Date: October 27, 2014
Our Guest of Honour, Mr. Liang Eng Hwa, Chairman of the Government Parliamentary Committee for Finance and Trade & Industry, MP for Holland-Bukit Timah GRC
Mr JY Pillay, Chairman, Council of Presidential Advisers
Distinguished guests from near and afar
Good morning. Welcome to Singapore and to our Global Corporate Governance Conference.
The vision of SIAS is to build a vibrant, enlightened and empowered investor community by championing investor rights, promoting financial literacy and advocating progressive industry practices. Within this context, corporate governance is one of the key pillars. It is with the investors’ welfare in mind that SIAS continues to promote good corporate governance practices and standards through the various initiatives. Together with boards, senior managers, professional institutions and regulators, we have maintained a constructive, collaborative spirit of “in the boardroom and not the court room”. This has resulted in establishing investor relations peace in Singapore that has helped develop our capital markets.
For the market as a whole, high standards of corporate governance facilitate investment and growth through an acceptable level of disclosure, thus creating confidence in the market. For a company, pursuing high corporate governance standards will facilitate capital raising and optimise the cost of capital. For investors, they enjoy the benefits and assurance of fair-play when trading in the shares of the companies they are invested in.
Good corporate governance does not happen by accident. Who then is really in charge?
Is maximizing shareholder value too narrowly focused, causing excessive risk taking and short-termism? Or is this aggravated by the “pay for performance” practice adopted for executives by so many companies?
What are the fiduciary and other duties of directors under the law, with respect to the interest of stakeholders other than shareholders? What are the implications of a broader stakeholder approach? What is the role of the Board in overseeing major corporate decisions? Some jurisdictions allow Boards to make significant acquisitions without shareholders’ approval while in many other countries, such decisions would require shareholders’ approval.
In short, is the current balance of powers between the board of directors and shareholders appropriate? Is there a one-size-fits-all approach? Should corporate governance requirements and guidelines be tiered so as to better reflect the operating realities of the Small and Medium Enterprise (SMEs)?
This builds up the theme of this year’s Conference, where we explore the roles of the various stakeholders in the corporate governance ecosystem, in ensuring good governance – investors, directors, regulators, intermediaries and other stakeholders.
While the distinguished speakers and panelists will help shed light on new best practices, the challenge remains one of substance over form. We must get companies, and occasionally regulators themselves, to see corporate governance beyond “box ticking”. Many companies currently see the requirements as an external imposition rather than an internal drive towards better value creation and responsible stewardship.
How do we all fare currently? Let me highlight some of the findings in the ADB’s publication of the ASEAN Corporate Governance Scorecard in June 2014.
Based on the OECD Principles of Corporate Governance, Singapore scored well in the areas of disclosure and transparency, and responsibilities of the board but fell short in the areas of the role of stakeholders and in the equitable treatment and rights of shareholders. Whilst the revisions to the Singapore Corporate Governance Code in 2012 has helped in improving the quality of corporate governance of listed companies, there is still room for improvement.
Let me focus on two areas that need improvement.
1. Preserving the Interests of Shareholders
The rights of shareholders are already enshrined in Singapore’s regulatory framework. For example, all shareholders have the right to participate in decisions concerning fundamental corporate changes. For any material merger, acquisition or takeover, the board is required to appoint an independent party to evaluate the fairness of the terms and conditions of the transaction, for shareholders’ approval.
Currently, regulations protect shareholders against insider trading and related (interested) party transactions (RPTs) where Directors and employees are prohibited from benefiting from information that is not generally available to the public. Directors have to report any dealings in company shares within three working days and disclose any conflicts of interest in transactions. Interested party transactions exceeding the 5% threshold in value also require shareholders’ approval. The compliance, however, seems to be more in the letter of the law then the spirit of the law.
While Singapore listed companies have done well when providing adequate and timely notices of their AGMs, SIAS advises against bundling multiple resolutions in their agenda. The ADB report also highlights that Singapore companies can further improve the level of disclosure in their notice of AGM and related circulars. More companies can provide detailed explanation of their dividend policy and include a basic profile of directors seeking election or re-election in the materials. In addition, more companies should disclose that their RPTs are executed on fair terms and at arm’s length, regardless of their nature or size.
Increasingly at AGMs these days, discussions concerning strategy, earnings outlook and distributions take place. Many companies do not publish detailed minutes of AGM proceedings. More can be done, including a listing of board members who attended the AGM and details of the voting process and outcomes. More comprehensive documentation and disclosure of AGM proceedings is encouraged for better communication with shareholders.
2. Addressing other Stakeholders
The rights of stakeholders can be better addressed by companies that pursue sustainable business practices and sustainability reporting. The NUS Business School, in a July 2014 publication with Compact Singapore, noted that two-thirds of SGX listed main board companies are still not communicating sustainability information of their business to stakeholders.
The practice of non-financial reporting around the world has grown and continues growing; according to the Global Reporting Initiative’s (GRI) data, between 2010 and 2011, there has been an 11.5% increase in companies producing non-financial reports. KPMG’s survey of corporate responsibility reporting found that from 2011 to 2013, there was an increase of 7% in reporting rate globally, with Asia witnessing the most dramatic rise in incidence, from 49% in 2011 to 71% in 2013.
Nevertheless, the ADB report highlighted that many Singapore listed companies could do more by explicitly disclosing policies relating to certain key stakeholder rights. It’s true that the legal system in Singapore already provides comprehensive protection of the basic rights of these stakeholders, through laws like the Consumer Protection (Fair Trading) Act, the Prevention of Corruption Act, and the Workplace Safety and Health Act. Perhaps, companies may feel that, where standards are already enacted legally, they do not necessarily have to be reinforced by company policy or disclosure. However, companies should aim to do better than mere legal compliance. Having clear positions on these issues, and providing accessible channels for stakeholders to voice their concerns and report any violations of their rights, would go a long way towards raising corporate governance standards.
In conclusion, let me affirm that SIAS will continue to engage stakeholders, especially both shareholders and listed companies, to raise the standards of corporate governance in Singapore. To empower shareholders further, SIAS will be embarking on a new initiative to equip them with guidance on engaging listed companies more purposefully and effectively. From an analysis of the annual reports, SIAS will gather and publish a list of questions for discussion at the AGMs. We believe that it is these market-driven initiatives that will help raise the level of disclosure, entrench accountability and ultimately engender trust in our market.
Finally, let me thank all the sponsors and supporting organizations for coming forward and working with SIAS to make this Conference another beneficial encounter. I am sure you will find the next two days of value. I certainly look forward to hearing some of your views.
Enjoy the Conference.