More clout for shareholders?

THIS WEEK'S TOPIC: Should shareholders have a greater say in corporate governance? What key matters should require shareholder approval?

Roger Barker Director of Corporate Governance Institute of Directors (UK)

CORPORATE governance is ultimately about who exercises power over companies, and in whose interests. The board, shareholders and management all have key roles to play.

However, the relative influence of each of these actors over decision-making can vary significantly by company and by national jurisdiction.

In the United States, boards exert significant power, whereas in many other countries - such as Singapore - controlling shareholders are often the driving force. In either of these scenarios, does it make sense to provide minority shareholders with some degree of say over issues like executive pay or major transactions?

A growing body of evidence says yes! Minority shareholders help ensure that both directors and controlling shareholders focus on what is best for the company as a whole. They can also be an informed source of accountability which helps keep the company honest!

The long-term success of an enterprise depends on getting the balance of power right between relevant stakeholders, and minority shareholders are an important part of that mix.

Victor Mills Chief Executive Singapore International Chamber of Commerce (SICC)

SHAREHOLDERS should take a greater role in holding boards of directors and senior management to account for the conduct and financial results of a company. The question is, do most shareholders want to do this? Often, only a small minority of activist shareholders raises issues at general meetings. Good corporate governance is the joint responsibility of all shareholders and all stakeholders. The latter includes the board, management and all employees.

Shareholders should satisfy themselves that they have sufficient information to elect board directors. They should elect people of sufficient expertise, character and independence to add value to a company's strategy and how it is achieved. It would be wrong to tie the hands of the board when it comes to remuneration. However, there is nothing wrong conceptually with pre-agreed remuneration parameters for key executive roles. These can be agreed by shareholders at general meetings.

Ang Hao Yao Chairman, Audit Committee Securities Investors Association (Singapore)

I BELIEVE corporate governance works best when shareholders, boards and executives play their own distinct roles, independent from each other.

However, when one group of shareholders is large enough to elect all the directors and therefore effectively controls management, then the minority shareholders should be empowered to play a greater role in the governance of the company.

In situations where the major shareholders and their relatives also occupy the roles of board members or executives, the major shareholder should abstain from using his voting power in situations of potential conflicts of interest, for example in the election of independent directors, in remuneration matters and in the appointment of auditors.

Essentially for such potentially conflicted cases of major shareholders holding executive roles, their remuneration should either go directly to minority shareholders for approval or be determined by the remuneration committee made up of only independent directors elected by minority shareholders.

Sidney Lim Managing Director Protiviti South-east Asia

LONG gone are the days when shareholders were passive investors. Today, shareholders have made it clear that they demand excellence in corporate governance and transparency before considering any investment. There are two areas which we think shareholders can be empowered to have a greater say in corporate governance.

Firstly, shareholders can provide approval for the adoption and implementation of an internationally recognised internal controls and risk management framework by Singapore companies, to provide reasonable assurance, better risk management and improved governance in an increasingly complex and rapidly-changing global environment.

The second is in the area of remuneration guidance, where an external remuneration consultant can be appointed to advise on the remuneration of all directors and key management. This would ensure that remuneration arrangements are in line with the company's strategic objectives as well as market and global standards.

Ng Joo Khin Partner Morgan Lewis Stamford LLC

THERE has been increasing noise crying for more control of corporate decisions to be given to shareholders. Proponents would argue that increasing board failures and missteps justify enhanced check-and-balance against arbitrary, self-serving management decisions.

The contrarian view would be that management decisions are best left to ''experts'' (that's to say, the directors and C-suite executives). Directors are elected by the majority of the shareholders and are subject to fiduciary duties. Would the fear of being removed as a director and having to account for breach of fiduciary duties be sufficient to ensure the right behaviours? Apparently not.

The standard of proof to successfully assert a breach of fiduciary duties is high. Further, by the time a bad or self-interested management decision is made and executed, the longer term damage done to the interests of the shareholders as a whole may in fact be beyond repair. I would personally advocate a much better balance.

John Bittleston Chairman Terrific Mentors International

THERE are two sides to the question of corporate governance. On the one hand, the greater the freedom to act in the best interests of the company and its stakeholders, the more likely it is that management and board will behave in a way that fulfils the trust they have been given. But some will not, there are crooks in many places.

On the other hand, the greater the regulation and control imposed by well-intentioned protective systems, the more likely it is that management and board will devote time to getting round the regulations, to the benefit of themselves ahead of the company. Transparency goes a long way to avoiding these pitfalls and a small group of shareholders, elected by the whole body of shareholders, should be allowed to ask any question in confidence and expect to have it answered. Minority shareholders should be strongly represented in this trustee shareholder group.

