Companies may be only as ‘good’ as their controlling shareholders allow them to be

ONE aspect of last week’s Singapore Corporate Awards 2023 that grabbed attention is that some companies won multiple awards within their market-cap class.

Sing Investments & Finance won the gold awards for best managed board and best risk management, as well as the bronze award for best annual report for companies with market caps under S$300 million.

In the same market-cap class, CSE Global took home silver awards for best risk management and best annual report.

Among companies with market caps of between S$300 million and S$1 billion, Del Monte Pacific won the award for best chief financial officer and the gold award for best managed board.

Hong Leong Asia won the silver award for best managed board and the bronze award for best annual report.

Among companies with market caps exceeding S$1 billion, CapitaLand Investment won the gold award for best risk management and the bronze award for best annual report.

On top of that, the group was well represented within the Reits and business trusts category. CapitaLand Integrated Commercial Trust won the silver award for best investor relations. CapitaLand Ascendas Reit and CapitaLand India Trust won the gold and bronze awards, respectively, for best annual report.

Singtel picked up silver awards for best risk management and best annual report for companies with market caps of more than S$1 billion. Its 24.8 per cent-owned affiliate Netlink NBN Trust also won the gold award for best investor relations in the Reits and business trusts category.

While there were specific factors and technicalities in the judging process that contributed to the selection of the winners, it is perhaps not surprising that some companies won multiple awards.

Long before the term “corporate governance” found its way into the lexicon of investors, there were “good” companies that had reputations for enhancing shareholder value, while treating all other stakeholders fairly – and “bad” companies that did not.

Being good in one sense often leads a company to be good in other ways. A company with a good board is likely to place great importance on recruiting and retaining executives who are honest and competent. Such a company is more than likely to be quite effective at managing risks.

Similarly, a company with a board that places a high priority on engaging investors is likely to be inclined to produce annual reports that are clear, candid and consistent.

Over the past couple of decades, regulators have pushed all companies to adopt the supposed attributes of good companies. The Code of Corporate Governance, first issued in 2001, offers instruction on everything – from what constitutes an independent director to the role of an audit committee.

Following the Code to the letter does not necessarily make a company good, of course. If it did, the long-term performance of the Singapore market would arguably not have been so poor and there would not be so much investor angst about corporate governance.

What is missing from the equation? This column would humbly suggest it is the power of the controlling shareholders.

While boards are supposed to have a strong element of independence and diversity of thought, the reality is that directors are effectively selected by the company’s controlling shareholders. Directors who do not share the views of a company’s controlling shareholders are unlikely to last long.

This is not a problem if the controlling shareholder simply wants the company to be properly run. Indeed, some shareholder groups saw multiple companies within their folds gain recognition at the Singapore Corporate Awards 2023 last week.

As noted earlier, Temasek’s CapitaLand Investment and Singtel won more than one award each. On top of that, DBS won the gold award for best annual report for companies with market caps exceeding S$1 billion. ST Engineering won the silver award for best investor relations.

Keppel Corp won the gold award for best managed board for companies with market caps of more than S$1 billion – in a tie with UOB, which is controlled by the Wee family.

UOB also won the gold award for best investor relations. Its 58.4 per cent-owned subsidiary, United Overseas Insurance, won the silver award for best risk management for companies with market caps of between S$300 million and S$1 billion.

UOL Group, another company controlled by the Wee family, won the bronze award for best investor relations for companies with market caps of more than S$1 billion.

Within the Hong Leong Group, City Developments won the award for best CFO on top of the two awards won by Hong Leong Asia that were mentioned earlier.

Will the day ever come when the interests of these controlling shareholders diverge from those of minority investors?

Perhaps a key challenge for the boards and managements of these companies is to ensure that day never comes.