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Governance you can bank on
DERIVED from the highest-value chip in a traditional poker set, the "blue chip" label carries certain expectations and connotations.
Not every stock gets to be called a blue chip, and those that do are expected to display a strong reputation, exemplary quality and dependable stability.
It is not easy to stand out when one is among such fine company, but DBS Group Holdings has managed to establish itself on the corporate governance front.
The bank has won the Securities Investors Association of Singapore's Corporate Governance Award for Big Cap companies for three years in a row, and this year it also bagged a Diversity Award.
DBS chairman Peter Seah shares with The Business Times his thoughts on corporate governance and what it means to be a director.
Question: A very robust debate took place this year at the announcement of the Governance and Transparency Index about whether the index captured the right metrics. What does corporate governance mean to you, and how should we measure and assess governance?
Answer: Corporate governance refers to the rules and standards, or code of ethics, by which a company operates.
I believe one of the best measures of governance is the corporate reputation of a company, and what its stakeholders and the wider community think of it.
Q: Getting down to fundamentals, are our governance standards appropriately calibrated in the first place? For example, a large majority of companies do not follow the Code of Corporate Governance's guidelines on executive remuneration disclosures. Are there aspects of the Code that are not aligned with reality, and which guidelines do you think should be revisited?
A: Governance guidelines and rules provide a useful point of reference on what the market's expectations are, but ultimately, it is up to companies to decide how and to what extent they want to adopt these standards. The market and investors will assess these firms accordingly.
Q: The Accounting and Corporate Regulatory Authority recently said that its surveillance programme found that many directors were not aware of their responsibilities in terms of a company's financial statements. Was that a surprise? How do you think such an awareness gap arose?
A: It is the duty of directors to be fully aware of their responsibilities and accountabilities when they sit on a board. They should also have an in-depth understanding of the business of the company, the state of its financials, regulatory requirements etc, in order to execute their duties well. Over the years, regulators all over the world are expecting boards to play a much stronger oversight role, and be responsible for a lot more than in the past. With this, the accountabilities and liabilities of directors have also increased. So it is incumbent on directors to be fully aware of what is required of them.
At DBS, upon appointment, a new director will receive a letter of appointment and a guidebook which contains useful information on his/her duties, responsibilities, and disclosure obligations. The new director will also go through a comprehensive and tailored induction programme. In addition, the nominating committee oversees the continuous development programme for all directors, selecting topics that keep them abreast of legal, regulatory, corporate governance and economic developments.
Q: Another issue that the regulator highlighted was directors deferring too much to the judgment of management when it came to the financial statements. What lies at the root of a director's inability or reluctance to question management, and how can we address this?
A: Directors should be sufficiently knowledgeable and independent to be in a position to guide and question management on all aspects of business. It is therefore important that directors receive adequate training and briefings on a company, so as to be able to perform their duties.
Q: In leading your board, what principles and values carry the most importance?
A: The board owes a duty to shareholders to provide oversight and to guide management in developing the strategies of the business and the implementation of the strategy. Board members must be encouraged to fully express their views and opinions.
The board and management must always have mutual respect for each other. The board should always be reminded to allow management to manage, but it should always be there to support and guide.
Q: Given the spotlight shone on directors, not to mention the numerous responsibilities and potential liabilities, why would anyone want to be a director?
A: Serving as a director, particularly for those with many years of experience, is a way of nurturing leaders in the private sector. That, in itself, can be a very rewarding thing to do, especially for those who have retired from full-time work.