Speech By Mrs Lim Hwee Hua, Minister Of State For Finance And Transport, At Securities Investors Association, Singapore (SIAS) 8th Investors' Choice Awards Ceremony 2007, 4 October 2007, 7.30 pm At Raffles Convention Centre

Mr Tan Chok Kian, Chairman, SIAS
Mr David Gerald, President, Securities Investors Association of Singapore or SIAS

Distinguished Guests, Ladies and Gentlemen, A very good evening.

2. When I was preparing what to say, I was obviously unable to predict if you would have just heard another bad episode of sub prime exposure or have been cheered by a strong rebound in the Singapore stockmarket. Hence, I decided to be a historian instead.

3. If you were a Martian watching Earth over the past 6 years, depending on when and which company had become the latest fiasco, you would have seen an Executive Chairman or Chief Financial Officer squirming in his seat, or an independent director wondering why on earth he took on that board membership, or a CEO slogging away at another quarterly report or, and life's fair some may say, an auditor being taken to task for fraud at its client company.

4. I am not for a moment suggesting that life's imperfect and therefore we should cut the different groups of stakeholders some slack. But I do think that wilful breach and deliberate non-compliance are frequently hard to detect and cannot be addressed by simply introducing yet more rules on corporate behaviour and disclosure. Otherwise, we would be unwittingly penalising the wrong people by increasing their compliance burden.

5. Having said that, I must emphasise that the punishment for dishonest intent must be severe enough so that the spirit of corporate governance and substance of being fair and honest to all shareholders can be upheld.

6. When something goes wrong, who's to blame? Is it the board of directors? Or management? Or auditors? Or the lack of rules? Or the lack of enforcement? We are not short of possibilities. However, shareholders seldom blame themselves, not for what they have done but for what they have not done or when they could have done more.

7. It is in this context that I want to commend SIAS. As the largest organised investor lobby group in Asia, with over 60,000 retail investors as members, SIAS has been championing investor education, corporate transparency and corporate governance, since its inception in 1999. It is truly my pleasure to join you here at the 2007 Investors' Choice Awards organised by the SIAS.

Embracing the Spirit of Corporate Governance

8. If there is one thing these corporate failures have taught us, it is that the mere adoption of sound, acceptable practices does not equate to good corporate governance itself. In the case of Enron and WorldCom, both companies were ironically commended for their adoption of good corporate governance practices, for instance, the practice of having a non-executive Chairman, but as we all know, that did not prevent them from being corporate failures. As Abraham Lincoln once said, "You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time."

9. Yet, there are companies out there that are still paying lip service to corporate governance and trying to portray an image of corporate propriety by simply adopting a well-drafted set of corporate governance rules, but without embracing the spirit behind these best practices. But I believe that these companies would eventually be recognised by the market as frauds.

Watchdog of Investor Rights

10. In order to promote substance over form, we not only want boards and management to be utterly honest in their disclosure, but also need individuals and organisations, in the corporate world, who can play the role of the diligent watch-dog - exposing bad corporate practices while at the same time giving due recognition to companies that have in place good practices.

11. In Singapore, the statutory oversight and regulation of corporate governance is handled jointly by three government entities. First, we have the Accounting and Corporate Regulatory Authority or ACRA, which through the administration of the Companies Act, sets out the basic responsibilities of companies, directors and secretaries. Next, we have MAS governing the integrity of the markets through the regulation of the capital markets, their infrastructure, the intermediaries involved and the products offered. Finally, we have the SGX which is responsible for monitoring listed companies' ongoing compliance with listing requirements.

12. Besides the government agencies, the media and organisations like SIAS also play an important role in enhancing corporate governance and acting as the watchdogs for investors' rights. For instance, the media helps to provide retail investors with the necessary financial information and analysis, and expose corporate inefficiencies and corporate misconduct. It is thus laudable and appropriate that tonight we are giving recognition to the financial journalist who makes the most impact on improving the investing environment for investors by presenting the winner with the "Financial Journalist of the Year Award".

Investors' Choice Awards

13. Looking at the nominees for the awards tonight, I must say that the organisers have gathered a very strong field. Some of the nominees are by now familiar faces in such awards presentation. For instance, I note that companies such as Keppel Corporation Limited, SMRT Corporation Limited and CapitaLand Limited are well regarded for their corporate governance practices and having won various awards. I do hope the significance of your achievements will not be lost or reduced by your having received so many accolades. Please keep going.

14. I would like to see, in the coming years, more new companies being added to the list of companies with solid corporate governance. I am optimistic that this would happen as increasingly more companies see the benefits of promoting investors' confidence and how that in turn translates to greater interest and consequently a lower cost of capital.

Role of Directors

15. No discussion on corporate governance can be complete without a look at the role of directors. All directors, independent or otherwise, owe the same fiduciary duty to shareholders. We now see increasing attention being directed at independent directors. As can be seen in our own Code of Corporate Governance, independent non-executive directors are expected not only to participate in committees such as the audit, remuneration and nomination committees, but also to form the majority of some committees' membership.

16. With great influence however comes great responsibilities. Independent non-executive directors are increasingly regarded as the vanguard against corporate malfeasance, as they are seen to have at their disposal, the necessary power and tools to effect substantial change within an organisation, such as the ability to request information from management, seeking outside expert services and guiding the Board's agenda.

17. This however leads to the question of exactly where a director's duties and responsibilities begin and end. For we need to ask ourselves whether it is fair or logical to assume that all directors, both executive and non-executive, would have the same in-depth knowledge as well as involvement in all aspects of the company. Our expectations must be in line with what is realistically do-able. Otherwise, non-executive directors, especially independent directors, who take their duties seriously might be unnecessarily burdened and decide to cease being directors altogether. This would be to the detriment of the entire corporate sector as good directors must continue to be a fundamental pillar of companies.

ACRA's study on Directors' Duties

18. Back in June this year, there have been some discussions between the Institute of Certified Public Accountants of Singapore, or ICPAS, and the Singapore Institute of Directors, or SID, regarding directors' responsibilities for the internal controls and accounting policies and estimates that are relevant to companies' financial statements, and how these responsibilities of directors should be reflected in auditors' reports. Hence a study team, comprising representatives from the SID, ICPAS, the MAS and SGX, was set up by ACRA to provide greater clarity on directors' duties, taking into account of standards observed internationally as well as the corporate environment in Singapore.

19. The study team is currently still in the process of looking at codifying directors' duties and will be seeking public feedback on its recommendations once the review is completed.

Conclusion

20. In conclusion, while the roles and responsibilities of a director have grown more complex and complicated over the years, none of these additional obligations have removed the fundamental obligation of a director to maximise shareholder value nor a director's ability to use business judgment.

21. It is crucial that in the pursuit of good corporate governance, boards of directors must remain focused on the big picture. Board members are not intended to be micromanagers or compliance officers. While divergence of views and experiences on boards is often a good thing, we should not let this descend into divisiveness and factionalism within the boardroom. This can cause paralysis in a business and destroy shareholder value.

22. Before I end my speech, I would like to take this opportunity to congratulate the Award winners tonight in advance. Thank you for your commitment to upholding the integrity of publicly listed companies by improving corporate governance. With that, I wish all of you an enjoyable and fulfilling evening ahead. Thank you.