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Singapore Tops Regional Corporate Governance Rankings

30 Sep 2016

Michelle Quah

But moves such as dual-class shares, scrapping of minimum trade price threaten its future standing


SINGAPORE has pipped its closest competitor, Hong Kong, to emerge at the top of closely watched regional corporate governance rankings, "Corporate Governance (CG) Watch 2016".

But the city-state's top spot could potentially be in jeopardy, if it decides to proceed with plans to allow listed companies here to adopt dual-class share structures.

The much-anticipated CG Watch 2016 was released by brokerage and investment group CLSA and independent, non-profit organisation, the Asian Corporate Governance Association (ACGA), yesterday morning. The report is produced once every two years.

This year's report analysed and rated 1,047 Asian companies and 12 key Asia-Pacific markets on their performance in corporate governance, over February to August this year.

The markets are assessed based on their cumulative score across five categories: CG rules and practices, enforcement, political and regulatory environment, accounting and auditing, and CG culture.

Singapore beat fiercest rival Hong Kong, as well as Japan, Taiwan, Thailand, Malaysia, India, South Korea, China, Philippines and Indonesia.

Singapore and Hong Kong tied for top spot in the previous rankings in 2014, while Singapore had been ranked ahead of Hong Kong in 2012.

ACGA secretary-general Jamie Allen said that Singapore regained the ground it lost in 2014 because it revamped its enforcement strategy and brought its overall CG regime more up to date.

"Singapore seems to have undergone a period of existential self-reflection about its CG and capital-markets strategy over the past two years. A reinvigorated Monetary Authority of Singapore (MAS) and new regulatory leadership at the Singapore Exchange (SGX) have brought significant tightening in regulation and enforcement and a renewed sense of direction."

Mr Allen noted that the MAS has substantially rethought its approach to tackling securities crime and joined in a closer partnership with the Commercial Affairs Department (CAD) of the Singapore Police Force. He also cited, as winning points, the appointment of the SGX's new regulatory chief (Tan Boon Gin), the exchange's recent decision to move its regulatory arm into a separate company, and the greater disclosure by regulators about their actions.

Hong Kong, he noted, despite some "courageous regulatory decisions", lost points because it still lacks any sort of overarching government strategy on CG, remains one of the few markets in Asia without an independent audit regulator, and the culture of governance in companies, while improving, is moving forward glacially.

"Singapore is a beneficiary of Hong Kong's dysfunctionality, really," Mr Allen said.

Some of Singapore's moves, however, "are starting to cast an unwelcome shadow over all the good progress". Mr Allen was particularly critical of the recent decision by the SGX's Listings Advisory Committee (LAC) to give the market regulator the go-ahead to permit dual-class share structures among listed companies - calling it "disappointing" and "opportunistic".

"While officially this is not a done deal, it is certainly being viewed as such by market practitioners in Singapore and elsewhere; and with just one mainboard listing in 2015, the pressure to drive new foreign listings is strong.

"Any company with dual-class shares is immediately seen as having problematic corporate governance . . . When you bring in dual-class shares, you create more corporate governance problems for the market; if you want to make your life more difficult as a regulator, then bring in dual-class shares."

SGX has said that it would conduct a public consultation before deciding on the issue. Mr Allen also said that SGX has raised eyebrows by proposing to scrap its own Minimum Trade Price regime and reopening a discussion on whether to do away with quarterly reporting.

And, while it's difficult to say if these moves will necessarily cost Singapore the top spot in future rankings, because much will depend on how its competitors Hong Kong and Japan perform, Mr Allen said that these developments may be enough to drop Singapore to below its neighbours.

Commenting on these results were two corporate governance advocates who have been very vocal about Singapore's move towards allowing dual-class share structures. NUS associate professor of accounting Mak Yuen Teen told The Business Times: "The big downside going forward is the introduction of dual-class shares. I believe over time that will not only affect shareholder rights, but affect other areas of CG, like the effectiveness of CG rules and enforcement. So, we could see a quite significant impact on our future rankings."

David Smith, head of corporate governance at Aberdeen Asset Management Asia, said: "If adopted, (having dual-class share structures) would be a step backwards, and it would be no surprise if it impacted Singapore's standing in the eyes of the investment community in terms of corporate governance. This is perhaps the biggest shame given the very hard work that Singapore has rightly been recognised for over the years."

Also of note in this year's CG Watch was the inclusion of Australia for the first time, due to "popular demand". But it was excluded from the rankings, so as not to skew past results - as its CG score was significantly higher than top-ranked Singapore's.

It will, however, be included in the 2018 rankings - and, given that its score currently far surpasses the scores of Singapore and Hong Kong, there is "no question" that Australia will top the rankings in two years, Mr Allen said.

He said that Australia, which possesses the most robust governance ecosystem in Asia, provides a benchmark of the deficiencies in the region's governance. "There is such a big difference in CG culture between Australia and the rest of the region. In Australia, you have companies talking to investors, investors being very active earners, lots of director training, accountant training, strong investor bodies, and a very strong civil society.

"In contrast to Australia, the controlled and hierarchical management-shareholder communication system in Asia may become, if it does not evolve, a significant impediment to corporate governance and capital market development in Asia."

Still, Mr Allen added, Singapore has much to be commended. "Singapore and Hong Kong do not consistently top the survey by accident, they do it because they have the best institutions - legal, regulatory and economic - for CG in the region. But this year, the inclusion of Australia brought many things into sharper focus, allowing us to look at old issues from a fresh perspective.

"If there is a single message from our survey this year, it is that the ecosystem of CG in any market is not just important, it is the differentiating factor between long-term system success and failure."

Source: The Business Times © Singapore Press Holdings Limited. Permission required for reproduction.