Disruption in the boardroom

ROUNDTABLE PARTICIPANTS

Moderator: Anita Gabriel, senior correspondent, The Business Times.

AS businesses navigate their way through the collision with the Digital Age and cyclical downturns amid more demanding shareholders, the real board challenge is to look inwards and out to reinvent themselves.

In the discussion below and through the eyes of the panel, some insights can be gleaned on the areas that boards should devote most time on.

Question: From an organisation's perspective, what are the core objectives that good corporate governance (CG) should achieve?

Lim Ming Yan: We believe that good CG is key to building trust in our stakeholders, creating long-term value for them and ensuring sustainable growth.

Chong Chou Yuen: Future-proof the business through an ingrained culture of observing good processes and strengthened structure. Transparency in disclosure ensures that all stakeholders, be they investors, employees, customers or suppliers, can have confidence in the decision-making and management processes and the eventual products.

The board has the fiduciary duty to give shareholders an explanation or reason for the company's actions, inactions and conduct.

Chua Sock Koong: Good CG should enhance corporate performance and transparency and also support the sustainable, long-term growth of a business and value creation for stakeholders.

This will in turn increase investor confidence in the company.

Question: What is the best way that a corporation can embed a strong ethical culture into its entire enterprise?

Mr Chong: The best way is for the management to adopt a "walk-the-talk" approach, promoting personal integrity and professional accountability.

The carrot and stick approach would also be helpful to reward high and ethical performance and discipline poor performance and unethical behaviour.

Ms Chua: Good CG starts with our core values of integrity, personal excellence, customer focus, teamwork and challenger spirit. These shape the way we work - a culture where our leaders walk the talk.

We embed our core values into everything we do across all levels of the organisation. This is supported by clear policies and practices including a Code of Conduct and Ethics, an independent whistle blower programme and ongoing training so that our people understand the importance of responsible business practices, transparency and integrity.

Mr Lim: We embrace the highest standards of integrity. We have the courage to do what is right, and earn the trust of all our stakeholders. CapitaLand's clear code of business conduct, a bribery and corruption prevention policy and a whistle-blowing policy also further bolster our ethical culture.

We have an integrated human capital strategy that also allows us to recruit, develop and motivate our employees with purpose. Training programmes organised by the CapitaLand Institute of Management and Business (CLIMB) help to enhance the capabilities of our employees and reinforce our company values.

A clear, consistent internal communications strategy such as regular town halls, staff appraisals and engagement also helps to clarify and emphasise this strong ethical culture.

For a company to be successful, we need to have good people who are not just professionally competent but also have good character.

Question: What are the biggest CG challenges confronting boards and management today that have been brought about by a changing business/operational landscape?

Ms Chua: Disruption is the biggest challenge in today's digital age. Transformation has become a business imperative for boards and management today.

At Singtel, we recognised the need to run even faster to keep pace with ever-changing technologies and accelerate our transformation from a traditional telecoms company into a communications technology group that's relevant to the new digital economy. Strong CG must be in place to ensure that risks are properly monitored and changes are positive and sustainable.

For example, we are currently in an investment phase to develop growth businesses. While this may impact earnings growth in the short term, we are committed to staying the course because we know they will provide new revenue and growth for the future.

The results have been encouraging and to date, digital revenues contributed more than 9 per cent to total group revenue (in the recent financial quarter, Q1 FY2018).

Mr Lim: It is important to achieve our financial objectives in the right way, despite the tough business landscape. We remain focused on complying with the substance and spirit of the principles of the Code of Corporate Governance outlined by the Singapore Exchange. We have also developed and, on an ongoing basis, maintained sound and transparent policies and practices to meet our specific business needs.

From anti-corruption policies to a rigorous enterprise risk management framework, or instituting a CapitaLand Sustainability Council, a myriad of checks and balances allows CapitaLand to seek growth while upholding our commitment to the environment, society and the codes of governance.

Mr Chong: Rapid technology advancement has created both opportunity and risk. Digital disruption, cybersecurity, BYOD (Bring Your Own Device), and social media are just a few IT risks that could create lapses in internal controls or worse, tarnished reputation, financial losses or non-compliance of law, for the technologically ignorant boards and management.

On the other hand, those who are technologically savvy could make use of these advances to create competitive advantage.

Question: What are your thoughts on quarterly reporting - do we need it or should it be done away with?

Mr Chong: With no stock exchanges in the region scrapping the quarterly reporting and with increasing demand for transparency, it would not be in the interest of Singapore to do away with the quarterly reporting.

Managerial myopia happens only when the long-term interest of shareholders differ from those of the management.

This could happen in a stock exchange where many entities are having shareholders who each own a minority interest, even the biggest shareholders.

In Singapore, the majority of the listed entities are held by shareholders who hold substantial interest and who also occupy the positions of chief executive officer and directors.

Such entities are therefore more likely than not, to focus on the long-term interest of the entities and not likely to suffer from managerial myopia; in other words, shareholders and management's interest are in sync.

