Date: November 8, 2013
Guest of Honour, Mrs Josephine Teo – Senior Minister of State, Ministry of Finance and Ministry of Transport
Mrs Lim Hwee Hua – Chairman, SIAS
Distinguished guests, ladies and gentlemen,
Good evening and welcome to the 14th Investors’ Choice Awards presentation ceremony. I am indeed delighted and honoured to see so many of you here today. This is our 14th Anniversary celebrating companies that have excelled in good governance and while I maybe preaching to the converted, that corporate governance is a key driver in the development of our capital markets, we cannot rest on our laurels. It is a journey and not a destination and there is always room for improvement.
Singapore is known for its high corporate governance standards in Asia. This year’s findings from our study of all the listed companies’ corporate governance practices based on OECD Principles of Corporate Governance conducted by the Sim Kee Boon Institute at SMU, lead by Professor Jeremy Goh, shows that the governance index, increased over the last 3 years, with a year-on year increase of 4.18%. It appears that companies have done more for shareholders, and should be commended. This could possibly be due to the increased awareness among companies arising from greater engagement with shareholders and changes to the corporate governance regulatory framework. They should not stop but continue this trend.
Most significant improvement is seen on companies in the small cap category. The overall corporate governance practice, with scores as measured using OECD principles increased by 4.71%, with the biggest movement in the shareholders” rights category, almost doubled. We would like to believe that we made a difference.
Another interesting observation is the fact that the dispersion of the scores decreased across the board. This means that there has been better compliance and disclosures. This trend was also observed in the REITs and Business Trusts categories.
The research also demonstrated that, based on a basket of the companies with the top 10% of the scores, over a 4 year period, the performance of the shares out-performed the Straits Times Index by almost 50%.
The saga of the 3 recently designated stocks tells that more needs to be done in Singapore to raise the level of transparency. Could we have averted the S$8 billion dollar loss?
For our market place to be fair, orderly and transparent, the regulator, SGX, has only 3 tools – namely, to query, to suspend, and to designate a stock. It also can reprimand, demand a Special Audit and delist a stock should they not meet the Exchange’s rules. In my opinion, these tools are reactive in nature. Investors are at a loss. They don’t seem to understand how the regulatory framework works in a caveat emptor market in such instances.
Enhancing disclosures
What can be done to enhance disclosures?
SIAS, with Handshakes, a technology company that increases transparency by showing associations between listed entities, reviewed the 3 recently designated stocks – Blumont, LionGold and Asiasons. The preliminary study discovered a recent instance when a share price run up preceded the announcement of a sizable acquisition.
A listed company is required to seek shareholders’ approval when acquisitions (or disposals) are proportionately large for its size. In this instance, the preceding share price run sufficiently affected the way certain ratios calculated, as such shareholders approval was not required. In other words, had the share price run not occurred, shareholders’ approval would have been required. Could the announcement been made earlier? Then it would have had required shareholder approval and thus the acquisition would have been given greater scrutiny, and investors would have had the opportunity to question and seek clarifications at an EGM.
We have also found other instances of such preceding share price runs which resulted in similar outcomes. It is important to note that some of the other instances involved listed companies known to be associated with the 3 recently designated stocks, and that SGX queries were made in most of these share price runs. In light of what has happened, perhaps it is also timely that we enhance our preventive tools, that is, Listing Rules.
What is the purpose of a query? For the market, it a signal that an unusual trading pattern of the share price has been detected. For the listed company, it is for them to provide reasons for such an occurrence. For investors, it is a call to step back and review his or her investment. Ask if your investment is still fundamentally supported and to manage the risk accordingly. The role of the Exchange is to point out such occurrences, query the company and use the regulatory tools were necessary. It does not make value judgement on the company.
Singapore operates under a disclosure based regime and it is for the market and investors to make informed decisions, and companies should make timely and substantial disclosures. In many circumstances, the companies are also unaware of the reasons of the unusual price movement.
Therefore, perhaps it is timely to:
1) Review instances where unusual price movements affect ratios that determine the need for shareholder approvals. We want to avoid situations where unusual price movements inadvertently deprive shareholders of a say in significant matters.
2) Have listed companies to state clearly, whether they had been queried recently, in disclosures when announcing acquisitions and disposals to shareholders. Perhaps, it should be a requirement.
This increased level of disclosures will provide important context for people making investment decisions.
Improving preventive tools
As always “prevention is better than cure”. The Listing Rule is seen as a preventive tool and with improvements to the Listing Rules, will lead to a more orderly and transparent market.
Thus, what better method for improving compliance of rules than the threat of being found out and the financial punishment that befalls. Therefore, in addition to enhancing Listing Rules, SIAS also recommends that the regulators consider making those who break the rules to be fined heavily, which is currently missing.
Companies listing in Singapore must not take the view that if they breach Listing Rules they can go scot free. When the Exchange acts to suspend or delist, it is the investors who suffer.
If corporate miscreants understand that the there is greater likelihood of being found out, and that the cost of such breaches is high, perhaps they would think twice about dabbling in our market.
SIAS will do its utmost to work together to maintain the investor relations peace in Singapore by working with Boards and listed companies and the regulators. Where we find that the rules and regulations do not meet the expectations of the investors, we are prepared to make constructive suggestions to protect investors’ rights. One such recent example is the 3 designated stocks that caused $8b loss.
I am told, investigations of the 3 recently designated stocks are currently on going and that should any price manipulation be uncovered, action will be taken.
The role of Media in investors’ decision making
While investors have various sources of information for their investment decisions, our research shows that, it is primarily through media reports that they use to make investment decisions. Therefore, the media should join the efforts of MoneySense and SIAS to educate the citizens to be imbibed with the correct investment values and help them prepare for retirement. Thus, to encourage the media to do more, this year, we are pleased to introduce a new award – the Media Excellence in Community Investor Education. This award recognises the media that raises the level of community financial education to a higher standard. Covering a range of topics from understanding the product features and risk, the importance of financial planning, including retirement planning and making an impact to the community. I look forward to recognising and rewarding more media in your efforts to help raise the level of financial literacy here in Singapore and help all citizens to retire comfortably.
Tonight we celebrate the winners of the various awards. It is through the combined efforts of all stakeholders that we can raise the level of governance. I congratulate you all.
I sincerely thank, on behalf of SIAS, our distinguished Guest of Honour, Mrs Josephine Teo, Senior Minister of State, Ministry of Finance and Ministry of Transport, for gracing tonight’s celebration. I also want to thank tonight’s event sponsors, SGX and KPMG for your unwavering support.
I also thank all the table sponsors, supporting partners and all companies who participated in the Corporate Governance Pledge, without which this evening would not be possible. I also like to acknowledge and record my deepest appreciation to our sponsors, partners, endorsers and guests for supporting tonight’s event and a sincere thank you to the team at SIAS for your tireless efforts to make this event a success.
Thank you and enjoy the evening.