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Safeguarding stakeholders' interests
- Singapore Airlines (SIA) chief executive, Goh Choon Phong;
- Far East Orchard group CEO and managing director, Lui Chong Chee;
- Sing Investments and Finance (SIF) CEO and managing director, Lee Sze Leong;
- iFast Corp chief financial officer, David Leung.
Moderator: Anita Gabriel, The Business Times
BOARD and management matters are multi-faceted but there are a few essential items that ought to be carved on every boardroom table to ensure the well-being of an organisation - keep up with the times; engage candidly with investors; pre-empt and prepare for headwinds/tailwinds; have a refreshed and diverse board and lastly - behave.
The Business Times conducted a discussion with some high-achieving CEOs and a chief financial officer who are winners of the Singapore Corporate Awards on how they stay on top of these issues.
Question: What is the biggest challenge your business is facing right now and the sector outlook for the rest of this year?
Goh Choon Phong: In the airline business there are always challenges and it is difficult to pinpoint only one. In the short and medium term, there are macroeconomic challenges stemming from ongoing trade disputes and slowing economic growth in some key markets, for example. For the longer term, there has been real structural change in our part of the world as a result of the growth of competing full-service airlines from emerging markets, as well as the rapid growth of low-cost carriers.
The good news is we were not caught off guard and saw these changes coming. While we remain fully committed to the continued development of SIA as a premium full-service airline, we also now have investments in low-cost operations, through Scoot, investments in airlines overseas such as Vistara in India and NokScoot in Thailand, as well as investments in adjacent businesses, such as pilot training.
Lui Chong Chee: Besides the political and economic upheavals, the biggest challenge for a mid-cap is to grow sustainable recurring income in a global arena flooded with sovereign funds, Chinese wealth and well-banked (highly leveraged) funds and companies bidding for ever more expensive real estate that under conventional corporate finance or demand mathematics does not commensurate with medium or long-term risk.
In short, many of these short-term adventures may not be sustainable. Notwithstanding the above, there are still good deals to be had. The challenge is to be disciplined and diligently work through the risks but having the courage to stay within the boundaries of sound investments.
For the rest of 2019, we expect the real estate sector to remain muted as issues concerning the trade war between the US and China remain unresolved, coupled with weak economic growth in the EU threatened among other things by Brexit and also the residential cooling measures in Singapore. The silver lining is that Singapore remains a safe harbour for Asean nations and that helps provide a certain floor to property values.
Lee Sze Leong: Maintaining a sustainable revenue growth in the increasingly regulated environment amid all the escalating cost and operational issues poses the biggest challenge.
In addition, with the issuance of the five new digital bank licences, competition for loans and deposits will be more intense.
For the second half of 2019, Singapore, being an open economy and a trading nation, is susceptible to macroeconomic headwinds.
The trade war could negatively impact investment decisions and consumer sentiment. Together with the Federal Reserve signalling a possible rate cut which will filter down to Singapore, this could potentially impact financial institutions' net interest margin, loan growth and asset quality. We will monitor all the developments closely and map out the necessary strategies to ride through the global headwinds.
David Leung: The biggest challenge facing the financial sector is the changing business models arising from technological changes.
Companies can either fade out of the industry if they are unable or unwilling to adapt, or flourish with the newfound opportunities through the right business models.
One of our core visions is to increasingly be at the forefront of the industry in empowering our B2B partners to embrace the opportunities offered by the fintech revolution.
The Monetary Authority of Singapore (MAS) announced that it will be issuing up to five digital bank licences to non-bank players. We see this as an exciting development and are interested to pursue the licence.
Q: Digital disruption has been pervasive - it has elevated competition and also brought customers closer to service providers. Are you pleased with how the company has adapted to this superfluid environment?
Mr Lui: Indeed, it's an indispensable tool. As the business embraces this disruption, it not only helps us stay connected with our customers but the wealth of information we glean from customer feedback keeps management at the top of our game and at the frontier for efficiency improvements. Working with other digital platforms also adds another dimension of collaboration and synergy.
However, it should be emphasised that the last mile for us remains the quality of service provided by our service-oriented staff that we engage with and meticulously train throughout the year.
Mr Goh: Very much so. We have been investing significant resources in our digital transformation and are very pleased with the way it has been taking shape. Our approach to digital is underpinned by the belief that it is an enabler of the SIA experience, rather than a substitute of what we are best known for - our service culture.
The way we innovate must be purposeful and stay true to SIA's DNA and legacy, used as a means to enhance customer service and the overall customer experience. We are especially aware of how crucial it is to get our staff on board our digital transformation journey through training and skillset development.
Mr Leung: The shift in consumer behaviour and regulatory landscape have pushed companies to actively seek ways to innovate to serve customers more effectively and efficiently. iFAST has focused on building our fintech capabilities in-house since the early days, and this has benefited us.
Leveraging our fintech capabilities, we recently introduced new products and services. For instance, we launched retail bonds under the Securities Commission Malaysia's new bond seasoning framework and offered 24/7 bonds trading through our Bond Express service in Malaysia, as we believe that bonds is a simple and easy-to-understand investment product that should be made more easily accessible for retail investors.