Mr Lim: Understandably, quarterly reporting takes up more resources. Some investors will appreciate the higher frequency of communication and disclosure.

While frequency is one consideration, I believe that it is equally important for the company to help shareholders understand its long-term goals and strategies.

Ms Chua: There are merits to quarterly reporting but it is important that this does not result in short-term decisions taken at the expense of long-term value creation. For investors, quarterly reporting provides timely and meaningful disclosures to make informed decisions.

For companies, reporting on a quarterly basis promotes better financial management control and discipline, and enhances transparency which is in line with good corporate governance.

The quarterly reporting season should therefore be viewed as an opportunity for management to engage with investors, analysts and the media to share insights into market developments, outlook, challenges and strategy, and to receive feedback and address concerns.

Question: The role and accountability of independent directors is the subject of intense scrutiny and debate in Singapore. What are your thoughts?

Mr Lim: Companies should welcome such checks and balances. The recent changes to our board have added more depth and diversity of insight and experience. We have benefited from the expertise of our independent directors sharing their experience and providing their strategic advice in, and value adding to our strategy formulation process.

Ms Chua: Independent directors play an important role in providing different perspectives and insights. They are there to constructively challenge and help sharpen strategy, provide checks and balances and safeguard shareholders' interests.

It is important to remember that all directors, regardless of whether they are independent or not, have to act in the best interests of the company.

Mr Chong: The key role of the independent directors (IDs) is to protect the interests of the shareholders, in particular, the minority shareholders.

Where necessary, the IDs act as a mediator in instances of conflict of interest. Therefore, it is important for the IDs to have the will and the courage to say 'no' when things are not moving in the interest of all its shareholders.

Over time, the independence of IDs may be affected due to changes in circumstances or familiarity.

It is therefore critical for the independence of the IDs to be reviewed regularly as an instrument of good governance.

Question: Do you agree that Singapore has a shortage of qualified directors? How can we tackle this dilemma?

Mr Chong: In my personal view, there is no shortage of qualified directors in Singapore given that there is a vast and ready pool of qualified professionals with wide range of skill sets who are able and willing.

The difficulty, however, is in whether the controlling shareholders are comfortable appointing an independent director through, say, a register of potential IDs maintained by SID (Singapore Institute of Directors), and not through the inner-circle of "friends". Of course, this issue is not peculiar to Singapore. Perhaps, a requirement that the board should consist of a mix of directors through these two resources could alleviate this "shortage".

Mr Lim: There are enough potential candidates to take on directorship on boards. CapitaLand's board, for example, has a total of 12 members, 11 of whom are independent. Our board is very focused on ensuring that there are right skill sets in the board at all times. Our experience has been that if we are focused on addressing the issue, have a proper board selection process, and are prepared to look at a much wider pool of people, including looking outside Singapore, we can find suitable people to join our board.

As part of our board's continuous progressive planning efforts, we have recently augmented our board with new skills through the appointment of three new members. The new board members bring expertise in areas such as technology, investment and management. This adds depth and diversity of insight and experience. It will also enhance our competitive advantage to ride the waves of economic and technological changes ahead.

Ms Chua: Boards can comprise both local and international talent. And it is important to attract and have board members with diverse skills and experience. Many companies now have to grapple with issues related to digital disruption and the need to transform their business models.

It may also not be easy for companies to find candidates with the necessary skills and technology experience in this area and who are also prepared to take on a board membership role.

In the case of Singtel, we leveraged our network to cast the net wide, and globally, to attract the right candidates for our board.

Question: Some corporate failures in Singapore (think oil and gas casualties) have led to more scrutiny of corporate integrity, ethics and accountability that in turn has led to higher expectations for CG. How should companies respond to that?

Ms Chua: These are timely reminders to companies to be vigilant, assess their practices and processes and make changes where necessary. Companies should make sure that they have a proper governance framework, are operating within their risk appetite and risk tolerance limits, have the appropriate control and mitigation measures, and practise greater transparency in financial management.

Mr Lim: As one of Asia's leading real estate companies, we see trust as an important social capital. In today's rapidly changing business environment, a robust governance strategy allows companies to respond with disciplined aggression.

Through regular briefings, familiarisation trips, roadshows and meetings with investors, analysts and the media, we are able to give our stakeholders peace of mind.

Mr Chong: Having a sound CG does not guarantee prevention from corporate failures, as black swans could emerge out of the horizon as in the oil and gas industry recently.

However, a good CG framework and practices and proper risk management could ensure the upholding of a high level of corporate integrity, ethics and accountability and therefore minimise the risk of failures.

Often, corporate failures are results of a manifestation of weak corporate governance practices, with unethical behaviour at the root of the scandal. Ethical values is usually the missing link between the integrity of business operations and the incentives of a profit-taking economy.

Companies should respond by actively promoting an ethical culture in the organisation, practising it, training in it, updating it, and making it real and visible to external and internal stakeholders. This is a challenging task and takes time to develop.