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Adapting to the new normal

CEOs of the four winners of the Singapore Corporate Governance Awards share how the revised CG Code will affect listed companies

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"Strong governance and sustainability practices form the foundation for sustainable, long-term business growth, which in turn support long-term value creation. We have seen how good corporate governance, coupled with responsible and ethical business practices, enables a company to perform better and also helps raise its profile and reputation." - Ms Chua.

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"Investors today are more well-informed on macroeconomic developments, and express greater interest in a company's strategies, development initiatives and investment outlook. We make it a priority to engage our investors regularly and share with them timely and quality information about our business and market outlook." - Mr Tan.

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"The US sub-prime crash highlighted the need for effective corporate risk management, the importance of executive compensation structures that ensure the long-term sustainability of the firm, the need for strong and effective board oversight, and the importance of shareholder involvement. These remain relevant to this day." - Mr Sim.

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"We constantly review the composition and diversity of the board to enhance the quality of the board, injecting new blood and sharing fresh perspectives for the wellness of the company. We believe diversity of expertise and experience of our board will foster constructive debate and prevent groupthink." - Mr Lee.

ROUNDTABLE PARTICIPANTS

  • Chua Sock Koong, Group CEO, Singtel
  • Tony Tan, CEO, CapitaLand Mall Trust Management
  • Sim Wing Yew, CEO, Vicom
  • Lee Sze Leong, managing director and CEO, Sing Investments & Finance

Moderator: Lee Meixian, correspondent, The Business Times

Q: How will the new corporate governance rules that kick in from 2019 to 2022 affect your company and others?

Mr Sim: The key changes to the rules relate to strengthening board composition and director independence. For example, the requirement for the composition of independent directors on a board with a non-independent chairman has been changed from at least half to a majority with effect from Jan 1, 2022.

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Another key change is the introduction of the nine-year rule for independent directors and the requirement for a two-tier shareholders' vote for affected directors to continue as independent directors after nine years, effective Jan 1, 2022.

The Vicom board is made up of a majority of independent directors. This follows a concerted board renewal process which started in 2017. Vicom has seen the retirement of three directors and appointment of four new directors to refresh the board and enhance diversity. The introduction of the nine-year rule will have no impact on the board's independence.

Mr Lee: Setting a hard limit of nine years to define the independence of a director is a change that may impact many listed companies as many of these companies have independent directors with more than nine years of service under their belts.

For us, as a public listed company governed by the Monetary Authority of Singapore, we embrace and advocate good corporate governance practices. We have adopted a "comply" rather than an "explain" approach to the implementation of the Code. We have complied with the requirements since the roll-out of the previous set of corporate governance Code in 2012. As such, the revised Code has no significant impact on us. Having said that, we will continue to be conscientious of the Code and ensure a robust and timely execution of the Code in our processes and policies.

Mr Tan: We welcome the changes to the Corporate Governance Code, in particular, the focus on a strong and independent board to provide a firm foundation for good governance. In line with our commitment to high standards of corporate governance, CMT's policies and practices are already complying with a number of new provisions in the revised Code. We will strive to continually improve our standards of governance and transparency as guided by the Code.

Ms Chua: As Singtel's stated policy is to adopt best practices which include listing rules, principles and guidelines, our corporate governance policies and practices are already in line with the revised Code and listing rules. Hence, the changes do not affect us in any material way.

One major revision to the Code, which we are prepared for, relates to independent directors, who will be subject to a nine-year rule or face a two-tier shareholders' vote to affirm their independence if they serve more than nine years. This might spur companies to consider directors who have been on the board for over nine years as non-independent instead of taking the path of a two-tier vote.

Q: It is the 10th-year anniversary of the US sub-prime mortgage crisis of 2008. What lessons have we learnt about corporate governance from the global financial crisis that are still applicable today?

Mr Sim: The US sub-prime crash highlighted the need for effective corporate risk management, the importance of executive compensation structures that ensure the long-term sustainability of the firm, the need for strong and effective board oversight, and the importance of shareholder involvement. These remain relevant to this day.

