Speech By Minister For Finance, Dr Richard Hu, At The Launch Of The Singapore Institute Of Directors (SID) On Thursday, 16 Dec 1999 At 12.30 Pm At The Island Ballroom, Shangri-La Hotel16 Dec 1999
Mr Chew Heng Ching, President of the Singapore Institute of Directors,
Ladies and Gentlemen,
Global trends in corporate governance
The responsibilities of company directors are an issue of corporate health no company boardroom can afford to ignore. Around the world, shareholders and investors are increasingly driving corporations along the path of "enlightened self-interest" to adopt practices which place directors in positions of better and clearer accountability to shareholders. In the US, the "boardroom revolution" that began in the early 1990s has seen large institutional investors putting pressure on corporations to adopt clear codes of conduct for directors. Many corporations have responded by, among other measures, publishing their internal boardroom practices. Similarly, in the United Kingdom, every listed company is now obliged to incorporate in its annual report an account of how well the company has applied a broad set of corporate governance principles. The health of internal corporate relationships has increasingly become an important factor in the worth of a corporation to the investing public and its shareholders.
Singapore's place in global competitiveness rankings
2 The inception of the SID comes not a moment too soon. Even as our economic prospects start to look up, we would be committing the grave mistake of forgetting lessons learnt from the Asian economic crisis if we do not push on with the upgrading of our corporate environment. In the somewhat madcap economic spurt of the 1980s, many had ignored the importance of strong and self-sustaining institutional governance frameworks in the conduct of their corporate affairs. Had the quality of corporate governance, the invigoration of shareholders' participation, and the vigilant upgrading of accounting standards been worked into the system as the East Asian economies grew, they may well have averted or mitigated the meltdown. Unreported losses and hidden liabilities would have been flushed out from the closet sooner had these precepts been in place.
3 We cannot sit back in complacent ease, imagining that Singapore was entirely free of the taint of the crisis. In recent global competitiveness rankings in areas approximating corporate governance, Singapore has not fared as well as it does in other areas such as openness of economy, quality of Government, finance and infrastructure, technology, and institutions. For example, although the World Economic Forum ranked Singapore No.1 overall, we came in only at no. 12 for overall management quality and the quality of internal financial control systems. In almost all categories related to corporate governance, such as quality of corporate boards and financial disclosure, we consistently lagged behind our OECD counterparts and in some instances, Hong Kong.
4 The same is true for accounting standards. Accounting standards the world over are trending towards convergence on internationally accepted principles. The Public Accountants Board (PAB) and the Institute of Certified Public Accountants of Singapore (ICPAS) are already working on making our Singapore Statements of Accounting Standards (SAS) at least identical to International Accounting Standards (IAS) as far as possible. SAS will exceed IAS in stringency where appropriate, and new IAS will be reviewed for adoption as SAS within a year of the IAS becoming operative. In addition, the Singapore Exchange will adoptthe IAS and the US Generally Accepted Accounting Principles (GAAP) as accounting standards permitted for use by listed companies, by early next year.
Partnership Approach to Promoting Corporate Governance
5 The Government has set in motion various processes to upgrade the fundamental underpinnings of our corporate and securities markets. The reviews initiated by the Financial Sector Review Group and the Corporate Finance Committee, as well as the de-mutualisation and merger of the Singapore Exchange, have all been part of the move to place our financial and corporate sectors on a more competitive footing. Underlying this is a reorientation of our regulatory philosophy towards a disclosure basis rather than merit review.
Role of the Singapore Institute of Directors
6 The "re-invention" of our regulatory approach is an ongoing process. But the Government can only do so much to set the regulatory framework right. The key in the race to position ourselves as a world-class business centre lies in the strength of our partnership with the private and people sectors. A strong, flexible and responsive regulatory environment should work hand in hand with enterprising capital and a vibrant civic effort, that demand high standards of disclosure and accountability.
7 It is very encouraging to see the SID active in this effort. I commend the Institute in pursuing its objective of raising the level of corporate governance in Singapore, and aiming to promote the highest professional and ethical standards in company directorship. The SID is in the process of laying out a Code of Professional Conduct for its member directors, as well as a Code of Best Practices in Corporate Governance. These are worthy projects that ought to be undertaken in close collaboration with the people and public sectors.
8 The importance of civic efforts in pushing the envelope in standards of corporate governance cannot be overstated. This has been the experience of countries ahead of us in this regard. The UK Institute of Directors (IOD), for example, co-sponsored the Hampel Report on Corporate Governance together with the London Stock Exchange and the Confederation of British Industry. Australia's Corporate Law Economic Reform Program made a key recommendation that the Australian Stock Exchange (ASX) should encourage good corporate governance not by legislative prescription, but by the encouragement of civic investors' groups. In nearly all developed economies, civic efforts are closely intertwined with changes by the regulators. Here in Singapore, many company directors still plead ignorance for flouting statutory obligations. SID can play a pivotal role in raising awareness and standards in company directorship.
Review of Corporate Regulation and Governance
9 The Ministry of Finance, together with the Monetary Authority of Singapore and the Attorney-General's Chambers, is sponsoring a comprehensive review of corporate regulation and governance in Singapore. We are setting up three private-sector-led committees focusing on three areas, namely:
Company Legislation and the Regulatory Framework;
Disclosure and Accounting Standards; and
The review is aimed at enhancing the existing framework for corporate law and governance, to strengthen Singapore's competitiveness as a world-class business and financial centre.The committees will be given a free hand to come up with their recommendations on the major aspects of corporate regulation and governance in Singapore. They will be given up to a year to complete their deliberations.
Company Legislation and Regulatory Framework
10 The Committee on Company Legislation and Regulatory Framework will review Singapore's corporate law and regulatory framework, comparing Singapore's approach and legal structure with the standards and best practices in major and reputable business jurisdictions. It will look at the structure and composition of the Companies Act and its relationship with other statutes that influence corporate governance standards. This will be on top of changes to be made and already made as a result of the recommendations of the Corporate Finance Committee. The committee will also surface proposals to enhance efficiency and reduce red tape in the administr ation of corporate regulation.
Disclosure and Accounting Standards
11 The Committee on Disclosure and Accounting Standards will review the process by which accounting standards are set, maintained and regulated in Singapore, compared with overseas jurisdictions. It will look at the Singapore Statements of Accounting Standards to check on their alignment with international standards if not higher. The committee will also review the approach, development and promotion of best practices in disclosure requirements, especially among publicly listed companies in Singapore.
12 The Committee on Corporate Governance will review the development and promotion of best practices in corporate governance, especially among publicly listed companies in Singapore. It will examine international best practice benchmarks such as the OECD Principles of Corporate Governance, to see how they should be adopted in the Singapore context. The committee will look at how to develop and promote best boardroom practices, and improve the training of company directors. No doubt it will take into account the role and work of the SID.
13 This review of Corporate Regulation and Governance is part of the continual effort to improve the corporate regulatory and governance environment in Singapore to make Singapore a financial and business hub of world-class standard. It is an effort that must involve the public, private and people sectors working together. The goals and challenges that SID has set itself are in the spirit of what we seek for the world of business in Singapore as we move into the 21st century. I warmly congratulate the SID on its inaugural General Meeting and official launch, and offer my best wishes for an active, energetic and lively future.