Report also notes 'palpable lessening of pressure for reform' in Asia
The Republic has lost the top spot among Asian nations for its standard of corporate governance, in the latest survey by the Asian Corporate Governance Association (ACGA).Hong Kong has beaten Singapore to pole position, thanks to its greater tenacity in dealing with difficult reform issues and its drive to keep pace with international regulatory standards, ACGA said.
The association's fourth survey of corporate governance in Asia, CG Watch 2007, ranked 11 Asian markets according to their corporate governance standards defined in terms of rules and practices, enforcement, political and regulatory environment, accounting and auditing standards, and overall culture.
ACGA's last survey in October 2005 saw Singapore in the No 1 spot and Hong Kong at No 2.
The reversal of positions, ACGA's secretary general Jamie Allen explained, is due to a range of reasons - one of which is that Hong Kong 'continues to grapple with some difficult reform issues and its regulatory officials are well aware of the distance between local norms and international standards.
'Singapore, in contrast, gives the impression that its reform process has reached an acceptable plateau - to be fair, many of its disclosure standards are higher than those of Hong Kong - while its officials seem less concerned that some key local rules and practices are not in line with global best practices,' he said.
He noted that Hong Kong had better 'private' enforcement by the market, greater regulatory transparency, greater media freedom and discussion, and more corporate responsiveness to investors' views.
Mr Allen went on to observe that even though the process of reform is continuing in Singapore, there is a palpable sense that the pace of policymaking has slowed.
He noted that Hong Kong was well ahead of Singapore in terms of shareholder rights and the plugging of loopholes that undermine investor protection. For example, Hong Kong has disallowed discounted stock options, required an independent vote for any voluntary delisting, and mandated voting by poll for certain major and connected transactions.
Singapore has yet to address these issues, Mr Allen pointed out.
It is an area which well-known corporate governance advocate, Associate Professor Mak Yuen Teen - Watson Wyatt's regional director of research for the Asia-Pacific - said that Singapore needed to look at. 'Shareholder rights is definitely an important concern of global investors. Singapore regulators should study it more closely to see if improvements can be made.'
But individual rankings aside, of greater concern is the 'palpable lessening of the pressure for reform' which the ACGA has noted in the region.
'Many governments, regulators and market participants have taken their eye off the governance ball,' said Mr Allen. 'Indeed, certain regulators are positively complacent about what they have achieved in the past decade, recounting with pride how much their stock markets have risen, and saying that all they need do now is to 'refine their rules' and 'improve implementation' of best practices.
'This implies a degree of regulatory perfection that does not yet exist in any Asian market,' he said.
Still, there is perhaps greater hope for Singapore. Prof Mak told BT: 'There are indications that the authorities are focusing more attention on improving the implementation of corporate governance practices here, which will augur well for corporate governance in Singapore and, hopefully, push our ranking up again.'
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S'pore should reclaim top spot in corporate governance rankings
By MICHELLE QUAH
IT was a sobering wake-up call for Singapore this week: the Republic was dropped from the top spot in a widely recognised ranking of Asian nations for their standards of corporate governance.
Singapore should, however, not react defensively to this report but should take the findings for what they are - a timely reminder of the corporate governance areas in which it cannot afford to lose sight of.
The findings
The rankings were published by the well-respected Asian Corporate Governance Association (ACGA). It placed Hong Kong ahead of Singapore in its 'CG Watch 2007', on the grounds that Hong Kong had displayed greater tenacity in dealing with difficult reform issues and in keeping pace with international regulatory standards.
To put things in perspective, Singapore's drop to the second spot isn't a cataclysmic fall. It lost just five points, out of 100 awarded for the quality of corporate governance. Hong Kong lost two points - but its total score of 67 beat Singapore's 65.
The result was also probably 'more due to Singapore's loss of pace in the latest stage than any dramatic surge from Hong Kong', the ACGA said. What it means is, while Singapore was ahead of Hong Kong in implementing good governance practices, the latter put into place more stringent standards when its time came.
For example, Hong Kong released its Code on Corporate Governance in 2004 - three years after Singapore released its Code of Corporate Governance. Hong Kong's code, coming later, was more stringent and closer to international best practice at that time.
Still, that's no excuse for Singapore not to remain tenacious. While the Republic has traditionally led the region in the implementation and enforcement of good governance practices, it's also important that it continues to put in the effort to maintain that lead.
How Singapore can improve
A good place to start would be to look at how Singapore scored in the various categories that make up the total score for corporate governance quality in the ACGA survey. Singapore scored higher than Hong Kong in terms of corporate governance rules and practices, and accounting and auditing standards - but had a lower score for its governance culture, enforcement of rules, and political and regulatory environment.
A key problem with Singapore's governance culture lies in the practices of its listed companies. For example, companies here need to better engage their shareholders and be more responsive to the views of investors. They should also be more proactive in protecting shareholders' rights and well-being.
A specific area which should be tackled is in the organisation of shareholder meetings. Companies should look to international best practices which advocate, among other things, the sending out of detailed meeting agendas early and voting by poll rather than a show of hands. The ACGA found that less than 5 per cent of Singapore companies surveyed vote by poll in general meetings.
Many of the smaller and medium-sized companies could also afford to take a leaf from the books of the market leaders - in measures such as the lowering of their requested mandates for the issuance of new shares through private placements.
Efforts to improve Singapore's regime for shareholder rights should also extend to the regulators. As the ACGA has pointed out, listing rules here are weaker than those in Hong Kong, in terms of certain protections offered to minorities - such as, in the rules governing shareholder approval for voluntary delisting.
Singapore could also look at closing the gap with Hong Kong in areas such as the freedom of the media and the level of involvement by both institutional and retail investors.
The right moves thus far
And, if Singapore needs any encouragement to further improve on these areas, it only needs to look at the exemplary work that it has done thus far.
In the past year or so, the regulators have worked hard to improve the corporate governance framework here. The Monetary Authority of Singapore (MAS) has proposed several amendments to securities laws that would lead to stronger enforcement of market conduct. And the Singapore Exchange (SGX) has announced various amendments to listing rules - including a proposal to enhance the transparency of share option grants.
Both the MAS and the SGX also recently commissioned a detailed review of corporate governance practices here - which has already prompted two changes: the SGX now demands better disclosure on the retirement of directors from listed companies, and the MAS will work with the Singapore Institute of Directors to improve directors' training and standards.
These various projects should lay the groundwork for further improvements in the corporate governance framework here. With so much already achieved, one hopes that Singapore won't take the ACGA report as criticism, but rather as encouragement for better standards going forward.
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