Hern Shin Ho: Advancing corporate governance in an age of
disruptions
Speech by Ms Hern Shin Ho, Deputy Managing Director (Financial Supervision) of the
Monetary Authority of Singapore, at the SIAS Corporate Governance Conference
"Advancing corporate governance in an age of disruptions", Singapore, 10 October
2022.
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Mr David Gerald, Founder, President and CEO of SIAS,
Distinguished guests,
Ladies and gentlemen, a very good morning to all of you.
1. Thank you for have me at this year's Corporate Governance Conference which also
marks the launch of Corporate Governance Week 2022.
2. This year's theme of "Advancing corporate governance in an age of disruptions" is a
timely reminder that we are not out of the recent storms. The world continues to face a
confluence of risks and fragilities.
Persistently high inflation amidst slowing growth have heightened the risk of
stagflation globally.
Geopolitical tensions and increasing existential threats associated with climate
change have also added to the complexity of the operating environment.
There are no signs of these storms abating.
3. Companies need all hands on deck to navigate through such unchartered, choppy
waters. In the context of corporate governance, success requires all stakeholders to
play their part:
Boards and senior management must look out into the horizon, navigate choppy
waters, while searching for new opportunities.
Investors need to keep a close watch on where their investee company is headed,
and responsibly exercise their ownership rights to exert market discipline.
Regulators must foster sound corporate governance within companies, so that
business conduct is aligned with corporate objectives and investor interests.
4. Let me elaborate on opportunities to do better in each area.
Board of Directors
5. First, on the Board. Boards have a critical role to play in a company's success.
Given their important roles, directors, whether executive or non-executive, are
legally bound to discharge their duties honestly, in good faith, and in the best
interests of the company.
In making business decisions, a director must exercise his/her own judgement
when evaluating information and advice that are available. He/she cannot pass
matters to co-directors or passively accept what is being presented by
Management or external professionals like auditors or cybersecurity experts.
6. In the same vein, where an offence has been committed by a company, directors
cannot simply point to management or experts they have engaged to absolve
themselves of all responsibility.
Directors remain accountable if they were aware of a transgression, but choose to
turn a blind eye.
Directors can also be held negligent if they failed to act if they knew or ought to
have known that their actions might have been needed to prevent wrong-doing by
the company.
7. To be fair, directors are not expected to have personal knowledge of every single
area within their company. They can delegate some decisions to management, or
engage external professionals for advice on area of expertise.
That said, directors are expected to maintain active oversight of delegated
functions and decisions.
They must query decisions and outcomes that conflict with their understanding of
the business, seek alternative expertise where necessary, and satisfy themselves
that corporate decisions are taken in the best interests of the firm.
8. How do boards meet these high expectations? I would like to suggest that continued
investments in three areas will help: board diversity, board upskilling, and board
dynamics.
Board Diversity
9. Diversity in membership will provide a board with a broad bench of skillsets,
experiences and perspectives to do its job. The contribution of a diverse board to
corporate value creation is well recognised.
Beginning this year, SGX RegCo has mandated that Listed Companies have a
board diversity policy, and boards should intentionally consider the combination of
skills, talents, experience and diversity that can best serve the needs of the
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company .
We urge companies to invest intentionally and well in this area.
Board Upskilling
10. Even within a diverse board, continuous learning is needed for directors to retain
their effectiveness. There are ample resources to support directors in this area.
Conferences such as the one here today is an example of a good learning
resource.
Under SGX's regulations, mandatory governance related training for first time
directors, and mandatory on-going training in areas such as sustainability for all
directors of listed issuers provide opportunities for directors to acquire new
knowledge, deepen their understanding of their responsibilities, and to serve
better.
While boards would have a policy for directors' professional training, individual
directors should also take proactive ownership of your learning journeys to
regularly upskill to navigate a fast-changing environment effectively.
Board Dynamics
11. The need for healthy board dynamics cannot be overstated. Healthy board
dynamics encourages robust and respectful discourse amongst board members,
bringing to bear differing perspectives in decision making.This has great value as
boards consider emerging risks, less familiar opportunities, or how to move beyond
long-standing practices. It is therefore important that every director voices his/her
opinions, particularly the independent directors, who often add helpful objectivity to
board discussions. We encourage boards to hold the mirror up to themselves and ask -
how well do we raise uncomfortable issues, what is the quality of our discussions or
decision making - and proactively find ways to improve.
Investors
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12 Second, investors can likewise spur corporate governance improvements through
their investment and voting decisions. Be it a professional asset manager or an
individual, investors need to exercise their rights responsibly by taking keen interest in
resolutions put to shareholders. They should also monitor the governance and
performance of the company, by asking good questions.
13. We encourage institutional investors to take the lead in exercising responsible
investor stewardship, through active engagements with their investee companies and
proxy voting.
On this note, MAS is pleased to support the recent revision to the Singapore
Stewardship Principles ("SSP") which is an industry led initiative spearheaded by
the Stewardship Asia Centre. The principles complement our regulatory
frameworks by encouraging investors and intermediaries to pro-actively exercise
their rights, constructively engage their investee companies, and responsibly exert
market discipline.