David Emery Founder and Chairman Reciprocus International Pte Ltd

YES, shareholders should have a greater say in corporate governance. However, it is futile if they stay silent at annual general meetings (AGMs) or only ask trivial questions.

In fact it is unfortunately a common sight for individual and minority shareholders to appear during AGMs in Singapore almost solely for the social part. They stay quiet throughout the meetings and question and answer segments, then proceed to ravage the refreshments as soon as the AGM ends.

So if shareholders want to be taken seriously they must engage in an active dialogue with the management; this can go a long way in contributing to the advancement of corporate governance in Singapore.

Some of the matters which should be tabled with shareholders are the process of director and senior management appointments, performance assessments of all officers and their remuneration packages, as well as third-party transactions with related parties.

Lee Fook Chiew Chief Executive Officer Institute of Singapore Chartered Accountants

IT is positive for shareholders to have a greater say in corporate governance, provided this leads to more constructive engagement, enhanced accountability and supports the organisation's long-term sustainability. As such, due consideration has to be given to relevant factors such as ownership concentration, level of guidance provided to investors as well as the presence/absence of sophisticated institutional shareholders.

Key matters that may require shareholders' approval include mergers and acquisitions, share issuances, and compensation for top executives. The board has a responsibility to ensure that there is high quality financial reporting to show a true and fair view of the business.

With the enhanced auditor's report in the pipeline, and key audit matters being raised, more active engagement between the board, management and shareholders may be expected. Shareholders can then have a more transparent view on the company's operations and therefore, make more informed decisions.

Philip Yuen Chief Executive Officer Deloitte Singapore

INCREASINGLY, financial market regulators and corporate governance bodies through either enhanced or new regulations and guidelines, are encouraging companies and their shareholders to have more open dialogues.

This benefits listed companies as, besides owing a fiduciary duty to their shareholders, a well-educated and supportive shareholder base is a key corporate asset that increases market credibility and creates more access to capital. Exploring new channels, such as an investor engagement programme that makes use of social and digital media for the digitally savvy, to proactively engage with shareholders can help frame conversations.

Shareholders benefit as these channels allow them to actively seek more disclosure as their investments rely on directors acting in their best interests. They should express their views and push for greater transparency, for example on issues around the company's strategy and business activities.

In order to give constructive feedback, shareholders should find out more about the business through financial statements, annual reports, media releases, and other avenues the company uses to disclose information. Companies should then be quick to react and address such feedback and concerns to maintain shareholder trust.

Tay Woon Teck Managing Director RSM Ethos Pte Ltd

CONSTRUCTIVE shareholder activism is healthy and should be encouraged. Vigilant shareholders can mitigate the risk of boardroom complacency. However, the results of research on hedge funds activism in the United States are not encouraging. Most of the engagements were confrontational, disruptive and focused excessively on short-term gains. We must avoid such confrontational shareholder activism.

Shareholders and the board must work together as partners, not adversaries, focusing on creating long-term sustainable values. The alignment of values is fundamental in building trust and a partnership model between shareholders and the board.

The focus on relative balance of power, say on pay, and interference on appointment of independent directors is not healthy in building trust. More time should be devoted to aligning value systems and promoting harmonious and trusting relationships between shareholders and the board.

Lim Soon Hock Managing Director PLAN-B ICAG Pte Ltd

ALL shareholders have a say in corporate governance. In according special rights or privileges to any category of shareholders, be they the majority or minority, often one problem is solved, but it may create another.

For example, should majority shareholders abstain from voting on independent directors, there is still no guarantee that the right IDs will be appointed. It could also lead to a situation where the IDs so nominated will be overly preoccupied with minority interests to ensure that they get re-elected. There are reasons why there are laws in place to protect minority interests.

From my more than 30 years of experience as a board member, companies that have few problems with shareholders, be they the majority or minority, are transparent in everything they do. Transparency and a strong sense of accountability as well as responsibility from the board and management form the cornerstone of good corporate governance.

Many of the contentious problems relating to shareholder engagement and the role of shareholders in governance, become less of an issue when companies operate more transparently in everything they do. The problem is that this is easier said than done.

Eugene Wong Chartered Director Founder and Managing Director Sirius Venture Capital Pte Ltd

I FIRMLY believe that all shareholders, including minority shareholders, should have a greater say in corporate governance. If a company is truly working for its shareholders, it would seek their views on how the firm is governed and who governs it. Matters such as the remuneration of top executives and C-suites should be subject to shareholders' approval, just like how shareholders vote on directors' fees. This is especially so if the C-suites are also major shareholders of the firms.

Currently, major shareholders who are executive directors (EDs) can vote on their pay package. How can this be independent? I believe that major shareholders who are EDs should abstain from voting on their own remuneration. Minority shareholders must have a credible voice on matters that are clearly conflicted but yet are often passed by major shareholders.

