SGX must be vigilant in a modified quarterly reporting regime
Michelle Quah
AFTER almost a year of waiting on tenterhooks for the regime to unveil its plans for mandatory quarterly reporting (QR) here, many will heave a sigh of relief that the much-trumped-about "review" of the practice has turned out to be more about finetuning the current system than an outright demolition of it.
That's not to say that QR is here to stay - the consultation paper only says "if QR is retained". But, it's important to note that the regime, in wording this consultation paper, has left much of the decision-making in the hands of the public; and its provision of options, of alternative ways in which the current system can be retained but tweaked, sends the signal that the regime appears to be in favour of retaining the practice for the near future, while finding ways to address some of the issues raised by the naysayers.
Because, have no doubt, Thursday's public consultation paper on the proposed changes to QR is not going to elicit universal praise; there will be grumbles from several quarters - most likely from a number of listed companies - that had hoped outright to be spared what some have termed an "onerous" responsibility. Companies have oft said that the need to churn out quarterly financial statements adds much to their reporting duties and costs, and the regime has been pressured with the argument that the practice makes Singapore unattractive to future listings.
And that is why I am all the more chuffed to see that not only has Singapore chosen to not merely give in to such pressure, but that it has gone much further and taken the pains to examine how quarterly reporting can instead be made more meaningful for the market, thereby further justifying the need for it and keeping our capital markets on par with those of the developed world.
For now, at least.
Overall, the proposed changes suggest that the regime has paid close attention to the feedback it's received from all stakeholders in the QR ecosystem, and weighed the numerous arguments for and against such a practice. Its suggestions reflect both the investing public and numerous studies' view that QR enables investors to properly value listed companies and improves the efficiency of financial markets.
One of its suggestions - to raise the threshold of companies that have to issue quarterly financial statements from a market capitalisation of S$75 million to S$150 million - sends the message that it accepts the need to retain the practice of mandatory quarterly reporting, while also recognising the reporting burden it places on the smaller companies that may not have the resources for it.
However, I think it needs to be said that, while I generally have no complaints about this as a blanket approach, the regime also needs to remain vigilant in ensuring that the smaller companies fulfil their continuous disclosure requirements, in the absence of a need to file quarterly reports.
While smaller companies may argue that they lack the resources of the larger companies, they are equally at risk (if not more so) of issues such as financial mismanagement that are detrimental to the interests of minority shareholders - issues which quarterly reports, as opposed to less frequents ones, have a better chance of shedding light on.
Risk profile as a criterion
Corporate governance advocate Mak Yuen Teen has a different view. "I believe it should not be blanket exemption. Companies that have poor compliance records, such as breaches of continuous disclosure requirements, qualified audit opinions, lots of queries, should not be exempted. This may also incentivise companies to behave themselves."
Another suggestion in the consultation - to allow minority shareholders of a listed company to vote every three years on whether the company can opt out of QR - suggests that the regime recognises that the power needs to be in the hands of minority shareholders; that they are in the best position to decide if the quarterly information is important to them.
Minority shareholders are often at a disadvantage, when it comes to having access to a company's financial information, when compared to majority or controlling shareholders. Giving them the power to decide if they need to level the playing field further is expected to help with such information asymmetry.
Prof Mak, however, believes that instituting such a practice could set a dangerous precedent. "Why not also do the same for sustainability reporting? Or let shareholders vote on AGM (annual general meeting) deadlines?" he points out.
I feel that, for either of these options to work, the regime will need to ensure that it is vigilant.
Singapore Exchange Regulation (SGX RegCo), responsible for the regulation of the market, will need to ensure that, if smaller companies are exempt from quarterly reporting or their shareholders have voted that they can opt out of it, they will need to keep up with their other continuous disclosure ones.
The regulator will also need to make room for the possibility that companies that fall below the threshold or have been exempted by their shareholders can also be compelled to file quarterly reports if it deems that their risk profile warrants it - and this means, making sure they actually do it, as opposed to just ordering them to.
Which brings me to an oft-cited argument that applies itself here: Singapore's regulatory framework, in whichever iteration it is in, will only work well if there is adequate monitoring and enforcement; companies and boards must be made accountable to the rules and regulations that govern them.
Boosting disclosure regime
SGX RegCo CEO Tan Boon Gin said on Thursday that he believes steps have been taken to strengthen the continuous disclosure regime, including proposing more disclosures in areas of concern.
But, far from negating the need for QR, I suggest that such improvements in the continuous disclosure regime go hand-in-hand with holding onto QR in terms of addressing the issues of information dissemination, shareholder interests and the overall efficiency of capital markets.
So, if SGX RegCo can ensure it has its act together to overcome these potential challenges, then I'm all for a modified QR regime.
