"Corporate Governance: Today and Beyond" by Mr Ng Yao Loong, Executive Director, Monetary Authority of Singapore at the Singapore Institute of Director's Event on the ASEAN Corporate Governance Initiative on 4 April 2014
Mr Willie Cheng, Chairman of SID
Mr John Lim, Immediate Past Chairman of SID
Distinguished guests, ladies and gentlemen, good morning.
I am delighted to join you today at this inaugural SID launch event to announce the results of the 2013 corporate governance ranking exercise based on the ASEAN Corporate Governance Scorecard.
Much has been said about the importance of setting and attaining a high level of corporate governance standards and practices. Good corporate governance underpins the development of Singapore as an international financial centre. Companies are able to raise capital efficiently from investors and create long-term sustainable value; investors are also able to engage meaningfully with companies on strategic issues.
However, developments in the capital markets have meant that such a relationship between companies and investors has become a lot more complex. Investors, for example, which deploy trading strategies such as indexing and algorithmic trading may actually have less interest in engagement with the companies. The complexity in the investment value chain including the use of service providers has also increased. Asset owners are increasingly outsourcing to external asset managers including ownership functions.
That is why the OECD has embarked on an exercise to review the Corporate Governance Guidelines. They have invited non-OECD members to participate in the review so that diverse perspectives and concerns can be reflected. Given our strong interest in corporate governance, Singapore along with several other non-OECD member jurisdictions has decided to participate in this review. OECD will conduct a public consultation on the proposed changes as part of the review process.
Effective Corporate Governance - Role of Boards
With this renewed focus on corporate governance, there will be debates on more checks and balances, increased transparency on issues such as remuneration, the accountability to other stakeholders, greater Board diversity and independence. However, it is clear that the role and accountability of Boards in corporate governance will remain as critical and will not be diluted.
For corporate governance to be effective, Boards cannot view it as a compliance tool or a box ticking exercise. On the contrary, Boards have to be forward looking. According to a recent McKinsey article, board directors spend the bulk of their time on quarterly reports, audit reviews, budgets and compliance – 70% is not atypical - instead of matters crucial to the future direction of the business. These issues are no doubt important but we cannot drive forward by constantly looking in the rear view mirror.
Being forward looking means understanding the external environment, the competitive strengths of the company and the risks involved. The Board has to engage in strategic discussions, form independent opinions and work closely with the management team to ensure strategies as well as associated risks are clearly identified.
The importance of risk governance has been amply highlighted following the global financial crisis. In addition to the introduction of a new principle on risk management and internal controls in our Code, the Corporate Governance Council has also issued the Risk Governance Guidance for Listed Boards to provide further guidance to Boards on their responsibilities in this area.
For companies to execute and deliver, Boards must identify the right mix of management talent. In the context of Singapore where the labour market is tight, it is even more important for Boards to continually look at building up the management talent pool. Talent management includes identifying a pipeline of people that can take over the executive roles, developing their potential through coaching, mentoring and even stretch assignments. Putting in place an appropriate remuneration structure is also key to attracting talent and aligning incentives over the long term.
Within the Board, diversity is also an important element. Although much talked about, diversity should not be looked at only in terms of gender. Diversity in terms of skills, culture, experience as well as knowledge of the company should also be considered. Avoiding groupthink, having Board members with different expertise and experience, facilitating an environment where views are independently formed and even challenged are part of effective governance.
Boards have to engage their investors regularly and to facilitate the exercise of shareholder rights. In order for shareholders to exercise their rights, meaningful information should be provided to them in a timely manner. When providing such information, companies should avoid boilerplate disclosures and be as forthcoming as possible.
Our Code operates on a “comply or explain” regime. It is useful for companies to have such flexibilities. However, for such a regime to work well, explaining clearly why companies choose to deviate from the Code is as important as complying with the Code itself. Investors can then assess the merits of the deviations and be better placed to engage constructively with the companies.
Role of Industry
I am heartened to note that industry associations, academic institutions and private sector firms have actually played a significant role to build a stronger corporate governance eco-system in Singapore. They have organised conferences and seminars, given out corporate governance awards, as well as conducted regular related research or ranking exercises.
Among them, SID has sought to fulfil its role as the national association of directors. It conducts on average more than one professional development session per week, on subjects related to corporate governance. Its annual flagship Directors’ Conference receives very positive reviews from practitioners. SID also conducts surveys such as the recent SID-SGX Board of Directors Survey and publishes these findings and other advocacy materials regularly. You might have read its “Boardroom Matters” articles every Monday in the Business Times. The Singapore Corporate Awards which celebrates the best in corporate governance through awards such as the Best Managed Board is organised jointly by the Business Times, Institute of Singapore Chartered Accountants, and SID with the support of the Accounting and Corporate Regulatory Authority and SGX.
On the research front, the NUS Centre for Governance, Institutions and Organisations has undertaken extensive research on areas such as governance, transparency and board diversity.
ASEAN Corporate Governance Initiative
The ASEAN Corporate Governance initiative was introduced in 2011 to help raise the corporate governance standards and practices of ASEAN public-listed companies. It is a collective effort by participating ASEAN countries to help showcase and enhance the visibility as well as investability of well-governed ASEAN public-listed companies internationally. This initiative is also part of a broader ASEAN plan to achieve greater integration of the region’s capital markets.
The 2013 Scorecard ranking exercise is the third to be conducted by the participating countries. In the latest exercise, our companies have performed well. Our overall scores in this year have improved compared to the last. I am also pleased to note that our top company achieved the highest score amongst all participating ASEAN corporates.
The top five public-listed companies that have attained the highest total scores based on the Scorecard will be announced shortly by Mr John Lim and Associate Professor Lawrence Loh. I would like to congratulate these companies in advance. It is indeed heartening to note that we have a good representation from the financial sector in this shortlist.
As companies and investors get more familiar with the Scorecard, more information will be provided progressively in future exercises. Within each participating country, the list of the top 50 companies will be banded to differentiate the top scorers from the rest. The plan is to eventually produce a list of top 50 public-listed companies in ASEAN. We welcome this as it will recognise companies that are among the best in corporate governance in this region. It will also encourage companies to learn from their peers in Singapore and ASEAN. I look forward to many Singapore companies featuring in this list.