My view is that major and minority shareholders should vote based on their shareholdings. One suggestion is for minority shareholders to vote on the remuneration of non-executive directors (NEDs) and independent directors (IDs), with major shareholders abstaining. This way, there will be no conflict of interests and IDs would be encouraged to govern for all shareholders.

I am also of the view that fees for NEDs and IDs are generally too low in Singapore. Good IDs who govern well, for the benefit of shareholders, should command premium fees. With more authority for minority shareholders, it should hopefully translate into good NEDs and IDs being better rewarded. Ultimately, what firms require are quality NEDs and IDs who can govern well, without fear that major shareholders will remove them if they do not agree with them or carry out their wishes.

Massimo Massa Professor of Finance INSEAD

IT IS clear that one of the major abuses of capitalism is too much power in the hands of management and it is therefore very important to have strong governance that is provided by strong shareholders.

Both majority and minority shareholders can play a role that is much more important than the formal rule of governance that may limit or dictate the actions of management, the role of the board and its composition. It is critical that majority shareholders have the possibility of supervising management actions.

And, equally, minority shareholders - including short-term sellers such as hedge funds - too can play a major role in the discipline of management. For example, we now have substantial evidence that shows that the mere existence of short-sellers (arguably the most short-term investors) prevents management from taking decisions that reduce shareholder value (for example, earnings manipulation) and even induce them to take actions that increase it (for example, R&D).

David Gerald President/CEO Securities Investors Association (Singapore)

UNLESS there is a strong and independent element on the board that is able to exercise objective judgment on corporate affairs independently, good corporate governance is not likely to emerge. No individual or small group of individuals should be allowed to dominate decision making.

There should be a formal and transparent process for the appointment of directors to the board with full disclosure of the nomination process, especially the rationale for selection, that can withstand shareholders' scrutiny.

Minority shareholders, as owners of the company, have the right to be concerned about the remuneration of senior executives. Whether they should have the right to have a ''say on pay'' depends very much on the Board's views on prioritising the long-term health of the company and its shareholders.

There is growing interest among shareholders to have greater participation in major issues such as CEO succession, company strategy and performance, and proposed mergers and acquisitions. This will require greater transparency and engagement by the companies with shareholders.

Scott Burnett Managing Director - South-east Asia Towers Watson

THE debate about the role shareholders should play in corporate governance has intensified following recent financial and corporate crises, and shareholders are demanding to be heard.

The Singapore government responded with the revised Code of Corporate Governance (2012), which states that companies should actively engage shareholders and implement policies that promote greater participation at general meetings, giving shareholders a voice on company matters.

Globally, executive compensation is attracting shareholder interest. The non-binding shareholder vote on executive pay in the US and Australia has contributed to increasing levels of engagement between boards and shareholders. Boards must consider the vote outcome but are not bound if they believe it isn't right for the company, and explain why alternative action is preferred.

Singapore-listed companies are improving executive pay disclosure following the revised Code. But Towers Watson thinks more can be done. Most companies have not sufficiently disclosed the ''how'' and ''what'' of executive pay relating to company performance. This could be made more shareholder-friendly by giving extra bite to the listing rules and/or the Code which governs this aspect.

Michael Lim Executive Director Investment Management Association of Singapore (IMAS)

INVESTMENT managers, as shareholders, rely on a good corporate governance framework to expect accountability and transparency from their investee companies.

To this end, investment managers should seek to satisfy themselves that the investee company's board and sub-committee structures are effective with adequate oversight, and that their own shareholder voting policies and practices reflect this involvement.

It can be a win-win situation as both parties do have a similar goal of the company doing well in its main businesses and delivering sustainable profitability.

Mark Billington Regional Director - South-east Asia ICAEW

ICAEW is actively engaged in the debate over corporate governance, with the aim of promoting best practices. With the majority of our members involved in business and many being board members or holding senior positions we are ideally placed to identify and learn how the best businesses create a culture of openness with their shareholders.

What we see is that stakeholders play a significant role in supporting the transparency and dissemination of information between companies' management, boards, regulators and shareholders, and in holding a company accountable for its conduct.

A company's board should regularly provide its shareholders with clear, reliable assessments of the organisation's performance and whether it is achieving its business goals. When companies engage their shareholders on important matters, such as executive remuneration, this contributes to the successful operations of the business and boosts the market's confidence in the company.

In recent years, the validity of traditional models of corporate governance has been challenged by business controversies such as lack of diversity on boards, whistleblowing and the fiduciary duties of company executives. This is an opportune time for dialogue on the pace of convergence towards common practices of good corporate governance and how best to implement them.

