Speeches

Mr J Y Pillay, Chairman of The Singapore Exchange
Dr Tony Tan, Chairman of Singapore Press Holdings
Distinguished Guests, Ladies and Gentlemen,

1. First, allow me to extend my heartiest congratulations to all the worthy winners and finalists of this year's Singapore Corporate Awards. You are certainly a model for the rest of the private sector.

Subprime Mortgage Crisis

2. It is important to celebrate positive examples, even as there is no shortage of negative ones today. For instance, we just need to flip through the financial newspapers and we would be inundated with articles and updates on the subprime mortgage crisis that has engulfed not just the United States but also many other markets. According to international ratings agency Standard and Poor's, this crisis is only expected to peak in 2009. In a recent Wall Street Journal article, it compared the cost of the subprime crisis with the other financial crisis over the last 25 years and found that the subprime crisis, with an estimated cost of $150 to 400 billion, is the highest of the lot.

3. I shall not comment on the genesis of the subprime crisis nor how it can be better prevented. That could take us all night. However, it is appropriate for us to note the unhappiness of investors and other stakeholders surrounding the lack of disclosure as well as the perceived tardiness in the disclosure of exposure that major financial institutions had.

4. The subprime crisis is not the only piece of negative news that has hit the front pages lately. The financial sector was also rocked by the revelation of how a rogue trader at Societe Generale or SG allegedly racked up nearly US $7 billion of losses in fraudulent transactions. This makes it, by far, the biggest rogue trader scandal in history, dwarfing even the Barings scandal that famously took place here.

5. Looking through SG's 2006 Annual Report, one would go away with the impression that it has in place a very effective and extensive internal control system, with more than 2,000 staff responsible for such controls. How was it possible for a junior level trader to commit the fraud by bypassing all the safeguards that the bank has in place? Details regarding this are slowly coming into light, and we are learning that the perpetrator was able to conceal his fraudulent activities through a scheme of elaborate fictitious transactions, which were made possible by his in-depth knowledge of the control procedures. Notwithstanding this and not surprisingly, questions relating to robustness of internal controls, board supervision, oversight of risks, and alignment of management's interests are being raised.

6. Inadvertently, with financial crises of such magnitude, there will be renewed calls to strengthen and tighten corporate governance practices. For instance, besides investigating into how banks, credit rating agencies and lenders valued and disclosed complex mortgage-backed securities, the US' Securities and Exchange Commission or the SEC is also looking into tightening disclosure practices, specifically, strengthening the relationship between a company's risk officers, the disclosure committee and the audit committee.

7. George Santayana, the famous philosopher and poet once said, "Those who cannot remember the past are condemned to repeat it". It is hence worthwhile to pause and consider what the important lessons are here, so that we would not hopefully repeat the same mistakes in the future.

8. However, we need to recognize that at the end of the day, systems are no match for the ingenuity of human beings. This does not mean that corporate governance standards or guidelines are not effective - they are still very important - but that we should never be lulled into thinking that we can design robust, fool-proof systems.

9. In Singapore, we do have our fair share of frauds and financial scandals that could possibly be attributed to inadequate internal control enforcement. I am sure many of you will still remember the case of Asia Pacific Breweries and more recently, the case of the loss of some US$300m at SembMarine relating to allegedly unauthorised foreign exchange trade.

10. The Commercial Affairs Department's Annual Report has revealed that small private companies are equally vulnerable to the type of financial shenanigans that may plague larger, more prominent companies. Hence having a good corporate governance framework, and engendering the spirit of integrity, is critical to all companies in Singapore.

Improving Corporate Governance Practices of Companies

11. Broadly, there are three ways the Government can go about promoting and improving the corporate governance practices of companies. First, through the legislative route. A robust company law framework is essential to provide safeguards to investors and creditors of companies who enjoy limited liability. As such legislation tends to be an unwieldy and blunt tool, we should only use it sparingly and for situations where there should be no exceptions, for example, the requirement to produce accounts, and rules to deal with the oppression of minorities. Here in Singapore, we are committed to a regular review of our corporate regulatory framework so as to ensure that it remains appropriate and relevant.

