Jamie Allen, secretary-general of the Asian Corporate Governance Association, says the city-state must improve its game if it wants to maintain investor confidence.
Singapore, a magnet for hedge funds and all manner of savvy international investors, claimed the top spot for corporate governance in a major regional study last month by the Asian Corporate Governance Association.
The city-state pinched the much-prized crown from nearest rival Hong Kong having made important strides in the past couple of years. It has an independent audit regulator and is broadly aligned with international standards on financial reporting.
But scratch beneath the surface and Singapore’s corporate governance regime is far from perfect, according to Jamie Allen, secretary-general of ACGA and one of the authors of the annual ‘CG Watch’ study.
Across a whole series of corporate governance areas – from shareholder rights to enforcement – the country is failing to keep pace with global standards, with serious consequences for investor confidence in the future, says Allen.
“On some of the basics of corporate governance, in terms of financial reporting and board structure, Singapore is in line with international standards. But in some areas, like engaging with shareholders, running shareholder meetings and shareholder rights, Singapore is behind,” he says.
He cites the “troubling” decision by the Singapore Exchange in 2008 to curtail a number of shareholder rights following the global financial crisis. Affecting protection for minority shareholders in rights issues and discounts for private placements, these changes were heralded as temporary, but will only be reviewed at the end of 2010.
More peculiarly, the secretary-general explains that fund managers routinely find that they are blocked from attending shareholder meetings, while notice periods are half of those in other countries.
“It is a bit of an anomaly. In most other parts of the world it’s not that difficult,” he says.
Meanwhile two-thirds of listed Singapore companies – 600 in total – still do not vote by poll at annual general meetings.
“Very few companies in Singapore completely count the votes,” says Allen, “it’s all done by a show of hands. Very few of them even count the proxy votes received.”
“By comparison in Hong Kong, voting by poll has been standard among big companies for many years, and it became mandatory last year for all companies.”
But perhaps most worryingly, says Allen, Singapore’s regulators are missing a trick on enforcement, preferring civil actions over criminal prosecutions. In the ACGA’s eyes, the civil route, though quicker and less expensive, is simply less of a deterrent to companies that fail to play by the rules. Here again, Singapore compares unfavourably to its neighbour.
“The Stock Exchange in Hong Kong is not a perfect regulator – in fact it’s quite a slow regulator – but I think they do a more diligent job of enforcing their listing rules than the Singapore Exchange. It’s actually putting some of them in jail. Whereas in Singapore, most insider traders aren’t prosecuted, they get a settlement and a fine.”
In early 2010, the Exchange took the unusual decision of publishing the names of 10 former directors of six listed companies who had breached listing regulations and were not eligible to act as directors. However such public displays are a rarity.
“There should be more openness,” insists Allen. That’s what markets appreciate and what leads to more investor confidence.”
Somewhat contentiously, the secretary-general argues that Singapore owes its first place on corporate governance not so much to its own strengths, but rather to the relative weaknesses of other Asian countries.
The financial crisis, rather than acting as a wake-up call for Asian countries, has in fact encouraged “complacency” among the region’s regulators and companies, he explains.
“It wasn’t as much of a catalyst for reforms as we were hoping,” he says.
“In Asia people were pretty much just patting each other on the back, saying ‘we came out of this rather well’ and they did come out of it pretty well. But I think there is a certain amount of complacency now.
“Because the fiscal stimulus allowed Asian stock markets to rise pretty rapidly, that really took the pressure off for further corporate governance reforms.”
Singapore has however been making encouraging steps of late.
In March, the Monetary Authority of Singapore issued a paper on enhancing its corporate governance framework for locally incorporated banks, financial holding companies and direct insurers. This helped Singapore to nudge past Hong Kong in the ACGA’s rankings.
But while the proposals have been well received, specific rules have yet to be enacted.
As Allen explains, the governance problem is as much about inaction by regulators as a laxness in corporate culture. “It’s partly what the regulators are doing – and not doing,” he says.
Yet with Singapore’s investor base becoming ever more international in character, it makes good business sense for them to pay greater heed to global standards, he adds.
“Markets are competing, and one level that they are competing on is quality of rules and quality of enforcement and investor protection.
“I don’t think a market like Singapore can really afford to fall too far behind. It may not affect them now, but it may affect them in ten years – or five years – time.
“Singapore needs to be ahead of the curve, not behind the curve.”
– By Will Henley. Originally published in Global Financial Strategy