Bringing out the best of Board Practices

by Leslie Yee, Nov 10 2005The Best Managed Board Award aims to raise the overall corporate governance bar in Singapore, Leslie Yee reports.

The correlation between good governance and company financial results may be tenuous, but "investors tend to look for any signals of corporate health, and studies have indicated that investors would place a premium on companies with good governance practices," said Na Boon Chong of Hewitt Associates.

Good governance practices "serve as early indicators of financial success further down the road," he added. Hewitt Associates is the study partner for the Best Managed Board Award (BMBA). The BMBA, the first of its kind in the Asia Pacific, was launched in 2003. It has been consolidated as part of the inaugural Singapore Corporate Awards, which will be given out in early March next year. These awards are organised by The Business Times in collaboration with UBS and supported by the Singapore Exchange. Other partners are Institute of Certified Public Accountants of Singapore, Investment Management Association of Singapore, Securities Investors Association (Singapore), Singapore Institute of Directors (SID) and Citigate Dewe Rogerson i.MAGE.

John Lim, president of SID, said the BMBA "wants to recognise companies with good board practices going beyond form." Mr Lim added that "if you just read annual reports, you may get the impression that every company does a good job. The award selection process drills down to find out exactly what is being done." Mr Na said the methodology for the BMBA has been designed to recognise that "corporate governance is not a one-size-fits-all prescriptive approach, but requires professionalism, supported by sound principles and processes, and applied appropriately to achieve the desired company outcomes." He added that "governance success lies in an integrated set of practices and behaviour that make a board effective as a group."

The study conducted for the BMBA is aimed at "providing a multi-perspective view of a board's effectiveness and has as its ultimate goal the ratcheting up of overall standards by bringing out the best of board practices in Singapore," Mr Na said. He believes it is important for boards to have directors who can exercise independent judgement. Mr Lim said: "We need more directors with greater willingness to voice dissenting views." He noted that "in Asia, where relationships are important, the reluctance to offend the controlling shareholder is a genuine concern." He also pointed out that "you have to measure a board's combined skill sets and effectiveness against the prevailing needs of the company which can change from time to time."

The selection of the winners of the BMBA involves a rigorous multi-staged process that starts with a content analysis of published materials relating to how a company addresses corporate governance issues. Companies are pre-qualified based on the outcome of the analysis. Detailed data will then be requested from pre-qualified companies on directorial practices and board effectiveness with site visits for more in-depth understanding and data validation.

Companies that pass this stage will be assessed on a set of criteria and short-listed. The finalists will be invited to meet a panel of distinguished judges chaired by J Y Pillay, chairman of the Singapore Exchange, who will make the final selection. Selection criteria include board composition and accountability, board functioning, performance orientation, managing company leadership, directors' development and recognition, and corporate transparency and governance disclosure. The BMBA will be presented in three categories, namely for main board listed companies with market capitalisation of $500 million and above, main board listed companies with market capitalisation below $500 million, and Sesdaq-listed companies.

Each of the three categories will have a winner and two runners-up. Explaining the move to have different categories for the BMBA, Mr Lim said: "We recognise that smaller companies have less resources and may not be able to have the same infrastructure in place to handle governance issues that larger companies may have. Having separate award categories based on market size helps ensure a more level playing field." Mr Na thinks Singapore companies have on average higher quality boards than neighbouring countries but noted that "the laggards are just as bad as the other places." He observed that the market leaders have ventured into addressing sensitive issues such as chief executive succession planning and leadership development "as more boards recognise the market risk of a lack of leadership strength in the event of a leadership gap, whatever the cause may be - retirement, resignation, mishap, non-performance." Expounding on the importance of the BMBA, Christine Ong, Singapore country head of UBS, said: "The way that an organisation's leadership manages and organises effective work practices would determine its success and ultimately shape the country's business environment. Stringent corporate governance guidelines and procedures will contribute to helping Singapore achieve success as a leading global city and business hub." Ms Ong added that "it is therefore imperative that we continue to encourage the need for accountability, performance and good management practices."

She is confident that the BMBA "would encourage an increased standard of people management issues at board level and help raise the corporate governance bar both for the organisations that the boards represent and for Singapore as a whole." Companies can nominate themselves for the BMBA or be nominated by others. The closing date for nominations was today but this is being extended by two weeks to give time to sort out queries from companies regarding the award process.

For more details on the BMBA, contact: Gabriel Teh, Executive Director, Singapore Institute of Directors, tel: 6227 2838 or email: secretariat@sid.org.sg