Under pressure from government and consumers, corporate governance standards in Asia are getting better, although there remains plenty of room for improvement.

It’s a slow process, says Jamie Allen, Secretary General of the Asian Corporate Governance Association (ACGA), but one that is moving in the right direction.

“We generally do feel corporate governance standards have improved around the region, in terms of rules, in terms of regulations, in terms of enforcement, and also in terms of what’s happening at the company level,” Allen told NUS on the sidelines of a recent forum on the subject.

He said that across Asia, in addition to more robust corporate governance standards, he was also seeing shareholders becoming more engaged and demanding more than just “boilerplate” disclosure from companies.

But he noted that there are still large parts of the corporate sector that do not have this incentive to improve.

‘Little discipline’

“They don’t have shareholders who engage them, who pressure them. They aren’t followed by analysts, by brokers,” Allen said. “There’s very little market discipline on large sectors of the listed company sector.”

Assessing Asian governanceThe ACGA, he said, aims to improve rules, regulations, enforcement, company practice and shareholder involvement for companies across Asia.

The body gives high marks to Singapore, which topped the association’s regional “CG Watch” regional survey for the year, beating Hong Kong, Japan and eight other Asian markets.

Allan was speaking at the launch of the 2012 Singapore Corporate Governance and Transparency Index (GTI), produced by NUS Business School’s Centre for Governance, Institutions and Organisations (CGIO), CPA Australia and The Business Times.

The annual index looks closely at companies listed on the Singapore Exchange and ranked 674 companies for 2012 with telco SingTel once again topping the list as the most well-governed and transparent company.

The telecoms giant has ranked first every year since the index was launched in 2009, but it seems it’s not resting on its laurels. The company’s score has improved from 94 in 2009 to 111 in this latest survey. The highest possible score is 143.

Other companies in the top five include the Singapore Exchange, banking group DBS Holdings, and Keppel Corporation and Sembcorp Industries, which are both involved in marine services, property development and other industries. (DBS and Sembcorp made it into the top five for the first time.)

Turning a corner

The governance section of the index covers board matters, remuneration, accountability and audit. The transparency section focuses on how companies communicate with their shareholders. Companies can also score bonus points for things like having term limits for directors or disclosing information on director training.

It’s only through such a good measurement system that we can continue to upgrade and uplift standards of corporate governance

Associate Professor Lawrence Loh,
NUS Business School

But they can be penalised if, for example, they have too many long-tenured directors or if they have to restate earnings.

The companies in the 2012 index posted the highest mean score ever at 34.9.

Associate Professor Lawrence Loh of NUS Business School said that’s encouraging, as it comes after three years of declines.

“Perhaps the standard of corporate governance has turned around the corner and it seems to be on the start of an upward trend. I think this augurs well for companies and for the systems and the policies in Singapore,” he said.

Loh said it was important for the city-state to have a systematic and well calibrated method of assessing company performance.

“It’s only through such a good measurement system that we can continue to upgrade and uplift standards of corporate governance.”

He added that the main message was to focus on fundamentals.

“It’s about disclosure, disclosure, disclosure. Many companies are doing good things but they have not really communicated to investors and in particular shareholders. And through such open effort in grading their corporate governance I think more companies will take the conscious effort to not only do justice, but let the justice be seen to be done.

‘Duty of care’

Speaking at the event Josephine Teo, Singapore’s Minister of State for Finance and Transport, encouraged attendees to continue their efforts towards further improvement in standards of governance.

“Good corporate governance is a worthy pursuit,” she said, telling the audience that it goes beyond systems, processes and controls to building an organisational culture where every member has a sense of “duty of care.”

“A culture where ‘duty of care’ permeates the whole organisation can be a powerful safeguard against gaps in governance that are yet to be uncovered and filled,” she said.

The launch of the 2012 GTI coincided with the release of the Singapore government’s revised Code of Corporate Governance. The Monetary Authority of Singapore said that one of the key changes to the Code had to do with director independence. An early recommendation limiting independent directors to nine-year terms was dropped.

A panel discussing the new code applauded this move, saying there are better ways to gauge if a director is independent.

David Smith, the head of corporate governance at Aberdeen Asset Management Asia said they look at other things – like whether the independent director has served on the board concurrently with an executive director and for how long.

“That’s when you can start to get a little concerned about groupthink on the board.”

Small pool

The revised Code also addresses the issue of independent directors serving on multiple boards. It states that anyone with multiple board representations “must ensure that sufficient time and attention is given to the affairs of each company.”

The panelists noted that the pool of potential directors in Singapore is small, but that trying to regulate it would reduce flexibility.

Besides, one of the panelists joked that an annual survey by Singapore’s Business Times listing the directors holding the most posts seemed to act as a good self-regulating mechanism.

“I find that immediately after that, a few of them will start to step down because they don’t want to be on that list next year,” he said.

Another issue raised by ACGA’s Jamie Allen was the rise of Environmental and Social Governance alongside Corporate Governance.

“Many investors particularly institutions are looking at environmental and social disclosure and risks these days,” he said.

“Quite often companies don’t really understand why investors want this information and what they’re doing with it. So what we would say is be open to a dialogue with your shareholders, to try and understand why their needs are changing , why they want the information,  so often we find there’s a disconnect between the priorities of the investors and the priorities of companies.

“The best way to resolve that is to have a dialogue and understand each other’s points of view.”