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Speech By Mr Tharman Shanmugaratnam, Minister For Education & Second Minister For Finance, For The Singapore Corporate Awards At Ritz-Carlton Hotel, Tuesday 29 May 2007

30 May 2007

Distinguished Guests, Ladies and Gentlemen,

First, I would like to congratulate all winners and finalists of the Singapore Corporate Awards or SCA 2007. Each of you serves as an example worth emulating. You have helped to set the highest standards in corporate governance and disclosure in Singapore.

2. Maintaining these standards is of paramount importance, even as the prospects for the Singapore economy remain strong. Singapore's economy grew by 6.1% in the first quarter of 2007. The Government has also upgraded its GDP forecast for Singapore in 2007, from 4.5 - 6.5% to 5 - 7%, on the expectation of a moderate slowdown in the US economy, strong domestic demand in the European Union, healthy corporate performance in Japan and robust economic growth in China and India.

Staying Alert to Risk in Good Times

3. It is easy in good times to let our guard down. Almost every company is in the black, and poor corporate practices can easily be masked. And as the Chinese saying goes, "In times of peace and prosperity, one should make provisions for future risks and challenges". Even as we ride on the current momentum of growth at home and in the broader region around us, we have to look ahead to source new opportunities that will sustain growth, and ensure that our systems for anticipating and managing risk are robust.

4. The economic cycle will not disappear, and the markets will inevitably turn. Geopolitical risks and country risks remain significant, and are if anything becoming more complex. We also have to be prepared for what they call "fat tails" in the financial markets, events which may not have very high probability of occurring but can have very significant impact on global markets when they do occur. Seasoned observers of global markets have reckoned that the fat tails are getting fatter over the last year. The ample liquidity in the markets in recent years, include in private equity and alternative investment plays, has led to attractive pricing of what were hitherto risky assets. Risk premia in global markets are at a low by historical standards, and are in all likelihood unsustainable. But the repricing of risk, when it comes, may very well be sudden, large and extending globally.

5. It will therefore pay for all of us to stay alert to risks - to plan for the risks we know, and be prepared for the risks we do not know.

Riding on Opportunities in Emerging Markets

6. This focus on both reward and risk is all the more essential as we see a continued shift in the economic centre of gravity, away from the G7 nations to emerging economies in Asia and elsewhere. The emerging markets are where growth is highest and investment opportunities are abundant. Every global company is now looking to build up its presence in Asia.

7. Singapore companies have in fact been early movers into some of these emerging markets. For instance, our companies began investing in China more than 20 years ago. Starting with investments in properties, hotels and service-related areas in the 1980s, our investments in China now cover a wide spectrum of activities, from the provision of financial services and manufacturing to ports, transportation and logistics. And as China begins to open up its markets and relax its restrictions on foreign investors, there would be more such business opportunities in the future.

8. By building deep intelligence and networks in emerging markets, some of our home-grown companies are becoming global leaders in their fields. Keppel Corporation is a good example. Besides a strong presence in Asia and developed markets like the US and Germany, it has established a distinct and growing niche in emerging markets in the Middle East, Central Asia and Latin America. Keppel has established itself as the world leader in the building of harsh environment jack-up rigs, having in fact built most of the world's jack-ups on order in the last decade. It is also a world leader in the conversion of Floating Production Storage and Offloading vessels (FPSOs) and Floating Storage and Offloading vessels (FSOs). No mean feat for a company from a country with no harsh environment to speak of, and no oil exploration!

9. While our companies' investments in emerging markets can produce high returns, they also come with high risk. It is important to have a clear strategy, as well as systems and processes for rigourous investment evaluation and ongoing management of risks. Like Keppel, we all have to keep our eyes sharply trained on both the opportunities for reward and the risks.

Corporate Governance of Listed Companies

10. Let me now turn to some changes that we are making in the oversight and regulation of corporate governance. Singapore has a well-developed legal and regulatory system governing the business activities and conduct of companies. There are essentially four pieces to the regulatory jigsaw currently, each clearly defined and complementing the others.

11. First, we have the Accounting and Corporate Regulatory Authority or ACRA, a statutory board under MOF, which administers the Companies Act that sets out the responsibilities of companies, directors and secretaries, and the basic mandatory requirements that all companies are required to comply with, for example the need to disclose related party transactions.

