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Moderator: Anita Gabriel
WE hear so much of corporate governance but less so of corporate culture when in actual fact, one can further the score on the other - by a mile and a half.
When values are aligned at every level of a corporation with the right messaging and actions, it can be a powerful tool for businesses and their brands.
Indeed, a well-functioning governance structure goes beyond (and below) the boardroom - and then back.
Who better to learn this from than some of the big hitters of this year's winners of the Securities Investors Association of Singapore's corporate governance awards.
Question: It has been pinpointed that corporate governance lapses are often a result of weak corporate culture, where ethics take a backseat to performance. How has your firm worked towards building a strong corporate culture where the tone is set from the top right across the entire organisation?
Piyush Gupta: To uphold the trust our stakeholders have in us, we need to embed a culture of doing the right thing within our entire organisation. DBS' values are encapsulated in the acronym PRIDE!, which stands for being Purpose-driven, Relationship-led, Innovative, Decisive and E!verything fun. These values shape the way we work.
Being purpose-driven is about being a trustworthy and long-term Asian partner committed to transforming Asia for the better. This ethos is cascaded throughout the organisation. Our people know they are appraised not only on performance but also on how they live our values.
Lim Ming Yan: Building and maintaining the right organisational culture through our core values is something we take seriously.
Led by a board which is as focused on corporate governance as it is on financial performance, CapitaLand reviews its corporate governance practices regularly.
We also regularly communicate our core values across all levels of employees. Senior leadership members also walk the talk and lead by example. We pay attention to hiring the right people for the job, people who value the importance of integrity.
Chua Sock Koong: Good CG supports the sustainable, long-term growth of our business and value creation for our stakeholders. At the heart of this is a corporate culture where our people understand the importance of responsible business practices, transparency and integrity. For instance, we adopted the practice of remuneration disclosure as well as both quarterly and sustainability reporting before these were regulatory requirements.
Sumitri Menon: Of course, there must be a focus on performance but it has to go hand in hand with good governance.
At Micro-Mechanics, management repeatedly remind our people that we have a zero tolerance policy. Workshops for employees include a reminder of right conduct. Any deviation from the expected moral tone is dealt with immediately. For example, several years ago, there was an anonymous complaint of an incident of sexual harassment in one of the subsidiaries. Management investigated immediately and the offending employee, though long standing and valuable, was summarily terminated. Likewise, the board made clear to one of its members recently that it expected compliance with the spirit of governance rules and codes which goes beyond the stated provisions.
Q: Corporate governance means many things to different organisations, each with their own sets of priorities. What is CG to you and what are the routines that your organisation has in place to ensure good CG - in good and bad times?
Mr Lim: We have weathered countless economic and property cycles, all of which have taught us important lessons. As we expand our footprint to new growth markets, we remain vigilant of the need to conduct our business and interact with stakeholders in a fair and reasonable manner, as well as the importance of maintaining the highest level of integrity.
CG is about prioritising sustainable value over short-term returns. We don't just tick the boxes; it is important to us that across all levels, our employees internalise the fact that in whatever we do for the company, we are answerable to all our stakeholders. We engage with our investors on a regular basis. We take our disclosure obligations seriously, to ensure that our investors receive information on a timely basis to enable them to make informed investment decisions. We have a board made up of only independent directors, with the exception of the CEO; this far exceeds the requirements in the code of CG. We also have processes to review our board composition and board evaluation to ensure that our board continues to be effective and is made up of individuals who have skills and expertise relevant to the risks and opportunities the company faces.
Ms Chua: CG is about managing a company effectively to deliver sustainable results.
This is contingent on securing the right board - one that is independent, diversified and has members with skill sets and experience that are relevant to the company's wide-ranging businesses. This is backed up by a competent and honest management team which comes up with well-defined policies and processes.
We have never seen CG as a checklist of compliance dos and don'ts laid out by the regulators. Instead, we have constantly benchmarked ourselves against global best practices such as supporting gender diversity in the selection of board members, implementing processes to evaluate board performance and ensuring board renewal as well as disclosing remuneration structures for board members and senior management.
Some of the best practices that we have adopted include implementing an effective whistle-blower programme, appointing a lead independent director, constituting a board risk committee, conducting an annual evaluation of the board and its members, and issuing sustainability reports.
Ms Menon: It means compliance with not just the rules and codes of governance but also the spirit. We don't find it acceptable to skate close to the rules but to fail to comply with its spirit. So, at all times, conduct is dictated by what it is we ought to be doing rather than an enquiry as to whether we are technically not in breach.
Mr Gupta: Strong and effective CG is important in creating value for our stakeholders. To this end, we endeavour to comply with CG best practices. We are also committed to enhancing our CG disclosures in our annual report.
We have a clearly defined governance framework that promotes transparency, fairness and accountability. Our CG framework is anchored on competent leadership, effective internal controls and a set of common values, which shape the way we do business and work with each other.
In addition, we use a balanced scorecard approach to measure how well we are serving our various stakeholders. The balanced scorecard is based on our strategy and is used to set objectives and drive behaviours of our employees.
DBS has a very strong board - two-thirds are composed of seasoned bankers. The board is responsible for setting the bank's strategy and board committees are actively engaged in providing oversight in various areas.
Q: When a firm on the SGX falls short of governance standards and makes the headlines, are you relieved - "phew, thank God it's not us" - or do you try to find takeaways from such episodes and become circumspect?
