Better corporate governance disclosure scores, but room for quality to improve: study

Raphael Lim
Published Tue, Sep 13, 2022 · 05:00 AM

A REVIEW of Singapore Exchange (SGX)-listed companies’ Code of Corporate Governance (CG Code) disclosures has found a general improvement in scores, although the standard of disclosures could be improved if companies were more forthcoming.

The review – conducted by KPMG in Singapore – found that companies scored better for both presence and quality of CG Code disclosures in 2021 compared to an earlier 2016 study, but improvements in the quality component were slower.

Companies were evaluated based on whether disclosures were made, and on their quality – such as whether forthcoming and meaningful information was provided. Quality accounted for two-thirds of the scoring.

The improvement in scores may be due to changes in the CG Code, the report noted. The 2016 study had been based on the 2012 version of the code.

“The streamlined code has made it easier for companies to comply with the code,” the report said. “However, it is noted that the standard of disclosures can be improved if companies provide more forthcoming disclosures.”

Irving Low, partner and head of advisory (consulting) at KPMG, noted that one of the laggards was remuneration.

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“The presence scores have improved significantly, but not the quality score,” he said. “We continue to see disclosures which are not as forthcoming.”

Remuneration disclosures by companies “tend to be boilerplate”; and few companies highlight how remuneration structure is aligned with the interests of shareholders and other stakeholders, or how these promote the long-term success of the company.

Just 5 per cent of companies fully disclosed the remuneration amount in dollar value paid to both directors and chief executives on a named basis, with breakdowns.

KPMG said companies could disclose more transparent reasons for non-compliance, as well as information on how remuneration arrangements are designed.

Companies also scored relatively poorly on shareholders’ rights and engagement, despite improvements from 2016.

Only 27 per cent of companies had a formal dividend policy, while 70 per cent said they did not have a formal policy but would still distribute dividends. Less than half had an investor relations policy.

“Having a (dividend) policy that is aligned with the company’s goals provides shareholders with the assurance that the company is seeking to maximise its value for its shareholders,” the report noted.

On board matters, scores were generally improved; but room for improvement was identified in the areas of board renewal and diversity.

The review found 48 per cent of companies had at least 1 independent director (ID) serving beyond 9 years, but the explanations provided for why they were retained as IDs were often not meaningful.

“Companies often mention that the board and nominating committee have reviewed the independence of the director in character and judgement and deemed them independent. But very few companies provided details on the process used to form their conclusion,” the report said.

The report also found that “board diversity-related disclosures are often sketchy”. Some 41 per cent of the companies said they had a board diversity policy, but the majority did not specify any targets or which aspects of diversity were being considered.

KPMG’s Low noted that new listing rules that took effect in January this year require a board’s diversity policy to be disclosed in the annual report, and he believes that companies’ performance would have been better had the survey been done a year later.

Annual reports of 585 mainboard- and Catalist-listed companies whose financial years ended between Jul 1, 2020 and Jun 30, 2021 were analysed in the latest review of CG Code disclosures.

SGX Regulation chief executive Tan Boon Gin said in a press briefing that the results of the review are encouraging in terms of showing improvements in both presence and quality of disclosures.

“What it also shows is that framework changes can drive improvements, whether it is through streamlining the code or whether it is by hardcoding certain things in the listing rules,” he said.

SGX’s upcoming consultations are aimed to address 2 persistent trends of long-serving IDs and remuneration disclosures that need to be tackled by framework change, he added.

Other issues that the market may face could be addressed in thematic initiatives, Tan said, adding that SGX RegCo is planning to engage companies on a cyber initiative soon.

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