Date: March 14, 2012
Mr David Gerald, President and Chief Executive Officer,
Securities Investors Association of Singapore
Distinguished Guests
Colleagues and Students
Good morning and I bid you a warm welcome to this joint Symposium on Corporate Governance and Valuation in Asia.
This event is indeed timely as we all know that in recent years, there has been an increased awareness and definitely a higher level of rigorous discussion in Singapore and overseas calling for better corporate governance. In part, this is a result of better public education and wider coverage in the press. Regrettably, this is also a result of several high-profile scandals and ethical lapses that have been brought to light on a global level. So, what is corporate governance?
Let me provide a brief explanation. A publicly-listed company operates as a form of representative government. The owners (in this case, shareholders) elect Board Directors, as their representatives to manage the affairs of the business. This Board then delegates responsibility for actual operations to the CEO whom they hire. The CEO is accountable to the Board of Directors, which collectively and individually, is accountable to the shareholders.
In addition to its role in the CEO selection, the Board also advises on and consents to the selection of businesses and strategies of the firm as well as oversees results. In sum, this system of authoritative direction, or government, is known as corporate governance.
The relative effectiveness of corporate governance has a profound effect on how well a business performs. When the systems of corporate governance break down, lapses – or as they are more sensationally known as ‘corporate scandals’ – happen. These debacles can be costly to shareholders, to the firms and even the communities in which these firms operate.
Internationally, companies like Enron (US), Arthur Anderson (US), Worldcom (US), and Societe General (Europe) have captured headlines in both the main and financial press. Closer to home, Satyam (India) and Chinese Aviation Oil (Singapore) have raised the importance of having in place a system of checks and balances in the firms.
Corporate scandals involving spectacular bankruptcies and inappropriate accounting practices in the US have another effect. The public outcry for justice prompted the US government to take action. This resulted in the passing of the Sarbanes-Oxley Act of 2002 (SOX), which sets enhanced standards for all U.S. public company boards, management and public accounting firms. Many have written about the negative impact of the Act. Higher compliance cost has made going public a more challenging way for entrepreneurs to raise capital. The complex recordkeeping may well be responsible for the decline in IPOs in the US. Also, many firms may be forced to delist, hence over time, SOX has effectively stifled innovation for the SMEs.
Do Universities have a role to play? Certainly! After all, universities play a key role in being the test bed and incubator of our future business leaders. Universities must develop young minds with a strong sense of business ethics, and an appreciation that not all deals should be about maximising profit. At the Singapore Management University, every single one of our students, regardless of their field of study, is required to take a course in ‘Ethics and Social Responsibility’. Can ethics be taught? I’m convinced we can. One of our aims is to teach our students to refine their instincts so that they can recognise and address potentially difficult situations as they develop, and not ‘after the fact’. Once the awareness is sharpened, our students can be inspired to look towards their personal moral compass in ethically challenging situations.
In addition, universities’ research centres have roles to play. At SMU, the Centre for Corporate and Investor Responsibility (or CCIR), headed by Associate Professor Jeremy Goh and housed in the Sim Kee Boon Institute for Financial Economics, promotes discussion between the academic and business communities on best practices in corporate governance. One of the major projects that CCIR has been involved in is the development of a comprehensive and unbiased corporate governance index for companies listed in the SGX. You will hear more about it from Associate Professor Jeremy Goh later.
Today, I am pleased to see the adoption of academic research by the business community, starting with SIAS. This is a key milestone for the CCIR as I have always emphasised the need for faculty research to have industry relevance. Today’s Memorandum Of Agreement is an excellent example of the meeting of minds and exchange of ideas between industry and academia. I would like to extend my heartiest congratulations to CCIR and SIAS on this significant and collaborative partnership.
Thank you.
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