and how this can help in improving their performance and attract capital.

Long time Independent Directors

Another area of concern is long time independent directors on the Board.

The Code of Corporate Governance recommends that the independence of any director who had served on the Board beyond nine years from the date of his appointment should be subject to particularly rigorous review. Under such circumstances, the Board should explain why any such director should be considered independent.

In our review we found several companies with Lead Independent Directors who have served on the Board for periods from 24 years to 30 years. The recommendation calls for a rigorous review. In many of the disclosures, the assessment of their independence by the Nomination Committee simply considered the guidelines set out in the Code, and deem them independent.

30 years is more than 3 times the recommended limit. I call on the regulators to consider requiring Boards to have a formal independent review and to have this report made public to shareholders, justifying how such long time directors are still deemed independent.

This year’s Conference discussions comes at a time where many established companies are feeling the effects of disruptors of the new economy. Governments across the globe are forced to address issues brought about by new entrants like Grab Taxi, Uber and AirBnB that have changed the landscape in the new era of the shared economy. Therefore this year’s Conference topic of “Change and Innovation in Governance” will address governance issues of the new economy companies – many of them do not own any assets. There have been controversial discussions on how sustainable are these companies and if they can drive shareholder value. With the basic operation model of a company changing in the new economy, how does governance change when operating models change? How to protect shareholders rights in a situation where companies do not have or own the assets?

I am sure our keynote speaker, Prof. Erik Vermeulen, Distinguished Professor of Business & Financial Law, Tilburg University, will provide the necessary answers to some of these questions.

With over 25 speakers and panelists from near and afar, the Conference will also discuss other issues being demanded by investors today. There is growing demand today that trust be accompanied by independent verification by a third party. How then can companies continue to build trust? Regulators are raising the ante for more disclosure, for example, ACRA’s introduction of the enhanced auditor reporting and the key audit matters, which will kick in for all Singapore listed companies for audits of financial statements for periods ending on or after 15 December 2016, is one such initiative. With the introduction of the key audit matters, I am certain it will only encourage investors to engage the boards and auditors more. Companies should be proactive to provide further disclosures and address the issues raised. I am certain the discussion on “Building Trust – Trust, but Verify” would be a lively one.

Environmental issues continue to be of particular concern for all. Thus the introduction of comply or explain for Sustainability Reporting for SGX listed companies come at a time where there is growing awareness of the impact of environment as well as investor demand for such sustainable businesses. Coupled with the new ways of reporting, what will the future of corporate reporting look like? Will companies rise to the challenge?

While the Conference helps to bring into the forefront new best practices, the challenge is the mindset change required by many companies that consider corporate governance as “box ticking” and not part of the overall organisation’s operational requirements. Many see the requirements externally imposed rather than internally driven. I do hope today’s discussions will help companies leap ahead to adopt new best practices.

I would like to thank all our sponsors and supporting organizations for coming forward to work with SIAS to make this Conference and the Corporate Governance Week a success.

I am sure you will find the sessions valuable. I am certainly looking forward to hearing some of your views.

Enjoy the Conference.