Mr Lee: Weak corporate governance was one of the factors for the US sub-prime crash of 2008. We recognise that effective corporate governance is essential as an important risk moderator for companies operating in a dynamic environment full of volatility and uncertainty. There is no way to regulate appropriate board behaviour fully, but the least that can be done is to mitigate any corporate misalignment with effective corporate governance, which acts like a steering wheel and brakes. The objective is to ensure that the safety and interests of stakeholders can be synced with choices made by the decision makers.

Mr Tan: The global financial crisis has underscored the need for high standards of corporate governance and risk management. In managing Singapore's first Real Estate Investment Trust (Reit), we believe in upholding corporate transparency standards to deliver timely, concise and accurate information to the investment community.

In terms of risk management, we adopt a proactive approach using the Enterprise Risk Management (ERM) Framework, which sets out the required environmental and organisational components for managing risk in an integrated, systematic and consistent manner.

Key risks are identified and assessed regularly by the executive management, who works together with internal and external auditors to generate and present to the risk management committee a comprehensive portfolio risk management report. Appropriate processes and procedures are in place to prevent, manage and mitigate any operational risk.

Q: Some studies reveal a yawning gap in corporate governance standards between top-ranked and bottom-ranked companies. Why do you think this is the case and how would you advise an SME board and management team just starting out on its corporate governance journey?

Mr Sim: Good corporate governance does not happen by chance and there is a need for strong moral leadership at the top. My advice would be to set aside some dedicated resources to identify and fill the gaps in corporate governance practices and seek external advice and assurance if needed. The long-term benefits far outweigh the short-term costs.

Mr Lee: SMEs tend to focus more on the profitability of the company but we think it is important to strike a balance between the financial performance and good corporate governance practices. There are examples out there in the market of how poor corporate governance has wreaked havoc on companies. And companies are under increasing pressure from key stakeholders to be transparent about their values and principles regarding sustainable development. Companies that advocate good corporate governance practices appease the stakeholders and are deemed to have sound business principles, trusted and honest management and therefore gain public trust and confidence. These we see as valuable assets, and the formula to sustainable and successful corporate performance.

Mr Tan: Building a strong and sound corporate governance culture requires the support of all levels of the organisation. It is important for the board and management of any organisation to demonstrate their commitment and promote the right values in order to build a strong corporate governance culture.

Ms Chua: Every listed company, regardless of size, must have a clear set of corporate governance guidelines and policies including a Code of Conduct and Ethics, and ongoing training and investor communication. These help to establish what is expected of management and employees, underline the importance of responsible business practices, transparency and integrity, and embed good corporate governance into the company's culture.

There are also many professional institutions and resources with expertise which are available to smaller companies to access to help implement an effective corporate governance framework.

Q: Are institutional investors becoming more active in pushing companies to adopt corporate governance best practices?

Mr Sim: Yes. It is very common now for institutional investors to provide feedback to companies on their funds' stance against deviations from corporate governance guidelines and they will not hesitate to exercise their rights and vote against the relevant resolutions at shareholders' meetings.

Mr Lee: Yes. Institutional investors have an obligation to the careful management of the funds they are entrusted to. By demonstrating responsible stewardship of monies, institutional investors look for companies that focus on long-term sustainability to invest in.

Mr Tan: Our experience tells us that corporate governance has always been important to institutional investors. We regularly engage CMT's institutional investors, who constitute the majority in our investor base, through participation in one-on-one meetings, post-results investor briefings as well as investor conferences and roadshows in countries such as Singapore, Japan, Hong Kong, Thailand, Australia and the United States of America.

Ms Chua: We regularly engage with and receive useful feedback from institutional investors on their corporate governance standards and expectations. Some investors proactively send us their proxy voting guidelines and inform us what drives their voting decisions at the annual general meetings. This feedback allows us to benchmark against industry best practices. For example, following feedback from investors, we now disclose the key components that drive our remuneration policies.

Q: Are retail investors today more aware and thoughtful about a company's corporate governance initiatives, over and above its financial and dividend performance?

Mr Sim: Yes. Based on interactions with retail investors, it is evident that their knowledge of best governance practices has improved in recent years. Improvements in corporate disclosure practices have helped and so has the availability of public talks and forums on these subjects.