12. Second, we have the MAS, who as the statutory regulator for capital markets, administers and enforces the Securities and Futures Act or SFA. The SFA governs the integrity of the markets and regulates the capital markets, their infrastructure, the intermediaries involved and the products offered.

13. Third, we have the SGX as the front line regulator of listed companies. By virtue of its direct interaction with listed companies, SGX is responsible for monitoring their ongoing compliance with listing requirements. This includes for example, requiring companies to provide timely and adequate disclosure of material information.

14. The fourth and final piece of the regulatory landscape comprises oversight of corporate governance. In 2002, the Council on Corporate Disclosure and Governance or CCDG was set up to undertake a comprehensive review of corporate governance practices, keep track of what is happening elsewhere in the world and advocate practices which will advance Singapore's standing as a premier financial and business hub. It was also charged with prescribing accounting standards for companies.

15. The CCDG, which has been chaired by J Y Pillay, comprises members that come from businesses, professional organisations, academic institutions and government. It has done much to enhance and strengthen our corporate governance practices and ratcheted standards up measurably in recent years. The most recent example is the Council's review of the Code of Corporate Governance, which amongst other things, led to an expansion in the duties of the audit committee to include ensuring that channels to facilitate whistle-blowing are put in place.

16. Having successfully laid down the foundation of a strong and robust corporate governance framework for listed companies, the CCDG is now ready to devolve its role as the arbiter of good corporate governance practices to MAS and SGX. MAS and SGX, as the market regulators, will be well positioned to coordinate the promulgation of good corporate governance practices and to reap the synergies in having comprehensive regulatory oversight of listed companies.

17. The CCDG would thus hand over the important task of promoting best practices in the Code of Corporate Governance for listed companies to MAS and SGX. This is consistent with the practices in other countries like Australia, Hong Kong, US and New Zealand, where corporate governance issues for listed companies are un der the purview of the respective stock exchanges and securities commissions. Future reviews of corporate governance practices would be carried out by MAS, in consultation with SGX, and with advice and recommendations from the private sector.

18. The transfer to MAS and SGX is not about imposing more rules or legal requirements, although the Code will be kept under review, and will have to remain sensitive to practices in other leading markets. As it stands, The Code sets sensible, internationally-benchmarked good practice standards for listed companies in Singapore.

19. The practical challenge however remains to convince many Boards and directors of listed companies of the value in meeting these standards in substance as well as in form. For example, I understand that some companies use boilerplate language provided by external advisors to meet their obligation under the Code to explain how they have met its standards in areas such as risk management, internal controls and remuneration policies. MAS and SGX will work with market participants to review how best to raise the governance practices of companies so that they are more in keeping with the spirit of the Code. This will involve strengthening directors' training and creating more fora where directors can share their insights and experience on the practical challenges they face as directors of listed companies. For example, the recent debates on the role of independent directors highlight the need to clarify the roles and responsibilities of independent directors and what is expected of them in a variety of circumstances.

20. Besides transferring the corporate governance oversight function of listed companies to MAS and SGX, the Government would also be setting in place a more comprehensive approach to setting accounting standards for the different sectors. Whilst the CCDG prescribes accounting standards for corporate entities, there is currently no similar authority when it comes to accounting standards for non-corporate entities.

21. Hence, a new Accounting Standards Council (ASC) would be set up to replace the CCDG and issue accounting standards for companies and other entities such as charities, societies and co-operatives. This new consolidated framework for accounting standards under the ASC will enhance the credibility of financial reporting and achieve consistency in standards across the sectors. This practice of having a single body issuing accounting standards for corporate and other non-public sector entities has been working well in countries such as Australia, Canada, New Zealand and the UK.

22. The changes I have described will help to achieve a more efficient, effective and clearer division of labour and responsibilities amongst the various local regulators; with MOF and ACRA setting the basic requirements that apply to all companies and MAS and SGX prescribing the additional requirements for listed entities and overseeing the setting of standards expected of them in the field of corporate governance. With the changes, companies and businesses would benefit from the increased clarity, as well as the more targeted initiatives and policies that the respective regulators would be able to introduce for their constituents.


23. To conclude, I am happy to be here tonight to present the awards under the Best Managed Board category. I believe the SCA has, in its own way, helped to ratchet up standards by bringing the best out of Board practices in Singapore. I would like to congratulate all the winners tonight, and I hope that, having set the benchmark, you would now help by encouraging your peers to follow in your footsteps. Thank you.