"Measuring Quality of Corporate Governance" - Closing Remarks by Mr Ng Yao Loong, Executive Director, Monetary Authority of Singapore, at Singapore Institute of Directors’ Launch of Women on Board: Making a Real Difference and Presentation of ASEAN Corporate Governance Scorecard 2018 on 3 April 2018

Mr Willie Cheng, Chairman, SID
Distinguished guests, ladies and gentlemen, a very good morning.

Importance of diversity

1   Thanks for inviting me to close today’s event, especially after such a robust and interesting discussion. First, let me congratulate SID and BoardAgender on the launch of the publication – Women on Board: Making a Real Difference. It is timely, given growing recognition of the value a diverse board can bring to the company.

2   We have heard about successful companies capitalising on diversity and inclusion as a source of competitive advantage. Boards have a key role to play in setting the right tone and “walking the talk”. According to Vanguard, “when the Board contributes the right mix of skill, expertise, thought, tenure, and personal characteristics, sustainable economic value becomes much easier to achieve”1. To put it simply, when a company has a diverse board, positive results are more likely to follow.

3   Market participants in Singapore, I believe, recognise this. Feedback from the public consultation by the Corporate Governance (CG) Council demonstrates strong support for diversity – diversity in terms of skills, knowledge, experience, age and gender. It is also encouraging to note that the support came from a wide spectrum of stakeholder groups.  

Measuring the quality of corporate governance

4   Staying on the theme of diversity, we have also seen a diversity of feedback from the CG Council’s consultation of its recommendations to enhance the CG Code. While there was general support for some recommendations, such as clarifying the comply-or-explain regime and establishing a Corporate Governance Advisory Committee to promote good governance practices, other recommendations, such as the proposed nine-year-rule on director independence and the disclosure of non-controlling shareholders’ votes on the appointment of independent directors, predictably revealed a wider spectrum of views.

5   The CG Council will be reviewing the feedback very carefully, reconciling the different views, before finalising its recommendations to MAS.  The target is still to finalise the changes to the CG Code in the second half of this year. Not everyone will agree with every revision to the CG Code but I hope on balance, most will agree that the revised CG Code as a package is an improvement and represents a step in the right direction.

6   So even as we continue to debate how the CG Code can be enhanced, we have to pay more attention to how we measure the quality of corporate governance. What is not measured cannot be improved. Therefore, ranking exercises like the ASEAN Corporate Governance Scorecard and periodic surveys are helpful. From Professor Loh’s presentation earlier, I am heartened to see that companies in Singapore have continued to perform well, albeit there is still room for improvement.

7   But what is measured is only as good as the measuring instrument being used. A major US law firm observed that one of the common themes that underscores many of the corporate governance issues facing boards today – including the topic of discussion today,  diversity – is that corporate governance is inherently complex and nuanced, and perhaps less amenable to quantitative benchmarking and measurement.2 Governance has progressed beyond a relatively binary, check-the-box approach, such as whether companies have a diversity policy, or whether they have adopted electronic voting. Companies now actually deal with more complex challenges such as constituting a diverse board with the competencies and expertise to address the specific challenges they are facing or likely to face. 

8   Governance is about the quality of decision-making, and if done properly, should have a positive impact on long-term value creation. There is also a time lag between board decisions and their impact.  How can we then better assess the effectiveness of the board’s governance practices over a period of time, and not at a specific point in time?  How can we measure the link to financial performance and non-financial outcomes such as customer satisfaction and reputation?

9   The new reality and demands from market participants will require new measurement tools and disclosure templates, and these should be fine-tuned or even revamped. For example, we have seen some US companies using skills matrices to show that their board composition encompasses appropriate skills and experiences. It may be that it is neither desirable nor possible to distil complex governance issues into simple metrics. We may have to find new and better ways of measuring and validating the quality of corporate governance. This will not be easy as it will require an in-depth understanding of how boards and their companies operate, the operating environment and the companies’ specific characteristics. 

10   This is a topic I hope Professor Loh, SID, market participants and perhaps the new industry-led Corporate Governance Advisory Committee, if formed, can apply their minds to and propose new ideas. Ultimately, what we measure must also be meaningful to companies such that they are motivated to self-reflect and adopt good corporate governance practices, including diversity policies.

Looking ahead

11   Corporate governance is a journey and where we go from here actually hinges on the decisions that each company and its board take in continuously raising the bar on their governance practices.  It is not what the Listing Rules or CG Code prescribe. It is about mindset and I hope that we can all embrace corporate governance as the purposeful and strategic endeavour it is meant to be.

12   Thank you, and have a good day.

1 Vanguard, August 2017. “An open letter to directors of public companies worldwide”.
2 Wachtell, Lipton, Rosen & Katz, Nov 2017. “Some Thoughts for Boards of Directors in 2018”.
Last Modified on 03/04/2018