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Top execs urge boards to build strong risk culture

SingTel, DBS take top spots in regional corporate governance assessment

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Singapore

BOARDS of directors must take the lead in creating a culture of risk awareness to protect their companies from events that hit on their blind side, top executives said on Thursday as a regional corporate governance ranking exercise showed across-the-board improvement among Singapore-listed companies.

"Putting in place risk management requirements and functions alone is insufficient. Board risk committees should seek to foster a strong, accountable and proactive risk culture in companies," Accounting and Corporate Regulatory Authority (Acra) chief executive Kenneth Yap said in his keynote speech at an event organised by the Singapore Institute of Directors (SID).

The 100 largest Singapore-listed companies as a group improved their corporate governance standards relative to their peers in Indonesia, Malaysia, the Philippines, Thailand and Vietnam as measured by the Asean Corporate Governance Scorecard initiative, said National University of Singapore (NUS) associate professor Lawrence Loh.

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The Singapore companies scored an average of 78.1 out of a maximum 126 points, consisting of a 74.6-point basic Level 1 score and a bonus of 3.5 points. The basic score was a 7.6-point improvement from the year before. Prof Loh - who hails from the NUS Centre for Governance, Institutions and Organisations, and whose team helped to run the scoring in Singapore - said Singapore as a whole improved against the region, but declined to discuss specifics pending the release of the regional results by the Asean Capital Markets Forum.

However, he confirmed that Singapore Telecommunications, with an overall score of 115.95, and DBS Group Holdings, with a 113.46 grade, led all companies in the region. Rounding out the top five for Singapore were Singapore Exchange (SGX), CapitaLand and Singapore Press Holdings (SPH).

Higher scores were seen in all five components of the Level 1 assessment - in shareholders' rights, the equitable treatment of shareholders, stakeholders' roles, disclosure and transparency, and board responsibilities.

The lowest scoring category was in the roles of stakeholders. Prof Loh said it was partly because many companies are not considering a large enough pool of stakeholders.

"Many of them just do customers. But now you have to go into the whole range of stakeholders, especially things in the supply chain, your supplier selection criteria and things like that," he said.

Discussion at the event to announce the scores turned to the role of boards in managing risk.

Yap Chee Keong - an independent director for Tiger Airways Holdings, Citibank Singapore, InterOil Corp and Olam International, among others - said it was important for management to understand that risk management is not about compliance, but about running a business properly.

One common hurdle to creating a strong risk culture is arrogance, he added, when business leaders think that their old patterns will always hold true.

"Sometimes, people think that they know - when actually they don't," Mr Yap said. "One of the issues is that the past is sometimes no longer a predictor of the future. With business cycles getting shorter, you are faced with disruptive technologies, disruptive business models, and people think 'Oh, I've been doing this in the past, therefore it should be okay'. And one of the challenges is being able to move management out of their comfort zone."

Singapore Exchange chief regulatory officer Tan Boon Gin said companies should view risk as opportunities: "It's not just about avoiding risk, but seeking out and taking the right risk. It is by elevating risk to the strategic level that you can unlock its value creation potential by asking questions such as 'When can we afford to take more risk to pursue new opportunities?' or 'What are the risks that will give us the competitive advantage if we can mitigate them faster than our competitors?'

"I see risk finding a place in top management and playing a much bigger role in strategy," Mr Tan added.

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