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All in the name of shareholder activism

David Gerald has worked tirelessly to protect the rights of shareholders since he founded SIAS in 1999.


"The internal audit function should not be outsourced. It needs to be a permanent feature of the CG structure," says Mr Gerald.

SINGAPORE'S star activist David Gerald is so intent on getting shareholders to speak up at meetings with company boards that he's taken out one big impediment standing in their way - what should they ask?

As president of the Securities Investors Association of Singapore (SIAS), a shareholder rights group he founded 17 years ago to protect investor capital, he leads an initiative to feed shareholders questions - three, to be exact, or more per company after perusing the annual reports - which are posted on the group's website so they can be raised to the board at meetings.

It's a new initiative that began this year that has so far covered some 25 firms and appears to be a fool-proof strategy to raise the quality of board-shareholder engagement which sorely needs to be ramped up.

"Many retail investors leave it to a handful of knowledgeable investors on financial matters to take the lead in these meetings. This is not good enough," he says, urging for active participation among more retail investors.

The signs are encouraging. A third of the firms that were reviewed have made their responses publicly available while the entire exercise has also piqued the interest of institutional shareholders.


Next year, SIAS hopes the "planted" questions on strategy, financial performance and governance practices will cover 250 companies and eventually, about three to five years if Mr Gerald has his way, the list will cover all the listed companies on the Singapore Exchange.

"It's important to cover all the companies. The idea is to get shareholders to have a look at a company's annual report and the questions on our website to pose to the board at the AGMs," he elaborates.

This is one of several initiatives by the association which at the heart of all it does is educate investors, and has drawn a grassroot network of over 70,000 investors to strengthen the process of good governance in Singapore. Towards this end, it expects to add other new initiatives on a yearly basis.

One of its earliest initiatives that has resonated well with corporates is to give the good guys medals for walking the extra mile on good governance principles, which is what the SIAS Investors' Choice Awards, on its 17th run this year, is all about. "We can see that companies are quite happy to be recognised by an investor body for making strides in CG practices," he says.

The recognition goes beyond just the feel-good factor as a study by SIAS has found that the stocks of the companies that have bagged these awards, "all of them, big, mid or small cap ones" have outperformed the local bourse's key Straits Times Index. That could also be an impetus for other companies to clean up their act.


The methodology for the rankings this year has been tweaked and for the first time, includes data from Thomson Reuters to reflect a company's financial performance while the CG standards, as in the past, was based on the CG principles of OECD as well as Singapore.

This is in line with the general notion - and there's lots of data to prove this - that sound governance practices that include a host of plus points such as an effective board, better control environments and even lower cost of capital, positively influence a company's performance.

But naturally, given the multitude factors that impact businesses, this is not always the case.

"If a company is well governed, it doesn't always mean that their financial performance is good as there are external and internal factors that affect businesses.

"But if they have good risk management and internal controls, it will still hold them in good stead or even aid their turnaround as they may still be able to attract capital. If risk management fails, the whole foundation fails," says Mr Gerald.


That dual-class shares could eventually become a part of the local bourse's DNA after SGX's Listing Advisory Committee (LAC) gave the nod for such structures here has drawn, well, dual views.

Its proponents say such a structure would energise the oomphless IPO scene here as it could draw regional heavyweights to lob their new stock offerings on SGX.

On the other hand, detractors warn that the structure opens the door for abuse and opportunistic behaviour, this despite safeguards in place, that could hurt shareholders.

Mr Gerald espouses a balanced approach on the matter and makes a case for it that with safeguards, dual-class shares could be allowed to list although he adds that newbie retail investors or those who are not clear about such structures ought to stay away.

He suggests that SGX consider making dual-class shares a specified investment product or restrict its access to accredited investors.

"Yes, some dual-class shares have caused (investment) losses. But some others have provided good returns. Investing in any instrument is a risk. It doesn't mean we should shut the door on that option altogether. Why should we be so myopic?" he says, adding that although it is open for public consultation, such a structure on SGX is more or less a "done deal".


What would he like companies to do more of? "Soul searching," he says, without missing a beat.

By that he means companies hiring an external party to review its processes every three to five years or better still, to have a full-time internal audit who acts as the "eyes and ears" of shareholders, the top management and the chairman.

"The internal audit function should not be outsourced. It needs to be a permanent feature of the CG structure. That's important," he says.

Another beef he has is that not all companies have yet to articulate their dividend policies, particularly those which are sitting pretty on plump kitties and have not indicated expansion plans or acquisitions.

"When they don't tell shareholders what they are going to do with the money, investors become nervous," he laments.


The tempo of shareholder activism in Singapore has picked up a good deal over the years. Mr Gerald should know as he has been close to the ground since he set up SIAS in the late 90s to fight the Malaysian government which froze billions of dollars of Singaporeans' investment monies in Clob.

"SIAS can only be stronger in five to 10 years," he says. The association has rolled out nearly 1,000 investor programmes for over 124,000 Singaporean investors between 2000 and 2014.

Perhaps emboldened by the advocacy group's "intervention" over the years which has narrowed the gap between boards and shareholders, more shareholders these days are standing up to seek accountability and challenging actions by companies.

But the numbers still appear small, Mr Gerald admits. And with that, there remains much more work to do.

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