Speeches

SPEECH BY DPM LEE HSIEN LOONG, AT THE LAUNCH OF THE COUNCIL ON CORPORATE DISCLOSURE AND GOVERNANCE (CCDG), ON 16 AUGUST 2002, 1 P.M. AT THE LEI GARDEN, CHIJMES

Chairman and members of the Council on Corporate Disclosure and Governance,
Ladies and Gentlemen:

1. I am happy to be with you today to launch the Council on Corporate Disclosure and Governance, or CCDG for short.

2. Financial markets are becoming increasingly competitive and globalised. More and more, investors are demanding that companies provide reliable financial statements, embrace greater transparency and adopt good corporate governance practices. The recent corporate scandals in the US have re-emphasised the importance of good corporate governance and disclosure practices.

3. Countries and companies which practise good corporate governance and transparency will benefit from higher investor confidence, which translates into a healthy capital market and lower costs for raising capital. According to a recent McKinsey survey, two-thirds of institutional investors said they would avoid poorly governed companies and nearly one-third would avoid investing in countries with poor corporate governance practices. An overwhelming majority of institutional investors also said that they would be prepared to pay a premium for companies with good corporate governance practices.

4. For Singapore to meet the changing needs of global markets and develop as a business and financial centre, investors must be able to rely on and trust the financial statements of our companies, prepared in accordance with internationally accepted accounting standards. We also need to put in place an institutional framework to review continuously our disclosure requirements and corporate governance practices, and keep them in line with international standards.

SETTING UP THE COUNCIL ON CORPORATE DISCLOSURE AND GOVERNANCE

5. The Ministry of Finance appointed three private sector-led review committees in December 1999: the Corporate Governance Committee, the Disclosure and Accounting Standards Committee, and the Company Legislation and Regulatory Framework Committee. The first two Committees submitted their recommendations in March and September 2001 respectively, all of which the Government accepted for implementation. The third Committee will be finalising its report in a few months.

6. The task of the Committees is to do a thorough review of our practices and standards, and bring them up to date. We need a standing body to keep track of what is happening in the world of business and corporate governance, advocate practices which advance our standing as a premier financial and business hub, and respond to the needs and concerns of our business and investing community. It is a fine balance that has to be maintained between theory and practice, and between moving too fast as opposed to changing too slowly. This is our motivation for creating the CCDG, following on the recommendation of the Disclosure and Accounting Standards Committee, and the recent amendment of the Companies Act to authorise its formation.

7. The CCDG comprises members that come from businesses, professional organisations, academic institutions and government.It will give key stakeholders a direct say on how accounting standards are set and what they ought to be. The CCDG will also serve as a collaborative mechanism for the private and public sectors to continuously review and improve Singapore's corporate governance and regulatory framework.

8. Let me briefly touch on the CCDG's main responsibilities. First, the CCDG will prescribe accounting standards in Singapore. These will be known as the Financial Reporting Standards. Under the new arrangement, the Institute of Certified Public Accountants of Singapore will work with the CCDG, and continue to play a significant role in the process of standard setting. The CCDG may tap on the Institute's technical expertise to issue exposure drafts, and manage the process of gathering feedback whenever the International Accounting Standards Board issues new proposals.

9. Singapore's accounting standards are closely modelled after the standards set by the International Accounting Standards Board, which are known as International Accounting Standards and International Financial Reporting Standards. A recent study by Salomon Smith Barney showed that in Asia, Singapore's accounting standards are the closest to the International Accounting Standards. By harmonising our accounting standards with international standards, we benchmark ourselves with the world. This will help lower compliance costs for companies investing in Singapore, as well as Singapore companies going overseas. The European Union has announced that it will require listed companies to adopt International Accounting Standards from 2005 onwards. Leading jurisdictions like the UK and Australia have also indicated plans to harmonise their accounting standards with international standards. In future Singapore should continue to adopt International Accounting Standards, except where there are particular reasons for deviation.

10. The second role of the council is to strengthen the framework on disclosure practices and reporting standards. The CCDG will monitor the disclosure practices of both listed and unlisted companies, and make recommendations to the government on how these practices can be improved.

11. Third, the CCDG will own and update the Code of Corporate Governance to ensure that it remains relevant and useful. The adoption of the Code of Corporate Governance in April 2001 was an important milestone for Singapore. However, our efforts should not stop there. We need to encourage our companies to improve their corporate governance culture and practices, so that over time, more and more companies comply with the spirit and substance of the Code. I am glad that the Singapore Institute of Directors, the Association of Banks in Singapore and the Singapore Exchange have been actively promoting and educating their members on the importance of good corporate governance.

12. As we strive to raise our standards of corporate governance and disclosure, let me sound a cautionary note. What is critical is less the rules themselves, than the spirit behind the rules. Accounting and corporate governance rules on their own cannot ensure that companies make good business decisions, maximise shareholder value and advance the interest of their stakeholders. There needs to be a supportive corporate culture, and executives and directors who act with integrity and possess good commercial sense.Having more elaborate rules is not always better. The US corporate scandals have shown that a prescriptive approach with many rules does not necessarily prevent dishonesty and fraud. We are aligning ourselves with the International Accounting Standards, where the test is substance, rather than the rule-based system of US Generally Accepted Accounting Principles. Nevertheless in coming up with rules and standards for Singapore companies, the CCDG cannot uncritically adopt practices and fads elsewhere. You will have to judge what is practical and worthwhile for us to adopt, against what will be additional red tape and unproductive burden for our companies.

CONCLUSION

13. The CCDG is an important step forward in strengthening Singapore's corporate governance and regulatory framework. I am confident that under the able leadership of Mr J Y Pillay and with the active support of all the distinguished Council members, the CCDG is well equipped to take on the challenges ahead. It now gives me great pleasure to officially launch the Council on Corporate Disclosure and Governance.

16 Aug 2002