Speech by Mrs Lim Hwee Hua, Minister in Prime Minister's Office, Second Minister for Finance and Transport, at the Singapore Institute of Directors' Annual General Meeting cum Luncheon, 6 November 2009 at 12:30 PM at Marina Mandarin Hotel06 Nov 2009
Ladies and Gentlemen
1. Thank you for inviting me to join you in your AGM Luncheon today.
2. Twenty years ago, the AGM was but a necessary item on a company’s calendar of events. For the most part, it was uneventful and resolutions were almost always passed in full with nary a question. In short, it was usually, in practice, one big yawn.
3. Fast-forward to the situation today – shareholders are more engaged with and have clear expectations of the companies they invest in. This would cover the whole gamut of issues, from corporate strategy to quarterly performance, to compensation of directors and top management, to disclosure and justification for material developments, to dividend policy. And the list goes on.
4. When things go wrong, the instinct is often one of requiring even more disclosure of corporate performance, and taking the board and management to task. This is clearly the case today within the context of the current economic climate, where many companies report dismal results, and quite a few, red ink. Immediately, the spotlight is cast on when companies’ fortunes will improve, or whether there ought to be a change in corporate strategy, or if management had been overpaid relative to the company’s poor performance.
5. The recent spate of corporate scandals that ravaged Wall Street has, not surprisingly, renewed public and regulator interest on corporate governance. While shareholders want more disclosure and accountability, the instinct of many a regulator is to impose yet more rules to ‘close the gaps’ as an attempt to prevent similar misdeeds from happening again. But there have been enough rounds of corporate misdeeds for us to know that imposing more rules does not equal better corporate governance.
6. It is healthy that shareholders take an active interest in the affairs of the companies they have invested in. But shareholders should distinguish between cyclical effects and the consequences of deficient corporate governance. Countering cyclical effects should ideally form part and parcel of a company’s core competence, including the ability to scale down or undertake restructuring of overheads such as having a flexible compensation scheme, one that is built on trust.
7. Deficient corporate governance should, however, be strenuously addressed, and directors can be expected to make this their priority. For example, if financial controls or risk management measures are weak and audit efforts, lacking, then the impact of a severe downturn may be unnecessarily magnified. Poor enforcement or a lack of compliance with staff trading rules could also lead to undesirable incidents such as insider trading.
8. One area of heightened attention is executive compensation. We have seen how the compensation practices of financial institutions in many countries have resulted in misaligned objectives and excessive risk-taking, which have in turn contributed to the financial crisis. Moving forward, executive compensation practices should seek to align the employees’ interests with the longer-term objectives of an organization. Many have started the practice of bonus-banking over say, a 3 to 5-year period, so as to remove short-termism and foster accountability.
Adapting to Changing Landscape
9. Although the economic downturn has greatly affected companies around the world, it also presents a timely opportunity for companies to consolidate and reposition resources to be ready for the upturn by reflecting on their organisational needs. There are three key areas that companies should focus on.
10. The first issue to focus on would be human capital development and talent management. This crisis presents an opportunity to equip workers with relevant skills and core competencies to ensure that the organisation has the capability to capitalise on the upturn. It is also a good time for companies to identify key talents, both within and outside the organization, then leverage on the relatively lower wages to retain and attract top talents into their organisation.
11. Next, companies should also use this opportunity to re-focus existing strategy, re-organise existing business functions and units, as well as re-think fundamental business processes. Following which, they can then institute an appropriate risk management framework that ties risks to rewards.
12. Finally, organisations should continue to look into enhancing communications with shareholders. Companies should regularly convey pertinent information such as their risk management framework and strategies to their shareholders. This will help to reassure shareholders that companies are well-equipped to tackle business and cyclical risks.
Role of SID in Leadership and Development
13. In this context, directors play two key roles in an organization - they are the leaders who drive the organization, and act as the bridge that links stakeholders, including shareholders, to the organization.
14. By providing an information and training platform for members to develop the requisite skills and a forum for members to discuss and study best practices, the SID thus plays an important role in helping directors discharge their fiduciary duties in every sense of the word.
15. How do we prevent corporate scandals from happening? Ultimately, it boils down to installing the right people in the organisation – suitably equipped directors of integrity, and competent and trusted employees, especially management. Ultimately, it’s all about trust and accountability. In this respect, the SID can continue to play a crucial and catalytic role in developing leaders who can uphold the highest standard of corporate governance in the local business community today.
16. I would like to congratulate and commend SID on its invaluable contributions over the past 11 years, and am confident that SID will continue to be relevant to leadership development in companies today. I wish SID all the best in rising to the challenges ahead.
17. Thank you.