Taking corporate governance to the next level

NEWS that the Singapore Governance and Transparency Index (SGTI) climbed to a new all-time high this year is welcome, given the challenges faced by regulators over the years in ensuring a smooth transition from a merit-based regulatory framework to one based on disclosure.

According to data released earlier this month (August) by the SGTI’s keepers CPA Australia, NUS Business School’s Centre for Governance and Sustainability, and the Singapore Institute of Directors, the index’s mean score in the general category rose above 70 for the first time to 70.6, up from the previous high of 68.7 last year. This suggests that companies are slowly getting their act together in areas such as shareholder engagement as well as timeliness, accessibility and transparency of their financial disclosures. All of this is well and good, but the big question of course is -- how to maintain the upward momentum and take things to the next level?

The shift away from a merit-based regime came about after a government-appointed Corporate Finance Committee (CFC) in 1998 recommended installing a disclosure-based regime so as to foster a market-driven environment that was hoped would “promote innovation, entrepreneurship, efficiency and business flexibility while protecting the integrity of the securities market’’. It would be fair to say that the shift has not been seamless and today, more than 20 years later, some critics still see the current arrangement as sub-optimal. As such, it would be timely to remind ourselves of the committee’s key recommendations, starting with the need for a high standard of disclosure.