12. The last time we did a fundamental review of the Companies Act was back in 1999 when the Ministry of Finance, Attorney-General's Chambers and the then Registry of Companies and Businesses commissioned the Company Legislation and Regulatory Framework Committee or CLRFC to conduct a holistic review of the company law framework. Back then, the CLRFC recommended, amongst other things, that the Companies Act should be rewritten so as to achieve a consistent style in view of the many specific amendments made over the years. This was held back as the UK was conducting its own Companies Act review and it was deemed to be more prudent to await the outcome of the developments in the UK.

13. The UK has since completed its review and enacted a new Companies Act in 2006. Having regard to this and the other corporate law reform developments in the Commonwealth, MOF has convened an 11-member strong Steering Committee to review the Companies Act. The Steering Committee is chaired by the Solicitor General, Professor Walter Woon, and the aim of the review is to retain an efficient and transparent corporate regulatory framework that supports Singapore's growth as a global hub for both businesses and investors. The Steering Committee would, amongst other things, seek to update the law to keep pace with relevant international legal developments and technological advances, promote greater accountability and transparency while keeping the compliance cost low.

14. Reviewing and rewriting the Companies Act is a mammoth undertaking; hence, the Steering Committee would be aided by five working groups, which would study distinct areas of the Companies Act. I would like to take this opportunity to thank all the members of the Steering Committee and the working groups for agreeing to undertake this important task. The Steering Committee would be evaluating the issues identified in the course of its review and put out a consultation paper. We would strongly encourage all interested parties and relevant stakeholders to participate actively in the ensuing consultations.

Government to Provide Guidance and Assistance

15. A second way to improve corporate governance is through the application of non-statutory codes and best practices to provide businesses with the necessary guidance and assistance. Given that corporate governance is more about substance than form, this is our preferred approach. This is because principle-based best practices encourage and facilitate compliance. Ano ther advantage the code of best practices has over the law is that statutes are by nature, detailed and prescriptive. The law hence is only for putting in place minimum standards. A code of best practices, on the other hand, can be descriptive in setting out the guiding principles whilst allowing firms the flexibility to put in place the rules and systems that are most appropriate to their context.

16. Besides the code of best practices, the Government and the relevant professional associations are also willing to step in and provide companies with training and practical guidance; for instance, on how to rise above the use of boilerplate language to explain how they are meeting their obligations in areas such as risk management, internal controls and remuneration policies. A good example is the Audit Committee Guidance Committee, a collaborative effort between MAS, ACRA and SGX that was set up to look at providing practical guidance to audit committee's members.

Use of Rewards and Recognition

17. Third and lastly, the use of rewards and recognition. Just as wrong-doers would be punished for contravening the law, similarly, there is a need to give due recognition to companies that have adopted good corporate governance practices, enforced them diligently and in many cases, decided to go beyond the recommended best practices.

18. A fine example of this would be Banyan Tree Resorts, which not only has an Audit Committee but also a Risk Management Committee to identify, assess and manage the company's strategic business risks. In addition, it also has in place a whistle-blowing policy whereby employees are given direct access to, not only the individual Audit and Risk Committee members, but also the Executive Chairman, Head of Internal Audit, Head of Human Resource and Head of Legal to raise concerns about possible improprieties. Contact details of these persons are also being made available to all employees.

19. It is hence in this regard that events such as the Singapore Corporate Awards can play an important role, as it gives us an opportunity to showcase and highlight companies that practice exceptional corporate governance practices. I believe this initiative has, in its own way, helped to ratchet up standards by bringing the best out of Board practices in Singapore.

Conclusion

20. To conclude, I am happy to be here tonight to present the awards under the Best Managed Board category. I would like to congratulate all the winners tonight once again, and hope that, in the future you would help by encouraging your peers to follow in your footsteps. Thank you.