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Listed firms stingy with details on remuneration

SGX report: Standard of disclosures also weak in assessing of board performance, internal audit
Wednesday, July 6, 2016 - 05:50
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REVEALING: SGX has found the quality gap between big and small companies to be smaller than expected, and that companies on average earned a passing grade.

Singapore

THE standard of corporate governance disclosures among Mainboard-listed companies was the poorest when it came to remuneration details, assessing board performance and internal audit, a quality-focused review of Singapore's comply-or-explain model has found.

But it has also found the quality gap between big and small companies to be smaller than expected, and that companies on average earned a passing grade, said the Singapore Exchange (SGX), which commissioned the assessment.

SGX will engage with individual companies to help them to improve the standard of their disclosures, and stands ready to use its enforcement powers if necessary, SGX chief regulatory officer Tan Boon Gin told reporters at a briefing.

Singapore applies its Code of Corporate Governance on a "comply-or-explain" model. Numerous studies have looked at how well companies comply with the Code's recommendations, but few - if any - have measured the "explain" portion of the system.

The SGX review, carried out by KPMG, was undertaken to assess whether listed companies were giving meaningful disclosures about how they were complying with the Code, and if not, whether they explained their non-compliance properly.

The study assigned scores based on the annual reports of 545 Mainboard-listed companies for fiscal years that ended between July 1, 2014 and June 30, 2015.

The scores were weighted in such a way that simply stating whether a requirement was under the Code would net a company only half of what could be awarded for a meaningful explanation of the various requirements under the Code.

On average, the companies achieved a 60 per cent score out of a best-possible 100.

The average score for companies with market value of less than S$300 million was 59 per cent; that for companies larger than S$1 billion was 66 per cent - a gap which Mr Tan described as unexpectedly narrow.

Overall, SGX said in a statement that "adherence to guidelines of the corporate governance code can be improved and deviations should be better explained".

It added that disclosures on remuneration matters were most in need of improvement. The average score in this area was 53 per cent.

Companies were particularly poor at explaining how they align the level and mix of remuneration with long-term incentives and with corporate and individual performance. Only 17 per cent of the companies scored 60 per cent or more on this metric.

Companies were also reluctant to disclose details of how much they paid key personnel. "We strongly urge companies to be more open and transparent about disclosures on director and chief executive officer remuneration for a more sustainable relationship with shareholders," SGX said.

Another principle with poor adherence was in the assessment of board performance. Only a fifth (21 per cent) of companies achieved a score of 60 per cent and above in that area.

"Companies were also mostly silent on whether performance conditions were met for the board-evaluation process; only a third of companies did so," SGX said. "We urge companies to provide more details on the board-evaluation process."

SGX said it would not publish the scores of individual companies, because the purpose of the exercise was to improve awareness about - and the quality of - corporate governance disclosure.

But the regulator will engage with companies one-on-one to help them improve their disclosure standards.

Mr Tan said: "This report is aimed at making companies aware of the importance of complying with the corporate governance code and providing meaningful explanations for deviations.

"We want to work with companies to improve the quality of their disclosures and governance practices so that they, in turn, can draw more long-term investors."

Mr Tan said SGX will also try to ascertain the reason that disclosures are lacking in certain areas. Failure to explain non-compliance runs counter to the requirements of a comply-or-explain regime.

"That's something that we really need to understand from our engagement with the companies. Is this a compliance problem or is it a disclosure problem?"

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