SIAS INVESTORS’ CHOICE AWARDS 2022

Companies that fail to engage shareholders are the losers eventually: Sias’ David Gerald

Sias study shows corporate governance award winners outperform STI companies over time.

IT has been a busy year for the Securities Investors Association (Singapore) (Sias).

As Sias president and chief executive David Gerald says, the highlight of the association's investor-rights activities in 2022 has been its support for listed companies in organising virtual information sessions for their shareholders.

Earlier this year, the Accounting and Corporate Regulatory Authority (Acra), the Monetary Authority of Singapore (MAS) and Singapore Exchange Regulation (SGX RegCo) updated their guidance on the conduct of general meetings. Issuers convening a general meeting to seek shareholders' approval for certain corporate actions - such as capital reductions or distributions, whitewash resolutions and schemes of arrangement - now have to hold a virtual information session before the meeting.

Gerald said: "It used to be that only select companies would run such information sessions. But with the updated requirements, we have seen many more companies approaching Sias to help with engagements with their shareholders."

He believes that Sias - already seen as a stalwart supporter of investor rights - has become even more relevant, especially to companies trying to put their case across better to their shareholders on an independent platform.

"It is accepted that both (shareholders and companies) must actively engage for meaningful exchange and understanding," he said, adding that more robust engagement is "a positive development for the market".

"It helps to resolve issues amicably," he noted. "What this also means is that companies need to pay closer attention to the concerns of minority shareholders. In today's age of social media, not a single shareholder can be dismissed; each will need to have his or her concerns addressed fully."

Encouraging engagement

Gerald pointed out that timely intervention by Sias as well as the financial media has brought issues to the attention of shareholders, resulting in an increase in engagement by companies. He added that this has encouraged minority shareholders to speak up when they have concerns.

"Sias posing questions on the corporate actions and holding dialogue sessions with senior management and the board, allowing shareholders to be actively engaged with them, have all made shareholders more vocal," he said.

He said he has received feedback from chairmen of companies that the quality of questions by shareholders at annual general meetings (AGMs) has "improved tremendously". "Shareholders are also more educated and asking more critical questions, demanding accountability from boards and senior management."

But although the level of engagement between shareholders and companies has improved, there is still a small minority of companies that shy away from feedback from investors. Some minority shareholders have, for instance, bemoaned that interactions with the board and management during the question-and-answer sessions at general meetings have been hurried or even cut short.

"Only a minority of companies do this, and Sias will engage them when it is brought to our attention," Gerald said. "It doesn't help the company to shut minority investors up because, eventually, it will all come out. Such companies are better off realising the benefits of good engagement with the investors than shying away or shutting them up."

Minority shareholders could then speak up through their votes if the company does not engage them appropriately, he added. "Eventually, they (these companies) are the losers."

Trending upward

On the other hand, the companies that have put in the effort to engage with shareholders and put in place the best corporate governance practices have turned out to be winners in more ways than one.

For example, Gerald said a study conducted by the association found that winners of the Sias Singapore Corporate Governance Award (SCGA) outperformed the constituents of the benchmark Straits Times Index (STI).

Sias tracked the performance of a portfolio of counters comprising SCGA winners, using market capitalisation as portfolio weights and adjusting for corporate actions. It found that, between Jan 10, 2008 and Sep 28, 2022, the SCGA portfolio produced a cumulative total return of 110 per cent over the period, compared to a cumulative total return of 59 per cent for the STI companies.

The data also suggested that the SCGA portfolio is slightly more defensive than that of the STI.

"All told, a portfolio comprising high-quality, well-governed companies, outperforms the STI over time," Gerald said. "With these findings, I can think of no better example of how important corporate governance is to investors."

Gerald noted that corporate governance scores for Singapore-listed companies "have always shown an upward trend"; the average overall scores of Singapore companies rose from 39.5 points in 2018 to 55.3 points in 2022.

But he believes there is still room for improvement

For example, while Singapore ranked joint second with Hong Kong in the Asian Corporate Governance Association's 10th biennial Corporate Governance Watch Report released in May, Singapore listcos disappointed on the company disclosure front, he noted.

"The good news is that overall corporate governance scores of companies have improved during the Covid pandemic. The bad news is that the pace of improvement lags behind other markets."

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