(SINGAPORE) Singapore public companies need more independent and better-trained directors who are rewarded in a more transparent way, a study commissioned by the Monetary Authority of Singapore and the Singapore Exchange (SGX) says.
And separately, the Accounting & Corporate Regulatory Authority will lead a study on directors' duties, Second Minister for Finance Tharman Shanmugaratnam said yesterday at the OECD Asian Corporate Governance Roundtable.
This study, undertaken with the Singapore Institute of Directors (SID), the Institute of Certified Public Accountants of Singapore, MAS, SGX and other stakeholders, will look at how directors are responsible for internal controls and accounting policies and how this responsibility should be reflected in audit reports.
Yesterday, MAS and SGX released the first comprehensive review of key areas of the Singapore Code of Corporate Governance since the code was introduced in 2001.
Associate Professor Mak Yuen Teen of the National University of Singapore was commissioned last year to carry out the study by reviewing the annual reports of 659 mainboard and Sesdaq-listed companies to assess how well they implement the best-practice guidelines as set out in the code.
He also spoke with some independent directors and other market participants.
His report makes eight key proposals to strengthen corporate governance at listed companies.
'Over the past few years we have found that the code recommendations have been adopted at least in terms of the form, like having the committees and having the recommended proportion of independent directors and so on,' he said.
'But the issue is mainly in terms of the actual spirit and substance. I think there are still a number of areas where there is considerable room for improvement.'
He found that while independent directors make up at least a third of the board at most listed companies, the issue is how independent they really are. There is concern over the influence controlling shareholders have over the appointment of independent directors and the relatively small pool from which independent directors are drawn.
Dr Mak suggests that investors at the IPO stage put more pressure on companies to be open about recruiting independent directors and that an online directors' register be created to increase the pool of independent directors.
'Many of our companies do have controlling shareholders who may own less than 30 per cent but who may essentially decide who can be independent directors,' Dr Mak said, citing recent tussles in which controlling shareholders exerted strong influence on independent directors.
Minority shareholders should play a more active role by attending annual general meetings and asking questions, Dr Mak reckons. 'At the moment, shareholders, including institutional investors, are probably not asking enough questions about corporate governance of companies.'
The proportion of directors serving on many boards is currently relatively low, but Dr Mak believes shareholders should question whether directors who serve on many boards have sufficient time to discharge their responsibilities. Likewise, shareholders should question whether long-serving independent directors can remain independent.
The study found that many companies use short-term incentives such as cash bonuses and shares that may not be consistent with creating long-term shareholder value. And a lack of transparency on remuneration increases the risk of excess.
Dr Mak suggests that companies: pay more attention to share-based remuneration to ensure it aligns the interests of directors and executives with those of shareholders; review non-executive directors' fees and the way these fees are set; and balance short-term and long-term incentives in remuneration policies.
Dr Mak's study found director training in Singapore lagging that in developed markets and even some emerging markets, partly due to a lack of pressure on directors to go for training, a lack of training roadmaps and over-emphasis on legal and regulatory issues in training programmes.
He suggests that regulators work with professional bodies to set minimum training requirements for first-time directors and support initiatives to develop and deliver training.
MAS and SGX are taking two immediate steps.
The first, with SID, is to look at how to enhance director training.
The second is to look at whether audit committees should be given practical guidance on how best to perform their role.
Based on information provided in annual reports, Dr Mak estimates that 20-25 per cent of audit committee chairmen and 50-60 per cent of audit committee members including chairmen do not have qualifications in accounting/finance or have worked in related positions.
'Good corporate governance, as we all know, goes beyond box-ticking,' Mr Tharman said.
'It must be focused on both the spirit and substance behind corporate governance rules and guidelines. It is important that we convince companies of the inherent benefits of good corporate governance, as a tool for sustained corporate performance.'
SID president John Lim said corporate governance in Singapore has improved over the past 10 years but can be enhanced further.
'I think we have good enforcement, codes and guidelines,' he said. 'The key now is in the performance for directors. It has improved significantly but there is still some way to go, and also for companies to institutionalise these practices.'
