Asking the right questions

EVEN as regulators and the boards of publicly listed companies continue to boost their corporate governance efforts, investors must play a more active role in pushing for greater transparency.

While governance in Singapore's corporate sector has improved in recent years as a result of various measures, the gains have not been across the board. Larger companies have generally performed well, while smaller ones are languishing, according to trends identified by the annual Governance and Transparency Index (GTI).

The GTI assesses the financial transparency of companies based on their annual announcements, and is published by NUS Business School's Centre for Governance, Institutions and Organisations (CGIO) in collaboration with CPA Australia.

Investors can now access the GTI on the Singapore Exchange's (SGX) website, allowing them to better assess how their portfolio companies stack up in terms of governance.

Yet, industry specialists argue that better governance should not be the sole domain of boards and regulators. Rather, pushing for more disclosure should be an ongoing concern for shareholders too, as the performance of their investments relies on the diligence of the directors to act in their best interests.

Good corporate governance helps businesses create and sustain value and investment returns to shareholders, says Themin Suwardy, associate professor of Accounting (Practice) at the Singapore Management University.

"It is quite sad if investors only care about corporate governance when something goes wrong. In some ways, it is like only worrying about your health when you are already lying sick on a hospital bed," he says. "Investors should always be concerned with corporate governance because good governance is actually aligned with their long-term interests."

So how can investors go about engaging with the boards of their companies more effectively?

David Gerald, the president of the Securities Investors Association (Singapore), believes that it starts with getting to know the company's management, business model and strategies.

Shareholders must also make an effort to understand the company's financial statements and annual report. Having developed a deep understanding of the business, they then have to actively participate at meetings to seek accountability.

"They should engage with the board, asking questions and seek clarifications," advises Mr Gerald.

One key tool to influence governance at a company is an investor's right to vote at annual general meetings (AGM). Where resolutions presented at an AGM are of questionable governance quality, investors should indicate dissent by voting against management recommendations.

"For example, if executive pay or bonuses are excessively high and cannot be shown to be commensurate with its contribution to the long-term interests and sustainability of the company, or re-appointment of directors whose skills no longer match the future strategic goals of the company," says Irving Low, partner and head of markets at KPMG Singapore.

Ultimately, investors can also withdraw their funds to demonstrate the company's failure to address concerns, he adds.

One example of an issue where investors can push their companies to do more is in the provision of detailed AGM minutes, says Mr Gerald. While this provision is in Singapore's Code of Corporate Governance, the number of companies adhering to it is very low.

Compliance with the Code - which was first issued in 2001 and revised several times since - is not mandatory, but listed companies are required to disclose their corporate governance practices and give explanations for deviations from the Code in their annual reports.

"Investors can push boards to be accountable if they document and publish their own version of the meeting. While this may not be the official meeting minutes, it will go a long way to communicate to all investors the issues discussed at the AGM," he says.

Building good investor relations

Just as investors should take a more active interest in their companies, the boards and management of these firms must also make the effort to get to know their shareholders better.

It is in the board's interest to cultivate a well-educated and supportive shareholder base as it can generate recognition and credibility for the company in the market, making it more attractive in the eyes of current and potential investors.

"When a company develops a healthy relationship with the investor community, it creates for itself increased access to capital. The community of investors looks at the company as a worthwhile investment opportunity when it gives back to its investors - not just in profits, but also in financial security and information," says Philip Yuen, CEO of Deloitte Singapore. "The conversation is by no means one-sided. Investors do have the opportunity to give feedback to the company and express their view."

While knowing each and every investor personally is not practical, companies should at least understand their motivations - are they searching for capital gains or a steady income, for instance?

Many companies also struggle with balancing investor expectations for disclosure and safeguarding commercially sensitive information, notes Mr Yuen, who is also divisional president for Singapore at CPA Australia.

One useful approach to help with this is to develop a proactive investor engagement programme. Such engagement has traditionally been done through investor meetings and regular analyst briefings during the announcement of quarterly results and annual reports.

However, with new technology and a rising demand for information on a timely basis, traditional methods no longer suffice. Instead, companies should look at pushing out information through channels such as digital media, which can include informative, interactive and easy to navigate websites or mobile and tablet apps.

However, while putting in place such initiatives would be ideal, many smaller firms may not be equipped to raise their governance game. Prof Suwardy notes that while many Singapore companies go beyond what is prescribed in the Code of Corporate Governance, they tend to be the larger enterprises.

He says: "We should recognise that companies of different sizes do have different resources and capabilities in attracting the right calibre of people to sit on their boards."