David Leong Managing Director PeopleWorldwide Consulting Pte Ltd

SHAREHOLDERS' rights and relationships with the board are typically governed by the company's Articles of Association. Whatever rights shareholders wish to enforce, between majority and minority shareholders, they can regulate the different rights and obligations through the shareholders' agreement.

It would be hard to allow shareholders of all classes to participate in corporate governance and affairs of the company outside what is provided in the Articles of Association and shareholders' agreement. Shareholders' involvement in governance matters can be disruptive to business and operations. In any case, from my experience in running companies, structuring companies for merger and acquisition or for public listing, most shareholders who invest in companies do not wish to manage them but to capitalise on the investment upside.

The best way to vote against the company is to sell its shares if the company is publicly listed. For closely-held private or joint venture companies, minority shareholders have less muscle to flex when it comes to governance matters.

To me, the key matter that should require shareholders' approval is share transfers. This should be a reserved matter for shareholders - when one party is looking to exit and there is no mechanism for disposal, unhappy shareholders are ''stuck'' to the company with no exit mechanism. At least, when it comes to such a state, they can vote to exit with a pre-determined arrangement, much like a pre-nuptial agreement.

Reuter Chua Head ACCA Singapore

WHILE it is important to debate whether shareholders should have more or less say in governance-related matters, we should equally focus on the quality of their existing engagement with companies. They play specific stewardship roles, such as monitoring the performance of and engaging in dialogue with investee companies.

As shareholder profiles become more diverse and sophisticated, the whole range of investor stewardship functions could come into play, with investors providing additional insights to influence management's decisions.

The question of whether they should vote for specific matters relating to independent directors or the top executives' pay is dependent on the particular context. It will differ from one corporate environment to another, taking into account the strength and robustness of corporate governance frameworks within these environments.

While investors can potentially influence a whole range of matters, they should not lose sight of the objective of investor stewardship - that its, to ensure long-term returns to stakeholders. To this end, investors should work closely with investee companies to complement management's expertise and experience and not to usurp it.

John Lim Group CEO ARA Asset Management Limited

ARA has a fiduciary commitment to uphold the highest standards of corporate governance, as shown in its top 5 per cent ranking on the Governance & Transparency Index and is accountable to all its stakeholders. Our board undertakes rigorous discussions on board appointments, remuneration, audit and governance matters, amongst others.

Our shareholders play an important role in determining the value of the company and exercise their rights to have access to information and to attend, vote and call for general meetings of the company.

Any expanded role of the shareholders in corporate governance is positive to ARA but this should be left to regulations to govern and strike a good balance between safeguarding the common interests of shareholders and running the business.

We believe that it is in the best interests of ARA to establish a high level of trust with all its stakeholders in order to achieve optimal value in our capital markets.

Chris Comer CEO and Property Developer Castlewood Group

COMPANIES, big or small, can stand to benefit from good corporate governance. It can help make boards more effective and responsive in an increasingly complex business environment. Companies need to recognise the critical role of corporate governance to ensure the development of quality human capital and long-term success of the business.

Shareholders want to be treated as valued partners, knowing that their interests are part of the company's considerations along with the business. Establishing an open and frequent two-way communication is key to maintaining shareholder trust - it tells them that their voices are heard and reassures them that the company will make the right move in difficult times.

That said, every individual has a role to play in the framework - be it shareholders, board members and even employees. Maintaining an open communication within the organisation is vital in leading the business to success.

Robin C Lee Group COO Bok Seng Group

FOLLOWING the recent Noble saga, much has been debated whether shareholders should have more say at AGMs. Under Singapore's Code of Corporate Governance, companies are to encourage more shareholder participation at company general meetings, and allow shareholders the opportunity to air their views and concerns on various matters that affect the business.

Greater shareholder involvement in corporate governance seems like a natural progression. It is also useful as we have seen many cases where decisions and actions have been taken in the interests of the board and the company's executives without much consultation with shareholders.

It can be hard to involve every single shareholder, but perhaps bigger institutional shareholders should increase their engagement in corporate governance activities by introducing proxy proposals and negotiation with management - all for the goal of improving performance.

Annie Yap Group Managing Director AYP Group

CORPORATE governance has been growing in importance, with globalisation. Financial crises in a big corporation no longer impact just a single entity but to a certain extent may impact entire nations as well.

Thus, there is definitely a need to develop a more robust governance regime, with shareholders having greater say. As with other stakeholders in governance, the most important issues that shareholders need to oversee are those that deal with accountability and transparency.

Hence, some key matters that should require shareholder approval include executive compensation. This is to ensure that the remuneration received is fair, whereby only companies with high performing management teams are duly rewarded.

At the same time, those with poor management yet generous payouts should be penalised. Shareholders should also have a say in enforcement actions relating to executive misconduct. All these will remind corporations that they are accountable not only to themselves but also their shareholders.