Mr Lee: No, I don't think so. Retail investors are still quite focused on the financial and dividend performance of a company. There should be more regular campaigns to educate the public on corporate governance and how a company that advocates good corporate governance practices benefits them. In particular, a company that has a robust corporate governance framework will aid in the prevention of future corporate wrongdoings, enhance sustainability, increase levels of transparency, trust and integrity, all of which provide comfort to shareholders.

Mr Tan: Investors today are more well-informed on macroeconomic developments, and express greater interest in a company's strategies, development initiatives and investment outlook. As investors become more sophisticated, our communication approach has also evolved to meet the new demands. We make it a priority to engage our investors regularly and share with them timely and quality information about our business and market outlook via various platforms and reporting formats. In addition to publishing annual reports, news releases, presentations and announcements, we organise annual general meetings and take part in retail investor outreach events such as the Reits Symposium, jointly organised by ShareInvestor and the Reit Association of Singapore.

Ms Chua: From our annual general meetings and sessions with the Securities Investors Association (Singapore), we note that retail investors are more informed, and are asking a wide range of insightful questions covering our strategy, overseas businesses, operational performance and corporate social responsibility.

Q: In your opinion, can corporate governance and sustainability really have a material impact on long-term corporate performance?

Mr Sim: Yes. When implemented appropriately, good governance and sustainability practices reduce the possibility of corporate failures. It enhances the image of a company in the eyes of consumers and this can lead to economic benefits.

Mr Tan: A business does not exist in a vacuum. In order to achieve long-term success, a business has to demonstrate that it can bring value and create a positive impact on the community it serves. A strong focus on corporate governance and a firm commitment towards sustainability have been integral to CMT's continuing success as Singapore's first Reit and largest retail Reit. We will continue to make corporate governance and sustainability our priorities as we strive towards enhancing unitholder value.

Ms Chua: Certainly. Strong governance and sustainability practices form the foundation for sustainable, long-term business growth, which in turn support long-term value creation. We have seen how good corporate governance, coupled with responsible and ethical business practices, enables a company to perform better and also helps raise its profile and reputation.

Q: What new initiatives have your company introduced or taken on at a deeper level in the past 12 months?

Mr Sim: With the business environment becoming more uncertain and volatile, our board profile needs to be enhanced to include individuals with a wider diversity of expertise and experience. Besides strengthening the depth of engineering and technical testing expertise, our board now includes individuals with expertise in banking, accounting, finance and business management to meet the new challenges. Much time and effort were spent searching for the right candidates to join the board as part of our director renewal process. This process continues and is a never-ending task.

Mr Lee: We have stepped up our effort to engage with our independent directors in setting the strategic directions of the company, be it short-term or long-term plans. In view of the aggressive disruption in the financial landscape, more regular meetings were arranged to update and consult the independent directors, particularly on the fintech initiatives that we embarked on. This is to enable the company to step on the growth accelerator and take on calculated risks, without losing sight of the fundamental principles that relate to our sustained, long-term well-being.

Mr Tan: Over the last 12 months, we have complied with new sustainability reporting requirements under the Singapore Exchange's comply-or-explain guidelines and included a board statement to demonstrate the company's commitment to sustainability. We have also incorporated the key principles of environment, social and governance in setting out our business strategies and operations.

Ms Chua: We continue to strengthen our risk management practices, while pursuing our growth initiatives in the new digital businesses as well as in transforming our core business to grow. We will seek to continue enhancing our disclosures and ensure that we adopt best practices in corporate governance and that our practices align with the spirit of the revised Code.

Q: Which areas might you still be looking to improve on?

Mr Lee: We constantly review the composition and diversity of the board to enhance the quality of the board, injecting new blood and sharing fresh perspectives for the wellness of the company. We believe diversity of expertise and experience of our board will foster constructive debate and prevent groupthink. Alongside other measures to strengthen director independence and encourage board renewal, this will put our board in good stead to deliver wise counsel and make better decisions in these challenging times.

Ms Chua: We continually seek to strengthen our governance in a way that adds value. An area that the board and our corporate governance and nominations committees and executive resource & compensation committee have focused on is the effectiveness and continued progression of both board and management.