Global Corporate Governance

1
Global Corporate Governance The Singapore
Response

• Dr Philip Pillai
• Senior Partner
• 30th May 2004

2
Outline

• Why Corporate Governance?
• What Drives Global Governance Standards
• Is There Any Evidence to Link Good Governance to
  Better Market Performance?
• International Best Practice and Codes
• Beyond Codes The Infrastructure Culture
• The Singapore Experience
• What Are the Core Elements of Good Governance?

3
Why Corporate Governance?

• OECD Principles of Corporate Governance 1999
• Corporations create jobs, generate tax income
  produce a wide array of goods and services....and
  increasingly manage our savings and secure our
  retirement income. Amidst growing reliance
  worldwide on the private sector, the issue of
  corporate governance has similarly risen in
  prominence.

4
Why Corporate Governance?

• OECD Principles of Corporate Governance 1999
• Asian Financial Crises 1998 revealed systemic
  flaws in several Asian emerging markets poor
  accounting and audit standards, conflicts of
  interests and related party transactions, lack or
  weakness of independent directors to protect
  minority shareholders and undeveloped legal and
  regulatory regimes to redress actionable
  misconduct.
• The Prize access to international and/or
  domestic capital

5
What Drives Global Governance Standards?

• System of governance in relation to
  accountability/checks and balances
• Between management, board and shareholders to
  achieve greater shareholder value

6
What Drives Global Governance Standards?

• Overarching weight of US capital markets and
  investor base
• Systemic failure executive fraud and audit
  failure
• Results Sarbanes Oxley, prosecutions of
  CEOs/CFOs, fines to broking houses

7
Is There Any Evidence to Link Good Governance to
Better Market Performance?

• Implicit investor behaviour influenced by
  superior governance resulting in better prices
• Is there any evidence that good corporate
  governance attracts investor premium?

8
International Best Practice and Codes

• Why international best practice Governance Codes?
• Compulsory compliance or opt in or opt out
  disclosure?
• Compliance mechanisms annual surveillance by
  regulators/Exchange, annual reports by listed
  corporations, certification of compliance by
  CEO/CFO/Auditors.
• Sanctions reprimand, censure, delisting,
  statutory criminal, civil and regulatory
  sanctions. Directors/prospectus/annual report
  disclosure liability.

9
Beyond Codes The Infrastructure Culture

• Contextual Realities in Emerging Markets
• Does Governance Matter?
• Political and legal culture and compliance
  culture implications of corruption, tax
  evasion, money laundering.

• Statutory and Regulatory Framework
• Quality and power of regulators
• Accounting standards and quality of accounts and
  audit
• Quality and pool of non-executive directors
• Institutional investors, media and shareholder
  activism

10
The Singapore Experience

• Open economy no exchange control, low
  restrictions on foreign ownership, international
  financial centre. International investment and
  capital flows.
• International Competitiveness Index No. 2 after
  US.

11
The Singapore Experience

• Infrastructure
• Singapore tight regulatory compliance.
  Compliance likely to be the rule rather than the
  exception.
• Public records maintained by the Accounting and
  Corporate Regulatory Authority (ACRA) and the
  Singapore Exchange real time and increasingly
  available to online inspection.

12
The Singapore Experience

• Benchmark Governance Performance set by
  government linked companies, e.g. SIA.
• SME/China and Indonesia governance and board
  composition mixed.

13
The Singapore Experience

• Accounting Disclosure Standards set by the
  Disclosure Accounting Standards Board comprises
  a mix of accountants, corporates and investors.
• The ACRA is regulator of the accounting
  profession.

14
The Singapore Experience

• Singapore Institute of Directors To grow the
  number of qualified new directors and to provide
  continuing education to raise standards.

15
The Singapore Experience

• The Corporate Governance Committee recommended a
  blend between a prescriptive Code which requires
  companies to adopt specific practices and a
  non-prescriptive Code which allow departure
  subject to disclosure. The SGX implemented the
  Code which now requires listed companies to give
  a complete description of their corporate
  governance practices with specific references to
  the Codes guidance and where they deviate to
  disclose and explain.

16
What Are the Core Elements of Good Governance?

• UK Model
• Principles on Directors
• Directors Remuneration
• Relations with Shareholders
• Accountability and Audit and
• Institutional Investors

17
(I) Directors

• Effective board to lead and control company
• Separation of Chair and CEO
• Balance between executive and independent
  directors
• Supply of timely and appropriate information
• Formal and transparent appointment/re-election

18
(II) Directors Remuneration

• Sufficient and attractive, not excessive
• Linked to corporate and individual performance
• Formal process and disclosure in annual report

19
(III) Relations With Shareholders

• Dialogue with institutional investors
• AGM participation

20
(IV) Accountability And Audit

• Present balanced and understandable assessment of
  companys position and prospects
• Internal control to safeguard shareholders
  investment and companys assets
• Manage financial reporting, internal control and
  external auditor relationships

21
(V) Institutional Shareholders

• Considered use of votes
• Enter dialogue
• Due weight to all relevant factors when
  evaluating governance

22
Singapore Adaptations

• Mix
• Statute
• Exchange Rules
• Best Practice Codes Standards

23
SGX Code of Corporate Governance

• Audit Committee
• Nominating Committee
• Remuneration Committee

24
Audit Committee Functions sec. 201B CA Review

• audit plan with auditors
• auditors evaluation of internal accounting
  controls
• auditors audit plan
• assistance given by officers to auditor
• scope and results of internal audit procedures
• B/S and P/L
• Nominate auditors and
• Any other functions agreed by AC and Board
• SGX imposes duty on AC to review interested
  person transactions

25
Conclusion

• Directorships not retirement jobs

26
Contact Details

• Shook Lin Bok
• 1 Robinson Road
• 18-00 AIA Tower
• Singapore 048542
• (T) 65 6535 1944 (F) 65 6535 8577
• www.shooklin.com
• slb_at_shooklin.com.sg