Many Firms Still Need Convincing on Good Governance: Tharman

by Siow Li Sen, May 30 2007Transfer of corporate governance role to MAS and SGX is not about imposing more rules, he says.

'Many boards and directors of listed companies still need to be convinced of the value of good corporate governance practices in substance as well as in form,' said Tharman Shanmugaratnam, Minister for Education and Second Minister for Finance. Giving an example, Mr Tharman said that, "some companies use 'boilerplate language' provided by external advisers to explain how they have met standards under the Code of Corporate Governance. The Monetary Authority of Singapore and the Singapore Exchange will work with market participants to review how best to raise governance practices of companies so that they are more in keeping with the spirit of the code," he said.

Mr Tharman was speaking last night at the Singapore Corporate Awards presentation at the Ritz Carlton Millenia hotel, an event that honours companies and individuals with the best corporate governance practices in Singapore. In his speech, Mr Tharman also explained why the MAS and the SGX will oversee corporate governance for listed companies from Sept 1 this year, taking over the role from the Council on Corporate Disclosure and Governance (CCDG). He assured that the transfer to MAS and SGX is not about imposing more rules or legal requirements, although the Code of Corporate Governance will be kept under review, and will have to remain sensitive to practices in other leading markets. 'As it stands, the code sets sensible, internationally benchmarked good practice standards for listed companies in Singapore,' he said.

Earlier this year, it was disclosed in Parliament that the oversight of corporate governance of listed companies will be transferred from the CCDG to the MAS and SGX. The CCDG, which was formed in August 2002 to prescribe accounting standards, strengthen the framework on disclosure practices and reporting standards, and to review and make recommendations to the Ministry of Finance on revisions to the Code of Corporate Governance, will be dissolved.

The government will also be setting up an Accounting Standards Council to replace the Council and issue accounting standards for companies and other entities such as charities, societies and co-operatives. In a separate press release, the MAS and SGX said the move will clarify and streamline responsibilities for corporate governance matters for listed companies. This is also consistent with practices in other countries like Australia, Hong Kong, the US and New Zealand.

In his speech, Mr Tharman also cautioned that geopolitical and country risks remain significant, and are, if anything, becoming more complex. Ample liquidity in global markets in recent years, including private equity and alternative investment plays, has led to low historical pricing of risks and are in all likelihood unsustainable, he said. He noted that 'risk premia in global markets are at a low by historical standards, and are in all likelihood unsustainable'. 'But the repricing of risk, when it comes, may very well be sudden, large and extending globally,' he said.

Although Mr Tharman did not mention the overheated stock markets in China, his warning follows those issued last week by the Organisation for Economic Cooperation and Development and also former US Federal Reserve chief Alan Greenspan that a sharp correction in that country could spill over into other markets. 'It is easy in good times to let our guard down. Almost every company is in the black, and poor corporate practices can easily be masked,' said Mr Tharman. Even as companies ride on the current momentum of growth at home and in the broader region, they should look ahead to source new opportunities that will sustain growth, and ensure that their systems for anticipating and managing risk are robust, he said. The government has upgraded its economic forecast for Singapore to 5-7 per cent from 4.5-6.5 per cent for 2007. The economic cycle will not disappear, and the markets will inevitably turn, he said. He noted that emerging markets are where growth is highest and investment opportunities are abundant and every global company is looking to build up their presence in Asia.

Singapore companies have been early movers into some of these emerging markets. Mr Tharman cited Keppel Corporation as a good example of a Singapore company which has build deep intelligence and networks in emerging markets, and become a global leader in its fields.