Singapore's corporate governance in the pandemic year: performances and prospects

THE Covid-19 crisis shows no sign of stopping and companies must be adaptable to thrive in such an operating environment. With the revised Code of Corporate Governance in effect, companies have taken steps to align their practices to the new code.

Despite the disruptions caused by the pandemic, SGTI 2021 has maintained its upward trend and companies continued to score well, reaching an all-time high mean overall score of 68.7 (Figure 1) - a minor increase of 0.8 point over the previous year. The results are commendable and suggest an improving corporate governance landscape.

Companies generally improved or maintained their scores in each section of the B.R.E.A.D framework, except for the Board Responsibility section which saw a slight decrease (Figure 2).

Although sustainability practices reporting under the Engagement of Stakeholders section maintained its good results, there is still room for improvement.

Observable effects

SGTI 2021's results have provided several unique insights.

Generally, companies that ranked in the bottom half of SGTI 2020 have shown an improvement in score, with the bottom 100 companies showing significant improvements, while the top 100 companies experienced an overall decrease in score.

Additionally, the size effect as observed in the previous year is weakening (Figure 3). Correlation coefficient measures the strength of the relationship between two variables and the decrease in the correlation coefficient between the company's score and its market capitalisation to 0.32 from last year's 0.60 indicates that there is a weaker positive relationship between the size of a company and its SGTI score.

SGTI 2021 shows that the smaller size companies that tend to rank lower have scored well and are catching up to the top-ranking companies. This indicates an overall improvement in disclosures and the implementation of good corporate governance practices for all listed companies and demonstrates that a company's size should not act as a hindrance for its endeavours to improve its corporate governance and disclosures.

Director appraisals

SGTI 2021 showcases an outstanding trend of the apparent increase in emphasis placed on evaluation of individual directors and board committees, with significant improvements across the board for such disclosures. Most notably, 73 per cent of companies disclosed the criteria for individual director appraisal and 88 per cent of companies conducted an annual performance assessment of their board committees, which is a substantial improvement from last year's 58 per cent and 77 per cent respectively (Figure 4).

The uncertainty introduced by the Covid-19 pandemic into the business environment seems to have led to companies stepping up their assessment of the performance of their board, setting criteria and making assessments to ensure that their directors and board committees perform up to their expectations.

In view of increasing concern from stakeholders regarding the performance of the company, disclosures have increased to provide stakeholders with assurance and instil confidence that the company is in good hands during such turbulent times.

Sustainability practices

SGTI 2021 illustrates that the upward trend for sustainability-related disclosures seems to have either plateaued or decreased. Although there was a higher proportion of companies producing an annual sustainability report, the sharp increase in sustainability reporting seen in the previous year upon the onset of Covid-19 shows signs of tapering off.

Disclosures pertaining to sustainable value chain processes decreased to 82 per cent from last year's 87 per cent and disclosures on employees' training and development decreased to 77 per cent from last year's 80 per cent (Figure 5). One possible explanation is the companies' diversion of their limited resources to other means to cope with Covid-19 measures at the expense of their sustainability practices. Additionally, the Covid-19 restrictions may have made it difficult for companies to conduct physical training sessions and the switch to online training programmes takes time to implement. While the decrease in performance for sustainability-related items is minor, it is still a cause for concern.

Sustainability should stand at the forefront of all business decisions and be an integral aspect of a business's strategic management and corporate planning, as sustainable corporate governance is the key to long-term value to ensure that the company continues to prosper in the future. Although corporate growth and profitability is important, companies wield power to influence environmental, social and economic development through their corporate practices, which should not be taken lightly.

Companies must strive to implement more environmentally friendly practices to address climate change, as it has been attributed as the cause of increased frequency and intensity of irregular weather conditions, such as flash flooding and heat waves, that would cause devastating disruption to businesses and society if left unchecked. As a global citizen, Singapore and its companies must take an active role in managing and mitigating climate change.

Sustainable corporate governance

As the current pandemic situation evolves possibly into an endemic one, companies should continue to improve their corporate governance, implementing new measures and practices while accounting for the new norm in the foreseeable future. Good corporate governance practices ensure that companies remain steadfast and resilient, with the necessary arsenal to tide over any risks that may materialise and ensure that they continue to prosper amid the crisis.

With the increasing integration of sustainability into corporate governance, regulatory authorities may consider reviewing the current Code of Corporate Governance, with a greater emphasis on the complete environmental, social and governance (ESG) aspects. Each company's board of directors must take the helm and push for the linkage of sustainability and corporate governance practices, tying in sustainability with the company's performance and growth.

• Lawrence Loh and Zecharias Chee are respectively director and senior research associate of the Centre for Governance and Sustainability at NUS Business School