Navigating an evolving corporate governance landscape
The need for robust governance and investor education has become even more critical in today’s complex environment
AMID a fast-changing corporate governance environment, one issue that has risen to prominence in recent years is the importance of sustainability-related disclosures and reporting by listed companies.
To reflect this trend, this year’s Sias Investors’ Choice Awards featured the inaugural Singapore Corporate Sustainability Award (SCSA), marking a significant step towards recognising companies for their comprehensive performance in environmental, social, and governance (ESG) aspects of sustainability disclosures and reporting. Ten corporations were awarded the SCSA, reflecting their holistic approach towards sustainability.
Through robust sustainability reporting, these corporations not only elevate their brand but also gain a competitive advantage in the market. David Gerald, founder, president and CEO of the Securities Investors Association (Singapore) (Sias), said: “When a company demonstrates its commitment to sustainability, it is found to improve reputation and brand value. Investors are increasingly prioritising sustainability, hence providing detailed sustainability disclosures can attract these investors, potentially increasing demand for its shares.”
He added: “Sustainability reporting can also set a company apart from competitors, especially when it demonstrates leadership in sustainability practices. For instance, the inaugural SCSA this year will be able to recognise companies that have holistically done well in the overall ESG aspects of sustainability disclosures and reporting. This can lead to a stronger market position and enhance shareholder value.”
Furthermore, such transparency in reporting allows for better risk mitigation, particularly concerning climate-related risks, aligning with recent Singapore Exchange (SGX) mandates. This, in turn, reassures shareholders of the long-term financial viability of these companies while also contributing to a stronger market position. The SCSA scoring is aligned with the latest sustainability reporting listing rules for Singapore-listed companies, which includes the assessment of climate-related disclosures.
Addressing concerns over Spacs
Another key topic that has emerged on the local corporate scene is the governance of instruments such as special purpose acquisition companies (Spacs), essentially blank-cheque companies created to raise funds through an initial public offering with the aim of acquiring an existing private company.
A NEWSLETTER FOR YOU
Friday, 12.30 pm
ESG Insights
An exclusive weekly report on the latest environmental, social and governance issues.
While Gerald recognised that such innovative instruments are necessary in order for SGX to expand its suite of products, which will provide retail investors with new investment opportunities, there may be potential governance issues that must be considered. For instance, the sponsor has vested interests and stands to benefit from proceeding with a business combination rather than having the Spac liquidated. The potential for a conflict, whether perceived or actual, is further heightened if the sponsor proposes to acquire a target company in which it already owns or holds a partial stake.
“As the 24-month clock winds down for the Spac to merge with a target company, sponsors may feel pressured to proceed with a business combination, while at the same time hoping that as few public shareholders as possible exercise their redemption rights,” he explained.
“What is at stake is the sponsor’s promote, which can be as high as 20 per cent. It is a tough balancing act to fully disclose all the risks associated with the target business in a manner that is understandable to the public shareholders without overselling or underselling the growth prospects,” Gerald added.
To help address this issue, Sias appoints research firms for every Spac transaction to provide independent research on the “de-Spac”, which refers to the process of a Spac acquiring the private company. The research provides guidance to help investors make an informed decision on how to vote for the proposed merger with the target company.
Sias also encourages Spac sponsors to actively engage with their stakeholders so that they are able to make informed decisions. Gerald emphasised that Spacs, like any listed company, should appoint independent directors who truly embody independence both in form and substance to properly look after the interests of public shareholders.
He added that shareholders can also protect themselves through proper investor education. “Shareholders can protect themselves by doing their homework and thoroughly understanding what is at stake. They should understand how Spacs are structured, how they are governed, and what happens when a target is identified and a ‘de-Spac-ing’ is proposed. After all, if they are uncomfortable with the choice of target, they can always redeem their investment at no or minimal loss,” he said.
“Sias has always maintained that ‘knowledge is power’, and the same applies here – the more investors know, the greater they will be able to protect their own interests. Do not invest in anything you don’t understand,” he added.
Winning shareholder trust
Against a backdrop of high-profile corporate scandals globally, this year’s Corporate Governance Week, to be held on Nov 6 to 10, highlighted the importance of rebuilding trust through its theme: “Building Trust through Effective Corporate Governance, Navigating Legal, Ethical, and Social Challenges”.
To realise this goal, companies must have strong and independent leaders on the board that focus on good governance, which is vital for long-term sustainability of businesses. “Good governance promotes sustainable, compliant, and ethical business practices while benefiting from increasing value and positive financial returns. Beyond ‘G’, companies must also consider ‘E’ and ‘S’ factors that benefit not just the shareholders, but the wider group of stakeholders such as customers, employees, suppliers and the communities,” said Gerald.
To enhance corporate governance, companies should adopt a code of ethics and conduct, complemented by ongoing training to foster ethical behaviour among employees. Organisations can also leverage technology by employing tools such as data analytics and artificial intelligence to safeguard assets and detect fraud, including activities related to money laundering. Furthermore, companies should effectively communicate their accomplishments through various channels such as annual reports, websites, investor relations briefings and social media platforms to build trust with shareholders.
Sias, with its various initiatives and platforms, is bridging the gap between companies, stakeholders and investors, as it works to promote a culture of effective corporate governance.
Said Gerald: “By organising various platforms, such as Corporate Connect, dialogue sessions, investor day, fireside chats and other corporate events, for companies to communicate directly with investors, Sias helps investors to gain more understanding and knowledge on the transparency and accountability of companies.”
Copyright SPH Media. All rights reserved.
