Dear Editor,

“Comply or explain” regime imposes discipline while providing flexibility

We refer to the article “Offer for CMA is still undervalued” by Mr Michael Dee (The Business Times, 29 May 2014). Mr Dee’s article had made reference to MAS ‘guidelines’ and suggested that “guidelines which have no meaningful enforcement or oversight should be eliminated”.

We believe that Mr Dee was referring to the Code of Corporate Governance (CG Code), which operates on a “comply or explain” basis, in relation to companies listed on SGX. We disagree with the suggestion that a “comply or explain” regime does not offer meaningful enforcement or oversight. Unlike a rules-based system, a “comply or explain” regime provides oversight and enforcement through market discipline. And market discipline works through the disclosure requirements in place.

Where a listed company’s corporate governance practices deviate from the CG Code, it is for shareholders and other interested parties to judge the merit of the explanation, and to hold the company to account where the explanation is deemed inadequate. It is this public scrutiny and actions of shareholders that provide the oversight that Mr Dee refers to. Indeed, Mr Dee’s article is a good example of such public scrutiny.

Internationally, the “comply or explain” approach is used in most major jurisdictions, such as the UK and Australia, as the framework for promoting high standards of corporate governance. The approach recognises the diversity of companies and that there is no single model of good corporate governance. It is an approach that imposes market discipline while providing the flexibility that companies need.

Merlyn Ee (Ms)
Executive Director (Strategic Planning & Communications)
Monetary Authority of Singapore