Mr Lee: Local banks had a headstart in their digital journey as they have been working internally and also with fintech companies to improve digital offerings.
For finance companies like us, it was only in December 2017 that we were granted by MAS to offer current account and chequing services to business customers and join electronic-payment networks such as Inter-bank GIRO, Fast and Secure Transfers (Fast) and Electronic Funds Transfer at Point of Sale (EFTPOS).
The liberalisation of the Finance Company Act is very recent and though we may be a late starter, we are moving quickly. We are confident that we can leverage the new empowerment to open up a new revenue stream and provide a more comprehensive credit and deposit service to SMEs and retail customers.
Q: Does your company go the extra mile in financial disclosure? How so?
Mr Leung: Other than the standard regulatory disclosures, we provide additional financial information in the presentation deck released together with our quarterly/yearly financial results announcement, and in our annual report.
Visual illustrations such as charts and graphs are more powerful in presenting data-intensive information (whether it is within or beyond regulatory requirements) to the layman investor as compared to overwhelming them with financial figures and data.
We also present our group's financial performance and operating cashflow in two categories - including and excluding our China operation. This allows investors to better assess our performance in the core markets (Singapore, Hong Kong, Malaysia), with and without the impact from the newer China market.
Mr Goh: Yes, indeed we do. One example is in the way we disclose our operating statistics every month, for every airline within the SIA Group, including for our cargo operations.
Mr Lui: We are committed to promoting corporate transparency and where possible, make voluntary disclosures for the benefit of our stakeholders who we think may find this additional information useful to better understand or analyse the company. In our Q1 2019 results announcement, we made a voluntary detailed disclosure on the impact of adoption of the Singapore Financial Reporting Standards (International) 16 Leases on the balance sheet as of the date of adoption and the corresponding subsequent impact on profit or loss for the quarter.
Q: In an environment of rising activism in Singapore and as shareholders become more informative and discerning, how is your board preparing itself to better engage and meet expectations?
Mr Lee: We communicate regularly. You can always see open and candid discussions between our board and shareholders during and after our annual general meetings (AGMs).
Such a platform provides an opportunity for directors to explain the company's strategic direction and rationale of management's approach effectively. The two-way proactive communication also allows our board to understand our shareholders better and ensure that their interest is taken care of when formulating the overall strategy. Our board thinks from the perspective of shareholders and deliberate on hot topics such as fintech initiatives, digitalisation, cybersecurity, sustainability etc, to better prepare themselves to meet shareholders' expectations.
Mr Lui: There is really no secret to this. We are encouraged that our shareholders are keen to engage with management. Many a time, it is about anticipating shareholders' concerns and making sure that all shareholders are treated equally.
The board and management continually strive to be vigilant and transparent on all matters that concern our shareholders. This would include our strategy, targets, acquisitions or disposals and to be intentional about making our annual report and announcements as easily understandable as possible. Having regular investor engagements and being candid about our performance and the environment we operate in also add colour for our shareholders to assess their shareholdings.
Mr Leung: We are aware that investors today have become savvier and we embrace that through various initiatives. We established open communications with all stakeholders, as we believe this is the key to gaining their long-term support through the good and bad times.
This is also why we stepped up our investor engagement efforts by opening our pre-AGM business update, AGM and financial results briefings not only to shareholders and analysts, but also to our B2B and B2C customers, members of the media, and other interested retail investors. These sessions also help to ensure that the interest among our shareholders, customers and management are aligned.
Q: Diversity is not a magic bullet for a better board. If directors are ineffective, companies should not be reluctant to remove them for fear that it may make their boards look less diverse. Agreed?
Mr Lui: At Far East Orchard, the concern has never been about diversity but certainly the effectiveness and capability of any director to contribute to the growth of the business.
Thus, we have been intentional about board renewal that complements the market environment that we operate in.
Mr Leung: If directors are ineffective, we should take the necessary action to ensure the overall effectiveness of the board. However, we believe diversity and capabilities can co-exist with the right selection process.
Q: What are your thoughts on the current pool of directors in Singapore, in terms of gender, skillsets and experience in multiple fields etc - how can we grow the pool?
Mr Goh: I would only want to comment from an SIA perspective, and in our case we have a very strong board, with diverse backgrounds.
Our directors have varied expertise in business, finance, accounting, law, marketing and technology, for example, and this has proven extremely beneficial, especially at a time when our industry has been seeing so much structural change.
Mr Lee: We noticed more effort to advocate gender diversity in recent years. I understand and embrace the benefits of having a diverse board - different backgrounds, skills, experiences, knowledge, gender and other relevant qualities are key considerations in determining the optimum composition of the board.
Merit aside, we should look beyond the pre-set conditions and expand our criteria in the recruitment of a bigger pool of potential directors. For example, prior experience as an independent director of a listed company need not be the most important consideration in the recruitment process. This mindset change would allow a bigger pool of talent to be qualified for selection.
A candidate without the prior experience as an independent director of a listed company, but fulfils all other criteria for example, independent, with strong integrity, forward-looking, with the right skillset, knowledgeable and with good communication skills - why not?