Speech by Mrs Lim Hwee Hua, Minister In Prime Minister's Office, Second Minister For Finance And Transport, At The CPA Forum 2009 , 02 April 2009, 9:00 am at NTUC Business Centre02 Apr 2009
Mr Low Weng Keong, Deputy President, CPA Australia
Mr Chaly Mah, President, Singapore Division, CPA Australia
Ladies and Gentlemen,
We can find no better real life situation than the current financial crisis to focus on the theme for the CPA Forum 2009, that is: "Towards Better Governance and Transparency". How extremely timely and relevant, is this emphasis on good corporate governance.
2 The importance of good governance and enhanced transparency cannot be over-emphasized. In many ways, the subprime credit crisis came about as a confluence of inappropriate incentives, inadequate transparency and weak regulatory checks, all leading to unsustainable levels of leverage that eventually spiralled out of control.
3 Investors all around the world are coping with the widespread effects of the subprime crisis. Their confidence and trust in the markets have been crushed by the series of high-profile cases of corporate mismanagement and fraud which have been recently uncovered. In the US, the Ponzi scheme operated by Madoff has been termed by some as the largest investor fraud ever committed by a single person. Over in India, one of the largest information technology companies, Satyam Computer Services, has also been embroiled in a corporate scandal involving accounting irregularities.
Singapore's Corporate Governance Regime
4 All of us know that while it can take years to build up trust, it only takes seconds to destroy it. Today's financial markets prove the wisdom of this adage - just look at the speed with which investors' trust in the markets has been eroded in recent months. The great challenge facing markets today is therefore one of regaining the confidence of investors and other stakeholders.
5 In Singapore, we are fortunate to have a fundamentally strong corporate governance regime, which undergirds our position as an international financial and business centre. Even then, the past few months have seen several corporate governance infringements regarding some companies listed on the Singapore Exchange (or SGX). These have prompted some to question whether the listing requirements are robust enough, and whether there is a need to further review the screening for foreign companies seeking to list on the SGX.
6 In Singapore, we are well-aware of the dangers of "knee-jerk" reactions. We are mindful that if we develop rules, they must be workable, and that there must always be a sensible balance between the benefits of a dynamic capital market and the costs of excessive regulation. The right regulatory balance should marry high standards of integrity and accountability with a strong foundation for innovation, growth, and competitiveness.
7 Singapore's small base means that to grow the breadth and depth of our capital markets, we must continue to attract good quality, reputable foreign companies to list in Singapore. The current listing requirements set out minimum standards required for a listing on the SGX. All listing applications undergo due diligence examinations by issue managers and financial and legal professionals, before being admitted for listing by the SGX.
8 Our regulatory agencies will continue to monitor developments both locally and globally and look at ways to further strengthen our system. The Monetary Authority of Singapore (or MAS) and SGX will also review and identify areas where there is a need to further enhance regulation. In cases where there are clear breaches of the law and regulations, appropriate action will be taken. That being said, laws and regulations cannot prevent investors from losses, nor should they attempt to do so, if the losses came about due to normal business operations. We should make sure that investors always have reliable information on which to base their decisions.
Good Corporate Governance Requires Full Commitment From Everyone
9 Good corporate governance requires a full effort on everyone's part - not just the regulators, but also the auditors and the listed companies themselves. Underscoring all these efforts must be integrity and an ethics-based corporate culture.
Role of the Auditors
10 In these challenging times, the role of the auditors in safeguarding the integrity of the financial reporting system has not surprisingly been thrust into the limelight. A vigilant and vigorous audit profession will help instill confidence in our corporate financial reporting regime, and will of course be a strong deterrent to fraudulent and irregular practices.
11 On this note, I believe that the Singapore audit profession is well placed to meet the increased challenges and expectations imposed on the profession. Singapore has been enforcing regulatory oversight on the audit profession. Specifically, the Accounting and Corporate Regulatory Authority (or ACRA) has implemented various regulatory measures like the Practice Monitoring Programme to ensure that professional quality and high standards are upheld. ACRA has also recently issued an Audit Practice Bulletin which highlights several key areas where auditors should be extra vigilant, such as in the valuation of financial instruments held at fair value and cash balances in the bank accounts. I am heartened that ACRA's audit regulatory oversight work had been favourably cited in the CLSA Corporate Governance Watch 2007 as being ahead of the region in trying to improve the quality of external auditors.
Role of the Boards and Audit Committees
12 So far, I have talked about areas where I believe the Government can help restore investor trust through action in the corporate governance arena. This is, however, not the duty of the Government alone. I believe strongly that directors and management must take it upon themselves to improve accountability by setting the the ''right tone at the top'', honouring the responsibilities that arise from the trust placed in them by shareholders. Once again, I urge all directors and management to implement good corporate governance and best practices that promote integrity, transparency, and accountability.
13 In this regard, the Audit Committee should play an important role in identifying, addressing and managing risks, especially in this economic climate. The Audit Committee should continue to ensure the integrity of the financial statements through its oversight of the company's financial reporting process, internal controls and the audit function. Audit Committees will have to regularly see if there is a need to tighten internal controls and risk management, and to act as an independent first line of defence against any poor corporate governance and regulatory controls. The recent call by the SGX on Boards and Audit Committees to heighten their vigilance in times of financial turbulence is a timely one to further underscore the importance of the roles that Board and Audit Committee members play.
The Governance and Transparency Index
14 Companies with high standards of corporate governance and disclosure should ultimately provide long-term shareholder value. To help investors, it is useful to have a gauge on how well companies are doing on the corporate governance front. To this end, the NUS Corporate Governance and Financial Reporting Centre and the Business Times have jointly launched the Governance and Transparency Index (or GTI), to replace the previous Corporate Transparency Index. The GTI has a broader scope, focusing not only on the transparency of financial information but also on governance, ethics and rigour in financial reporting.
15 We encourage initiatives such as this as well as other private sector efforts aimed at raising awareness of corporate gover nance practices.
16 I would like to congratulate the five top-ranking companies on the inaugural GTI, which are Singtel, SMRT, Keppel T&T, SGX and Keppel Corp. I would also encourage and urge all to join these companies in striving towards constant improvement of their corporate governance practices.
Corporate Governance as A Means to An End
17 Proper corporate governance processes will not guarantee that unethical people will now do the right thing. Management and directors need to rise above a rules-based mindset that asks, ''Is this legal?'' to adopting a more principles-based approach that asks, "Is this right?"
18 Our capital markets remain strong and competitive, but they face some significant challenges that do not lend themselves to easy answers or quick fixes. It is in this regard that forums such as this will be important in stimulating discussions and coming up with new and innovative solutions to handle the future challenges. With that, I wish everyone a fruitful and lively discussion ahead. Thank you.