Date: November 6, 2023
Guest-of-Honour, Mr Ravi Menon, Managing Director of Monetary Authority of Singapore
Ladies and Gentlemen
Good morning and thank you all for joining us in launching this year’s Corporate Governance Week.
This year’s theme is “Building Trust through Effective Corporate Governance: Navigating Legal, Ethical and Social Challenges”. It has a rather elaborate and complicated ring to it, but in reality, it is actually very simple.
Why I say this is because of an old saying which carries a lot of wisdom: “the more that things change, the more they stay the same’’.
SIAS was formed 24 years ago in 1999 to fight for the rights of minority shareholders left stranded after Malaysian stocks ceased trading on an over-the-counter segment of the local market called Clob International.
Its formation coincided with deregulation of the market from 1999 onwards and shortly after, Singapore adopted its first Code of Corporate Governance in 2001.
Since its inception, the Code has undergone three revisions in 2005, 2012 and 2018. With each revision, our regulators raised the bar and finetuned their approach with regard to how corporate governance should be enforced amongst companies.
Our regulators have favoured a “comply-or-explain” approach which provides flexibility to listed companies, allowing them time to elevate their own CG standards.
I am pleased to report that in 2023, big companies which had market capitalisation of S$1 billion and above as of 31st December 2022 climbed back to an average score of 69.5% after 2 years of stable results.
So, even though overall scores may have risen and there are isolated bright spots, there is still room for improvement. Which of course means that today, more than ever before, SIAS has an important role to play in augmenting the efforts of the regulators in enhancing corporate governance standards.
On the minus side, only 6.3% of the companies disclosed the use of external parties to conduct the board and/or individual director appraisal and just 6.3% of companies release their notice of AGM with detailed agenda and explanatory circulars announced to the Exchange at least 28 days before the meeting.
94% of the companies did not use external parties to conduct appraisal of their boards. This must improve.
In addition, 63.3% did not disclose their key risks including operational risks and how these risks were assessed and managed, while slightly more than 3% disclosed that their management committees have not considered linking risk management and remuneration whilst also ensuring that the level of structure and remuneration were aligned with the long-term interests and risk policies of the company.
From the standpoint of retail investors for whom dividends are important, slightly more than two-third of companies did not disclose a policy on payment of dividends if their companies have paid dividends for the financial year.
In a market that relies on the principle of “caveat emptor” or “buyer beware”, where shareholders and investors are ultimately the buyers who have to beware, I must say that these numbers are uncomfortably high.
We can do better, but the reality is, as the paper published in the Columbia Journal of Asian Law in 2015 holds particular significance in this context, revealing that over 90% of Singapore listed companies have “block shareholders who exercise controlling power”.
I am sure that you will appreciate that this concentrated shareholding structure presents unique challenges in ensuring the accountability of controlling shareholders and protecting minority shareholder interests.
However, when there is friction for companies to adapt, regulators have demonstrated their commitment by incorporating stricter regulations directly into the listing rules.
As such, regulations here are now formulated with greater protection for minorities in mind – a development which SIAS whole-heartedly welcomes. For example, there is now a hard, 9-year limit to the tenure of independent directors and soon, all companies will have to disclose executive remuneration in full.
To digress slightly, concentrated shareholdings has also meant a lot more work for SIAS.
For instance, it has meant several controlling shareholders have in recent years attempted to privatise their companies at prices that SIAS felt were clearly too low and unfair.
SIAS has, therefore, been actively involved in appealing for better prices in several privatisation exercises and I am happy to report that we succeeded in securing higher prices for minorities in three cases this year – Boustead Projects, Golden Energy and Lian Beng. Not forgetting Tiger Airways a few years ago.
Yet even though the market has evolved and presented fresh challenges over the passing years to regulators as well as to SIAS, the basic pillars on which the Code is built have remained the same and will continue to remain so no matter how many revisions are undertaken in future.
These pillars would be ensuring that companies operate in an honest and transparent manner, that directors act with integrity when discharging their fiduciary duties and that shareholders receive regular communications from their companies and are treated with respect.
In short, at its heart, the Code urges companies and their Boards to act ethically when discharging their duties. Good corporate governance is about putting in place the structures that will allow for effective decision making so that stakeholders can trust the oversight process even if they can’t observe it directly themselves.
To preserve trust, directors must ensure that their actions do not erode the trust of their shareholders. To highlight just a few recent examples – in a capital reduction resolution, before signing off, the director was expected to ask himself whether his action to vote against it would impinge on the trust of the shareholders, he failed to do so. Or when directors recommended that shareholders accept privatisation offer that was deemed “not fair” by the independent financial advisor, can it be said that the independent directors acted in the interest of their shareholders? Can shareholders truly rely on independent directors (IDs) to act independently and make sound decisions when long-tenured IDs constitute 20% of all IDs?
Enhanced trust can only be positive in helping create shareholder value, whilst if a company and board lose stakeholder trust, they are likely to lose employees, customers, and other critical stakeholders, like regulators.
Which brings me around to this year’s theme, which is focused on how to build trust. Today’s Conference & the Forums that follow will give opportunities for the delegates to expound the theme further with the experienced speakers and panellists. Our sincere thanks all speakers and panellists, especially those who have come from far, UK, Slovenia, Australia, Netherlands, OECD and of course, Singapore.
Last but by no means least, no responsible corporate governance conference would be complete without consideration of environmental, social and governance or ESG factors where we gather thought leaders, industry experts and stakeholders to explore the multifaceted world of ESG, as well as climate governance, and their impact on investment strategies.
In conclusion, I hope that the next few days prove to be a fruitful experience for all of you who attend our Corporate Governance Week programmes and that the inputs you receive inspire you to take governance in your organisations to new heights.
I wish you all an enjoyable week ahead. Thank you.