Unfortunately, said the official, disclosures
being made by companies deviating from the Singapore Corporate Governance Code
are often uninformative. For example, a company that did not have independent
directors making up at least one-third of the board offered the explanation
that the board believes that there is an independent element on the board and
that it is able to exercise independent
judgment on corporate affairs. This statement does not provide any evidence or information to shareholders on how
the independent element is achieved in spite of the smaller number of
independent directors.
The central banker advised companies to
provide meaningful explanations of their reasons for deviation, and not opt
for template disclosures that shed no
light on these reasons, or worse, obfuscate the issue. But he added that there
is scope for standardizing the format in which disclosures of compliance with
key principles in the Code are made, in order to facilitate comparability
across listed companies. The MAS will be exploring this in the coming months.
In addition to strengthening market
discipline through disclosure, shareholders can play an important role in enhancing
corporate governance by studying corporate statements, attending general
meetings, and voting on key issues. But the reality is that too often companies
have limited engagements with shareholders on governance issues, and most
institutional investors do not vote or attend annual meetings.
A second area where corporate governance can
be enhanced is in raising the competency levels of boards. Corporate governance
reforms have focused on addressing the principal-agent problem chiefly through
strengthening the independence of boards. This is necessary, said the official,
but not sufficient. Good director must not only be independent in form, but
must also be competent so that they can also be independent in substance.
Directors must be able and willing to devote time to their roles and have the
relevant experience to question management and form independent views on
strategy, risk, and performance.
This is particularly relevant in the area of
risk management, emphasized the Managing Director, where boards have an
important role to play in determining the company’s risk tolerance and risk
policies. They must oversee management in designing, implementing, and
monitoring the company’s systems for managing risk. Since risk is fundamentally about uncertainty
and is therefore inherently subjective, a diverse Board with both executive and
independent directors as well as a variety of backgrounds and expertise is key.
Given the complexity of the environment, only through robust debate and
rigorous consideration of the range of possibilities can voards make sound
decisions on risk and strategy.
Finally, corporate governance must be about
instilling a culture that places values above profits. Publicly listed companies are
increasingly at risk of becoming slaves to the pressures of quarterly earnings. In a
brutally competitive environment, this short-termism promotes not only excessive risk-taking but a
variety of sharp practices, exploitative sales, and even fraudulent
transactions. Boards and senior management have a critical role in promoting a
culture rooted in strong ethical frameworks. They must make clear that serving
the customer’s interest, dealing fairly with suppliers and counterparties,
following the laws of the land, and not placing the larger society at risk are
essential for maximizing long-term shareholder value.
Restoring ethical conduct is particularly
relevant for the financial industry. Following the crisis, the industry has fallen into
disrepute. Public trust that is critical to not just the growth but the
viability of financial institutions. The leadership of financial institutions,
Boards and senior management, owe a special duty of care to ensure that finance
is trustworthy, socially redeeming, and economically purposeful. This is an
area that MAS intends to engage the Boards and senior management of financial
institutions on