Taking steps for disclosure regime to work in Singapore

WE operate a disclosure-based regime, but it is not a one-size-fits-all regime. The disclosure-based regime originated in the United States where the market dynamics are very different from Singapore's. They have a higher proportion of institutional investors in the market, more dispersed shareholdings and private enforcement is easier there because of class actions and lawyer contingency fees.

Many of these factors are absent or less developed in Singapore, where the market remains less litigious and driven by higher retail participation. Therefore, in order for the disclosure regime to work in Singapore, we have had to adjust. For example, because we don't have contingency fees and class action suits are more difficult, and we have more concentrated shareholdings compared to the US, we need to have stronger public enforcement in both disclosure and corporate governance.

Hence we issue public trading queries to listed companies when there is unusual trading in their shares, to tease out any undisclosed information that might explain the price or volume movements, and we may even warn the public of a prolonged false market through issuing what is known as a trade-with-caution announcement.

SUSTAINABILITY REPORTING

The non-financial drivers that we have talked about today are well supported by the US exchanges, as evidenced by their endorsement of the World Federation of Exchanges guidelines on environmental, social and governance-related metrics. However, they do not mandate sustainability reporting in their listing rules.

Yet 75 per cent of the S&P 500 companies voluntarily produce sustainability reports. In comparison, only 20 per cent of our listed companies produce sustainability reports even though we have had similar sustainability reporting guidelines for some years.

This may be attributable to the difference in investor mix. Indeed, the institutional investors in the US take sustainability metrics so seriously that the investor relations departments of many companies are experiencing fatigue from the number of sustainability questionnaires they are receiving. Yet it cannot be denied that there is a global movement towards sustainability reporting, even in the retail space.

Hong Kong, for example, which has an even bigger retail market than us, has adopted sustainability reporting and 60 per cent of their companies have started issuing sustainability reports. Individual investors here in Singapore have also begun asking questions about sustainability at company AGMs (annual general meetings).

Hence we have introduced sustainability reporting on a "comply or explain" basis for the financial year ending Dec 31, 2017, or later. As many companies will be reporting for the first time, we have extended considerable latitude in the reporting requirements.

For example, we have not prescribed a particular reporting framework and, in fact, we have encouraged companies to tailor their reports according to their individual needs. We have also permitted a phased approach for first timers to focus in the first year on identifying their material factors and the policies put in place to address them, before going on to set more ambitious quantitative targets.

This is of course just the beginning of a journey, which will, I very much suspect, be similar to the one taken by corporate governance in Singapore. That also started out with regulatory backing on a "comply or explain" basis, and now has gained recognition from "a nice to have" to a "must have" that has the potential to impact investor confidence and a company's share price.

CORPORATE GOVERNANCE: STICK VERSUS CARROT

Speaking of which, earlier this year, two sets of surveys of companies' disclosures from the governance aspect were released. Both of them - the Singapore GTI and the Asean CG Scorecard - showed that yes, improvement was continuous and steady in the way companies were making their disclosures. But how can we encourage companies to make that quantum leap to the next level?

Corporate governance is not renowned for its carrots. Even the phrase "comply or explain" can sound like a threat, depending on who it's coming from. Yes, the SIAS CG awards, presented on Tuesday night, are highly coveted, but that only applies to the top companies that are in contention. Is there something that has broader appeal to all listed companies?

One thing that comes to mind is the turnaround time taken for their corporate actions. Time-to-market for corporate actions is always crucial, and the most important of these actions have to go through the Exchange.

Now we practise a risk-based approach, so it will come as no surprise that companies that have a poorer governance record fall into a higher risk bucket and their actions will attract greater scrutiny from us. However, there might be scope for us to turn this approach on its head and reward companies with a good track record, by either fast tracking their applications, or perhaps not subjecting their applications to review at all.

QUARTERLY REPORTING

The focus today has been about taking the long-term view, and there has been a movement in the UK and the European Union to move away from quarterly reporting in order to discourage short-termism. There is a school of thought that we should do the same.

I have spoken on other occasions about the enhancements to our continuous disclosure regime that might provide an opportunity for us to relook quarterly reporting. However, unlike the UK, where again, the market is largely institutional and shareholdings are dispersed, we have to consider the needs of retail investors, who typically have less access to management and the disparity between inside and public information.

I am also challenged by David (Gerald)'s recent commentary in The Business Times to kick off the SIAS CG Week where he posed the question: How can we encourage companies to make the leap from just disclosure to real communication? It has been suggested in some quarters that since quarterly reporting is for the benefit of investors, it should be left to them to decide.

Since it would then be up to the companies to convince their investors that they are sufficiently well informed on an ongoing basis, in lieu of formal periodic reporting, perhaps this might prove to be the incentive that David is looking for.

To conclude, let me thank everyone for a very interesting discussion on purpose, values and culture. As I said in the beginning, regulation can complement these factors in driving corporate governance and we will continue to shape the market with all this in mind.

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