S'pore tops Asia-Pac in corporate governance: study

Recent revisions to the CG Code and the SGX Listing Rules have enhanced the CG landscape here; UK pips US to lead global ranking

Michelle Quah
Published Wed, Nov 19, 2014 · 09:50 PM


SINGAPORE ranks among the top countries in the world - and the best in the Asia-Pacific region - when it comes to having clear and comprehensive corporate governance (CG) requirements, says a new study.

The report by ACCA and KPMG, titled Bridging Rules and Flexibility, studied CG requirements in 25 countries. Perhaps expectedly, it ranked the United Kingdom and the United States as first and second in the world, ahead of Singapore (view infographic).

More surprisingly, Brazil and Russia were among the top 10, while Japan and Canada received lower than expected scores.

The study focused on identifying what type of instruments were adopted across global markets, that is, the requirements contained in the CG Codes of the various markets. Such codes - for example, Singapore's Corporate Governance Code (CG Code) - are typically endorsed by the government or stock exchange administrator of the market, and are generally applicable to publicly listed companies. They vary in strength from voluntary, "comply or explain", to mandatory.

The study examined these in terms of clarity and completeness of content, degree of enforceability and prevalence. It assessed these values according to a framework based on principles contained within the OECD Principles 2004 and KPMG's Board and Governance Principles.

For Singapore, its recent revisions to the CG Code and the Singapore Exchange (SGX) Listing Rules, particularly in the areas of assurance, audit committees, disclosures and risk governance, have enhanced the CG landscape, the report said.

Still, this does not mean the country doesn't still have work to do.

"Singapore's corporate governance requirements for listed companies have scored relatively well but these requirements are predominantly principles-based," observed Irving Low, partner and head of risk consulting at KPMG in Singapore, who spearheaded the study. "While we did not examine levels of adoption, KPMG's experience with clients suggests that there are still challenges adopting corporate governance requirements in practice."

Leong Soo Yee, head of ACCA Singapore, added: "While the scores suggest that Singapore has performed relatively well across most of the CG pillars, there are still areas for improvement. These include strengthening requirements in relation to documenting the role of the board, optimising board diversity and skillsets, disclosing codes of conduct, formalising board performance evaluations and disclosing more in relation to stakeholder engagement and CSR (corporate social responsibility) reporting."

Singapore was also found to have inconsistencies between its multiple CG instruments. For example, the study said, SGX Listing Rules specify that the board must provide an opinion on the adequacy of internal controls, whereas the CG Code specifies that the board must comment on the adequacy and effectiveness of risk management and internal control systems.

Singapore also faces a challenge in being part of the larger regional grouping that is Asean. The study found that Asean, as an economic zone, lagged behind BRICS (Brazil, Russia, India, China and South Africa) and the "Rest of the World" grouping comprising the UK, the US, Australia, Hong Kong, Taiwan, South Korea, the United Arab Emirates (UAE), New Zealand, Canada and Japan.

It found that the Asean region still displays a wide divergence in CG maturity levels and requires commitment and support from regulators and policymakers to improve and/or better support the current requirements.

Singapore and Malaysia had well-defined requirements, but markets such as Brunei, Myanmar and Laos had poorly defined or non-existent requirements. The study noted that, while efforts are underway in each market to explore CG improvements, an increased focus is needed to establish a common understanding of requirements to instil confidence to invest in Asean markets.

Mr Low said: "With the Asean nations coming together in a single market next year, Singapore should strive to take the lead and support other Asean member nations to improve corporate governance. A stronger Asean has flow-on effects for foreign investment and future capital flows into the region."

The study also found that developed markets had better defined requirements than developing markets. Six out of the top 10 highest scoring markets were developed, indicating that the maturity of the economy and capital markets influences, to some extent, the need for well-defined CG requirements.

Equally, the study noted, as developing markets seek to build confidence in capital markets, establishing well-defined CG requirements helps them achieve that - as evidenced by India, Malaysia, Russia and Brazil receiving scores above the average of developed markets.

Low scores, however, do not necessarily indicate a lack of CG requirements in these markets. Mr Low explained: "What low scores do reflect is that some of the corporate governance requirements were not reflected in the actual Corporate Governance Code of the market, although they might be present in other corporate governance instruments."


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