Firms obsessing over corp governance rules may lose sight of outcomes: Ong Ye Kung

Singapore

OBSESSING over rules and regulations may cause companies to lose sight of the outcomes of good corporate governance, Monetary Authority of Singapore board member Ong Ye Kung said on Monday.

"When that becomes the preoccupation, a process-driven, tick-box approach rather than outcome-based approach takes over. Companies observe rules in form, rather than in spirit or in substance.

"But we cannot wish this phenomenon away," he said in his opening address to more than 80 participating companies at the 10th Corporate Governance Week organised by the Securities Investors Association Singapore (SIAS).

Like it or not, rules and regulations are a large part of corporate governance and are a key mechanism to bring about better corporate governance, he said.

Mr Ong, who is also Education Minister, cited three points to be considered in order to draft better rules and regulations that create good long-term outcomes.

The first is that rules need to cater to the rapid advancement of the technology that is disrupting industry and market activities, while remaining technologically neutral.

"One example is the Securities and Futures Act (SFA), which regulates securities and derivatives activities, regardless of whether these services are provided via brick-and-mortar facilities or fully electronic platforms."

The second point to consider is the need to be risk-focused, that is, having a differentiated approach to rule-setting, depending on the risks the activity or the entity.

Mr Ong again cited the SFA, which has multi-tier rules applicable to various entities and the nature of their activities.

The third point, relating to how comprehensive rules should be, is less clear-cut, he said, as there are two schools of thought. Given the complexities of current industries and markets, one camp argues for a prescriptive approach, with rules to provide some certainty and comfort to market participants. The other camp believes in a less prescriptive approach, so that market participants have more leeway to come up with the best practices.

Mr Ong said Singapore's education sector went through a period of applying rules prescriptively to standardise practices across schools some two decades ago.

Its focus has since shifted towards giving the schools room to develop their own innovative practices.

"My conclusion is that whichever approach we take for rule-setting, it has to be fit for the times, and cognisant of the stage of development of the industry. This should also be a key consideration in the review of rules related to corporate governance."

On this note, he brought up the practice of quarterly reporting, a practice now under review by the Singapore Exchange.

Opponents of quarterly reporting say it over-emphasises short-term results at the expense of long-term strategies, and imposes high compliance and cost burdens.

"I think the outcome will depend on the assessment and judgment as to whether the industry is mature enough to abide by the spirit of the requirement. Companies must want to conduct meaningful engagement with their stakeholders, keep them well-informed through pertinent, timely and high-quality disclosures," said Mr Ong.

SIAS president and chief executive David Gerald proposed that companies give shareholders more clarity on their business models by including more information on opportunities and challenges.

In his welcome address, he noted that in the disclosure of remuneration, companies can improve by encouraging greater transparency on their remuneration policies and clearly establishing links between pay and performance. It is also crucial that companies be accountable for the remuneration of key management personnel, especially if they have consistently reported losses.

At the end of the day, good corporate governance does not only benefit a company and its stakeholders.

Mr Ong said: "If it is widely practised, it leads to an atmosphere of collective trust in Singapore companies. This is important because it will strengthen the Singapore brand and open up opportunities for everyone."

The event was held at the Suntec Convention and Exhibition Centre.