SGX gets tough on corporate governance
The Singapore Exchange (SGX). Photo: Ooi Boon Keong
SINGAPORE — Just months into his new role as the Chief Regulatory Officer at the Singapore Exchange (SGX), Mr Tan Boon Gin has laid the law down on corporate governance, issuing a stern warning to listed companies to adhere rigidly to the “comply or explain” requirement in the Singapore Code of Corporate Governance (CG).
His tough stance came as the SGX announced today (Oct 12) that it will be reviewing the annual reports of more than 550 mainboard-listed companies released in the twelve months to June 30, in a bid to ensure the companies are abiding by the requirement.
“In my three months at SGX, I have been surprised at the number of times the CG code has been referred to as ‘optional’ or ‘best practice’. Let me clarify this once and for all. Under our listing rules, companies are required to comply or explain why they do not comply with the CG code. Failure to comply or explain is a breach of our rules and all breaches will be enforced using our new enforcement powers,” Mr Tan said at the sixth Singapore Corporate Governance Week organised by the Securities Investors Association (Singapore) today.
The SGX has appointment audit firm KPMG to review the listed companies’ compliance with the “comply or explain” requirement. When completed, the SGX intends to make the findings of the review public and engage with relevant companies to ensure short-comings identified are addressed. It is exploring ways to publish the finding on a “statistical and no-name basis and highlight the areas that need improvement“, said Mr Tan.
The review, which is expected to take four months, is part of SGX’s drive to raise governance standards of listed companies and follows the introduction of a disclosure guidance document in January this year to help companies comply with key aspects of governance.
Mr Tan said that the local bourse is conscious of the lack of awareness by companies regarding the CG code, which could be a contributing factor in companies not adhering to the rules.
The review will capture all aspects of the CG Code and focus on the areas specified in the SGX disclosure guidance document. Examples of key CG Code principles covered in the review include board composition, risk management and internal controls and disclosure on remuneration.
The move will help provide investors greater information to make informed judgements on whether if the company has provided adequate disclosures and meaningful explanations for deviation from the code, the SGX said.
“Good governance is not just about management safeguards and keeping the company on the level. A well-governed company is more attractive to investors and in the long term, this translates into better valuations and higher share prices. It builds up reserves of shareholder trust and confidence that it can draw upon should it (the company) become the victim of a negative research report or short selling,” he added.
Mr David Gerald, Founder, President and CEO of SIAS, said: “The recent incidences with Volkswagen and Glencore show that good corporate governance is critical when there is a general sense of trust deficit in the financial markets. When bad news breaks, stakeholders need to know whom they can trust. Without that confidence, what we see is a collapse in share and bond prices as investors ‘shoot first and ask questions later.’ Just as the old adage goes that ‘the time to make friends is when you don’t need them’, companies need to be mindful that the time to build trusting relationships with stakeholders is when they are not yet needed.”
