Forerunners, stars, and budding newcomers in Asean's corporate governance scene

Malaysia was actually the first ASEAN nation to introduce a binding code to its exchange, i.e. Bursa Malaysia, in 2000. 
APRIL 20, 2020 - 11:19 AM

The Code of Corporate Governance (CG Code), like a guiding light, serves to strengthen listed companies in their governance. Its presence also acts as a confidence boost for foreign investors. Often, the presence of a CG Code has to do with the maturity of the capital markets, especially the stock exchanges in the particular nation. 

Speaking of corporate governance in ASEAN, the 10 member states can broadly be divided into three categories—the forerunners, the stars and the budding newcomers.

The forerunners – Singapore and Malaysia

These two countries introduced their CG Code almost 20 years ago, not long after the Organisation for Economic Co-operation and Development (OECD) released its first Principles on Corporate Governance in 1999. Malaysia was actually the first ASEAN nation to introduce a binding code to its exchange, i.e. Bursa Malaysia, in 2000. 

Singapore followed closely and introduced ours in 2001. It has been revised three times after that as we continue to push for higher corporate governance standards, with the most recent revision in 2018. In the latest revision, accepted good CG practices are now treated as a baseline for all listed companies in SGX as they are incorporated into the mandatory listing manual. Adherence to the 13 Principles in the CG Code is mandatory while Singapore listed companies will continue to comply or explain for any variation with the Provisions. Compliance with the Practice Guidance is voluntary.

The stars – Indonesia, The Philippines, Thailand

The stock exchanges and capital markets of these three countries have been doing very well compared to other ASEAN nations. They introduced their CG Code in the last 5 to 8 years, in time to catch on with the IPO fever which sees many of their larger family-controlled and state-owned companies being listed on their local bourses as the nation’s economy picks up after the global financial crisis. The high price-to-earnings ratio given to many of the IPOs in these markets definitely
signifies a growing interest of investment funds flowing into this part of the world.

The budding newcomers – Cambodia, Laos, Myanmar, Vietnam

Vietnam has released its first version of the CG Code of Best Practices for Public Companies in August 2019, while Cambodia, Laos and Myanmar are looking to introduce their first CG code in the near future.

Vietnam’s CG Code is very comprehensive and prescriptive, with one of the recommendations even going as far as suggesting to have at least two female board members or at least 30 per cent female representation on board. Singapore has not even gone as far as prescribing a number. However, it is also stated that Vietnam’s CG Code at this point in time is just for the authorities to evaluate and improve the public company framework and practices for corporate governance, potentially issuing a “Comply or Explain” CG Code in the near future.

This means that the current CG Code has no enforcement value, unlike those found in other countries. Other than the abovementioned nine nations, we can also look at Brunei, which does not really fall into the three categories. Brunei is an outlier as it does not really depend on its capital market to drive its economy – it introduced a code as early as 2014 but till now, it is an entirely voluntary code with no binding force.

Testing of waters

Overall, other than Singapore and Malaysia, which have more matured capital markets and had introduced a binding code for all listed companies on their Exchanges right from the beginning, most of the developing capital markets tested the waters initially by introducing a non-binding/guidance code to allow the market to be familiar with the idea of corporate governance.

This can be due to the fact that these nations mostly adopt a civil law system which generally has weaker protection for shareholders. They would need to strengthen the laws or legal frameworks on corporations and the securities markets before introducing an overarching corporate governance code. This approach is good as it allows the companies and market players to be familiar with the idea of CG so that it would be less painful during the compliance process. This may involve steps such as finding suitable people to sit on the board as independent directors; and introducing new internal processes and guidelines.

What’s next for ASEAN? The OECD continues to do periodic surveys on corporate governance in Asia, so there is definitely pressure by the ASEAN nations to step up their corporate governance framework to capitalise on the current inflow of investment funds into this part of the world. Other international bodies, like the International Monetary Fund and to a lesser extent, the World Bank, have also been instrumental in helping ASEAN nations to come up with a CG framework. The guiding light is here to stay and it looks to shine even more brightly in ASEAN in the future.

The writer is an Associate Professor at the National University of Singapore (NUS) Business School & Faculty of Law. She is also the Academic Director of the UCLA-NUS EMBA Programme.