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SGX RegCo says director watchlist not permanent

Industry praises move of penalising directors rather than firms, which, it believes, has a greater deterrent effect

The overall number of IPOs by Singapore issuers was up in the first six months of this year, with 12 listings raising US$459 million or 78 per cent more year on year, a report said.


THE Singapore Exchange (SGX) regulation unit's recent move to publish a watchlist of directors and executive officers whom companies cannot appoint on boards or as senior management without its approval is not a permanent penalty.

The regulator said that such persons can later be excluded if they subsequently decide to cooperate.

Last Tuesday, SGX RegCo published a list of 53 directors and executive officers - including top people from beleaguered firms such as China Sky Chemical Fibre, Midas Holdings and Trek 2000 International, "who do not possess the character and integrity expected of their office".

Market watchers lauded the move as effective as it penalises the directors - the key decision makers responsible for the companies - rather than punishing the company which is merely a corporate entity.

Lim Wei Wei, partner at Baker Tilly TFW, said this will hit independent directors hardest, compared to executive directors.

"With personal reputation at stake, they would adopt the right behavioural attitudes when responding to the exchange. Company wise, most (names) on the watchlist relate to 'scandal-hit' companies and they have already been 'punished' by a suspension or lower share price."

Associate professor of accounting at the National University of Singapore Business School Mak Yuen Teen also noted that the Bursa Malaysia stock exchange has moved away from reprimanding and fining companies to rapping and penalising directors and principal officers instead.

"This is because companies are not real persons and their actions are the actions of directors and key management. Further, fining companies penalises shareholders. SGX still imposes reprimands on companies and this has far less deterrent effect in my view."

Currently, SGX reprimands and fines both companies as well as directors and executive officers. In more serious cases, directors can be banned from holding company directorship(s) for up to three years.

One example of a company that was rapped rather than its directors was Singapore Post over its corporate governance probe which broke in late 2015.

A new regime that kicked in from October 2015 has also given the SGX's Listings Disciplinary Committee and Listings Appeals Committee the power to fine companies for breaches of listing rules. To date, the exchange has not fined any company as there has been no such breaches that warrant a fine since.

So far, the industry generally agrees that the director watchlist is a positive move on SGX's part, as it complements the more serious regulatory actions by statutory regulators such as the Monetary Authority of Singapore and Commercial Affairs Department.

Mr Lim said that the watchlist serves two purposes: "One, it acts as a directors blacklist. In a way, it signals to listed companies not to appoint those directors, otherwise they would face plenty of questioning and hurdles, not just from the exchange but also from their own shareholders on the appointment of those directors.

"Two, it acts as a 'shaming' mechanism, to signal to directors to behave better, or else risk reputational repercussions. It creates better information flow from SGX to companies and investors who otherwise may not be in the know of the problems that the exchange has encountered in soliciting the cooperation of those directors."

Annabelle Yip, joint head of corporate governance and compliance practice at law firm WongPartnership, said that the watchlist signals that SGX RegCo is serious about publicly holding accountable directors and executive officers who have fallen short of the standards expected of them.

"I think the best deterrent at the end of the day is rigorous, prompt and impartial enforcement of the law whenever directors and management commit wrongdoing.

"An errant director who would wilfully breach his duty for personal gain would likely be deterred more by the likelihood of prosecution and a hefty fine or the possibility of a prison sentence."

She suggested, however, for there to be a process by which these affected directors and executive officers persons are notified of the intention to include them in the watchlist, and be given the opportunity to respond - as the criteria for inclusion is "more subjective and potentially could include persons whose conduct did not warrant a formal reprimand".

Prof Mak also hopes that SGX will wield its disciplinary actions more frequently and stringently, noting that there are in fact many disclosure breaches that go unpunished. For example, there are many companies that fail to disclose material information on a timely basis, and other firms that "cite all sorts of excuses" in order to be granted extensions for releasing results or holding annual general meetings, he said.

"Those that SGX has blacklisted are just the tip of the iceberg in my view."

Prof Mak also hoped for enforcement actions to be doled out more promptly, since they are not by statutory regulators and should not require the same standard of proof.

When The Business Times asked SGX RegCo how the list of directors and executive officers was selected, and why directors of certain other companies whose boards have been making bad press were not included, an SGX spokesperson simply said that the watchlist sets out names whom SGX has reprimanded, or who in the exchange's opinion did not extend the necessary cooperation to the exchange.

But he added that: "Should the individual later contact the exchange to make his representations, we may choose to exclude him from the watchlist."

The objective of the list is to inform issuers that if they intend to appoint any of these watchlist individuals as directors or executive officers, they must consult SGX RegCo on suitability first, he said.

SGX does have the administrative power to object to the appointment of an individual as a director.

In April this year for example, it objected to the continuing appointment of Midas Holdings' then executive chairman Chen Wei Ping from being appointed as a director or executive officer in any listed company for the next three years.

The same went for Ma Ming Zhang, the then legal representative of Midas unit, Luoyang Midas Aluminium Industries, who was barred from being appointed as an executive officer in any listed company for the next three years. Investigations into the railway parts maker are currently ongoing.

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