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Outcome-based approach to corporate governance key for firms: Ong
PREOCCUPATION with rules and regulations is causing companies to lose sight of the outcomes of good corporate governance, Education Minister Ong Ye Kung said on Monday at the launch of the 10th Corporate Governance Week by the Securities Investors Association Singapore (Sias).
In his opening address to members from over 80 participating companies at the Suntec Convention and Exhibition Centre, he said: "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 rules and regulations are still fundamental to driving stronger and better culture for corporate governance. Mr Ong, who is also a board member of the Monetary Authority of Singapore (MAS), highlighted three trends that should be taken into account in order to bring about better guidelines to achieve long-term outcomes.
For one, rules need to cater to the rapid advancement of the technology that is disrupting industry and market activities.
Sias president and chief executive David Gerald, who was also at the event, shared similar sentiments in his welcome address, saying that "digital technologies are turning the world upside down".
"We cannot think in terms of traditional corporate structures anymore. Their boundaries have become more fluid and porous," he said.
Another clear trend is the need to be risk-focused by having a differentiated approach to rule-setting, depending on the risks the activity or the entity. Mr Ong cited the Securities and Futures Act, which has multi-tier rules applying to different entities and nature of their activities.
Finally, he noted the long-standing debate on how comprehensive rules should be today, given the complexities of current industries and markets.
Some argue that rules should be less prescriptive and give more autonomy to market participants to come up with the best practices while others are for a more thorough set of rules to navigate the multifaceted nature of today's business landscape.
To solve that dilemma, Mr Ong made reference to the education sector that went through a period of standardisation some two decades ago. Having achieved that, its focus has since shifted towards making room for schools 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," he said.
On that note, he brought up the practice of quarterly reporting that is currently under review by the Singapore Exchange. Opponents of quarterly reporting have argued that it "results in an over-emphasis on short-term results at the expense of long-term strategies, and imposes high compliance and cost burdens not commensurate with its benefits".
"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.
At the end of the day, good corporate governance does not only benefit a company and its stakeholders. "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 more opportunities for everyone," he added.