Investment stewardship is not simply about getting the best returns for investors.
Good stewardship shapes the corporate behaviour of investee companies
towards long term value creation, sustainable returns, and making a positive
impact within their communities. This includes factoring in environmental, social
and governance (ESG) considerations when making investment decisions and
when voting on company resolutions. That is one key thrust of the recent SSP
revision, and I encourage more market participants to play their part in this
collective investment stewardship effort.
14. On the other end of the scale, retail investors can do more to discern which
companies are deserving of their hard-earned monies.
Retail investors should actively consider how well issuers are governed when
making investment decisions.
To help retail investors seek out the right information from issuers, I am pleased to
note that SIAS has been posing well researched questions to listed issuers before
their annual general meetings. The responses of listed issuers are then published
by SGX as market announcements. We hope that through SIAS' efforts, retail
investors will take more active interest in their investee companies, pertinent
issues surrounding these companies, and ask appropriate questions at annual
general meetings.
Our national financial education programme, MoneySense , is also committed to
empowering investors by equipping them with the knowledge and skills to make
sound investment choices.
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In conjunction with the IOSCO's World Investor Week , MoneySense and its
partners, including SIAS, are holding a series of My Money investment seminars
this month. We had our first seminar over the weekend, and we were glad to see
healthy interest and questions, including on topics like ESG investing.
We encourage retail investors to leverage on these resources to monitor the
performance of their investee companies and actively participate in setting their
strategic direction.
Regulators
15. Finally, regulators operate in the background to safeguard trust and confidence in
our capital markets.
16. Rules and regulations set the foundation for corporate governance and are a key
mechanism to raise standards. We actively monitor the markets for shifts in practices,
expectations and priorities. From time to time, rules and regulations are adjusted to
address new developments and to align with international standards.
For instance, in late 2021, SGX consulted the market on sustainability reporting
and board diversity disclosures. This was to ensure our listing rules keep pace
with investors' expectations on listed companies. The proposals received broad
support and the rule changes became effective in Jan 2022.
17. Market feedback and data collection are important elements to enhancing our
regulatory framework. Just last month, SGX released the findings from an independent
review of listed companies' disclosures, conducted by KPMG. The findings of the
review were mixed.
Overall, many more listed companies are now making disclosures against the CG
Code provisions. Listed companies also achieved average scores exceeding 70%
across four of the five domains under the CG Code.
However, there remains room for improvement. Merely having corporate
governance disclosures against the Code provisions is not sufficient. Many do not
adequately explain the reasons for not complying with Code provisions. The
'comply or explain' approach is intended to give listed companies flexibility to
develop governance practices and polices that are most suited to their
circumstances. But they must provide meaningful disclosures as to why their
alternative practices can better uphold the principles in the Code.
18. SGX is engaging listed companies on the findings from the report, but let me
highlight two specific areas where many listed companies fall short.
Independent director renewal
19 . The first area is on renewal of independent directors.
The mandatory two-tier voting under the SGX rulebook for independent directors
who have served more than nine years has failed to spur ID renewals. Instead,
there was a rush to use the 2-tier vote to retain long-serving IDs, even after SGX
RegCo had cautioned against it.
More importantly, the observation is that companies did not provide sufficient
explanation except that the board and Nominating Committee had reviewed and
deemed these long-serving directors as independent.
Remuneration disclosures
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20 The second area relates to remuneration disclosures.
Listed companies are expected to disclose information on the remuneration of
directors and key executives to enable investors to assess the costs and benefits
of the company's remuneration plans, and how well these support the strategy
and performance of the company.
It is therefore concerning that most companies have continued to report
remuneration of directors and CEOs in broad bands, citing confidentiality and
competitive concerns as reasons to withhold more detailed disclosures. In spite of
the Code calling for disclosures of directors and CEO remuneration in exact dollar
amounts, only 35% of companies disclosed director remuneration in exact dollar
amounts, and only 18% do the same for CEO remuneration.
21. SGX has therefore found it appropriate to consider reinforcing the current rules.
SGX announced that it will be consulting the market on two changes - (i) introduce a
9year hard limit on ID tenure, and (ii) introduce listing rule requirements for the disclosure
of directors and CEO remuneration in exact dollar amounts. We look forward to seeing
constructive feedback and conversations around these proposals.
Conclusion
22. In conclusion, high functioning boards, proactive investors, and sound regulation
can strengthen corporate governance and help our companies better navigate the
uncertain winds ahead. The benefits will extend beyond immediate financial gains for
the companies themselves, to entrench sustainable and conscionable growth that will
benefit the broader community and environment.
23. SIAS has taken the lead to champion the interests of investors by facilitating
constructive engagement between investors and investee companies. Platforms like
this conference will allow all of us to share ideas and best practices in corporate
governance. I trust we will all benefit greatly from this exchange.
24. I wish you a fruitful conference ahead. Thank you.
SGX Listing Rule 710A.
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The World Investor Week is a global campaign organised by the International
Organisation of Securities Commissions (IOSCO) to raise awareness of the importance
of investor education and protection.