Regulatory, market enforcement key in shareholder activism

REGULATORY and market enforcement are complements, not substitutes.

There is much in Thio Shen Yi's article Time to open the gates for shareholder activism?, (BT, Sept 1) that I agree with. Indeed, there is a need for Singapore to provide shareholders with better access to justice. Despite the Companies Act now allowing shareholders of public-listed companies to initiate statutory derivative action against directors, there remain significant barriers to shareholder enforcement here, as Mr Thio has pointed out.

However, regulatory and market enforcement complement each other, and each has a role to play. For a well-developed capital market, both need to be strong. In the US, where shareholders have significant access to justice through contingency fee-based class actions, there is also strong regulatory enforcement for serious regulatory breaches. There are also signs that the UK, which introduced contingency fee-based litigation in 2013, has been enhancing regulatory enforcement, including investigations, public rebukes and fines of auditors of companies by the Financial Reporting Council. Likewise, the Financial Conduct Authority has been taking action against companies and individuals for rule breaches. There are calls for strengthening regulatory enforcement, not substituting it with stronger shareholder enforcement.