Ms Chua: There are always lessons to be drawn from lapses that become public. These are opportunities to reflect on governance gaps and we review our own practices and processes with a view of strengthening them to avoid similar pitfalls.
Ms Menon: All such incidents whether in respect of an SGX listed company or a company listed overseas, for example, the Volkswagen scandal, serve as reminders to be vigilant.
Mr Gupta: We do try to find takeaways from breaches of governance standards which make the headlines, and make changes to our processes and policies where necessary. In addition, as a regulated entity, we have to engage with our regulators to ensure that our internal governance standards are in line with their expectations.
Mr Lim: We welcome opportunities to make improvements to our practices.
Q: Companies have to adhere to a growing list of governance and risk-control guidelines that are mandatory or some others, highly recommended, to reflect best practices. This also means higher compliance costs (plus other hassles). Is that frustrating?
Ms Menon: It's not frustrating but welcome despite the growing cost burden. We like the challenge to measure up to the highest standards. It's in all our stakeholders' best interests since good governance makes for long term sustainable value.
Mr Gupta: It is a pretty established fact that for the banking industry, compliance costs typically increase at double digit levels annually - that's a function of regulatory intensity and competition for talent. Having said that, we do look for ways to leverage technology and data analytics tools to enable the compliance function to work more efficiently. We are also instilling a culture whereby compliance and governance is not seen as the role of any one single department but a comprehensive effort across our front, middle and back office.
Mr Lim: We try to strike a balance between the benefits of good corporate practices and compliance costs by ongoing monitoring and assessment of our policies and processes. Adhering to high standards of CG is integral to the company's long-term success.
Ms Chua: While compliance comes with certain requisite costs, we see it as essential to the sustainable performance of our company and protection of shareholder value. Such compliance costs and effort shouldn't be viewed negatively. Rather, they are a good investment that will yield long-term returns by way of sustainable shareholder value-creation.
Q: Financial statements are a key source for investors in making investment decisions. Under the enhanced audit disclosures slated for next year, auditors have to indicate Key Audit Matters (KAMs) in financial reports. How do you think this will help investors hungry for greater transparency and more clarity?
Mr Lim: CapitaLand has earlier adopted the new reporting requirements in its FY2015 financial report. The discussion of KAMs will definitely help to provide greater transparency in areas such as the valuation of development or investment properties and key management judgements. Not only will this improve the quality and level of disclosure of the financial reports, it will also help investors or relevant stakeholders gain a better understanding of the company's directions, strategies and processes, and empower them to make better informed decisions.
Ms Chua: The inclusion of KAMs will provide greater transparency and improve CG by enabling investors to assess the quality of internal controls and risks associated with the business. Since FY16, we have adopted the enhanced Auditor's Report, which include KAMs.
Mr Gupta: KAMs will help investors focus on areas that require significant management time and judgement. For example, in rapidly changing industries, investors may be concerned about the viability of a company's business model. In such instances, KAMs will provide investors with insights around the work that auditors have performed, and the mitigating factors that assure them of the company's going concern.
However, the key is in the execution. If KAMs are to truly add value, it is imperative that they do not become boilerplate. The discussion should go beyond generic statements around procedures that are reasonably expected of auditors in carrying out their audit work.
Ms Menon: It will assist shareholders wading through longer and more complex reports to focus on matters which management think are key. Some judgement needs to be applied as to what is key and what is not and this will mean more accountability from management. All in all, it's helpful.
Q: The Singapore Exchange (SGX) will require annual sustainability reporting from listed companies on a "comply or explain" basis starting from any financial year ending on or after Dec 31, 2017. It is hoped this will provide investors a gauge on a company's efforts towards environmental,social and governance (ESG) factors. How are you preparing for this?
Ms Chua: Singtel began annual sustainability reporting in 2010. We have since issued seven reports on our ESG performance, with the last two reports covering both our Singapore and Australia businesses. We have also had the data in past five reports externally assured to demonstrate the accuracy of the information and data disclosed. This has helped us to better communicate our sustainability efforts and programmes with our stakeholders.
Mr Gupta: DBS is well placed to meet the SGX sustainability reporting requirements. We are the first Singapore bank and listed South-east Asian company to embark on integrated reporting since 2012.
In our 2015 Annual Report, we have also adopted the GRI G4 Sustainability Reporting Guidelines for material ESG (environmental, social and governance) factors identified. We will continue to build on our ESG policies and strengthen our disclosures in these areas. This includes the implementation of the Association of Banks guidelines for responsible financing.
Mr Lim: CapitaLand published its first annual sustainability report in 2009, making us one of the first companies in Singapore to do so voluntarily. This was before the Sustainability Reporting Guidelines were introduced by SGX in 2011, and well before SGX introduced sustainability reporting requirements for Singapore-listed companies this year.
CapitaLand is also one of the few real estate developers to cover our international property portfolio and global workforce in our sustainability report. We find that by focusing on sustainability first, all other benefits will fall into place naturally, from cost avoidance arising from reduced energy and water consumption, future proofing our properties ahead of the implementation of some regulatory requirements or climate change, to greater employee engagement.
Ms Menon: Some of the directors and management began by attending one of the several workshops and we are studying the requirements in this regard. We have a clear idea of the timeline needed for implementation. To meet the deadline, the effort for us has to begin in fact this calendar year.
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