Mr David Gerald,
President and CEO of Securities Investors Association of Singapore
Ladies and gentlemen
Good evening. It is a pleasure to join you today for the 12th Investors’ Choice Awards Ceremony, held in conjunction with the 2nd Corporate Governance Week organised by SIAS.
Let me commend SIAS for their continuous efforts in recognising companies that have adopted good corporate governance practices from investors’ point of view.
The return of uncertainty
The global economy has returned to a state of great uncertainty. This is reflected in financial markets that are highly volatile and prone to bouts of seizure. We are by now familiar with the sovereign debt crisis in Europe and the sluggishness of the US economy. Many companies now find themselves having to deal with a wider range of risks without benefit of time or clarity in the way forward. I will briefly outline three key risks.
First, with the weak prognosis for growth in the advanced economies, there is increased pessimism regarding external demand in 2012. For our export-oriented businesses, there is the risk of significantly weakened or worse a collapse of demand.
Second, even as demand weakens, competitive pressures will continue to build. Costs growing faster than productivity, or failure to maintain an edge in quality are just some of the factors contributing to the risk of eroding competitiveness.
Third, companies may face increased risk in accessing capital and a higher cost of capital. Institutional investors have become more selective about their investments. Apart from the larger and more established companies, others tapping capital markets may find that their cost of capital has increased beyond acceptable levels. The competition for capital is especially challenging for many of our growth companies.
Mitigating Risks with Good Corporate Governance Practices
With the confluence of weak external demand and stiff competition, Singapore companies will have to set their sights on new growth opportunities. Emerging markets in Asia and beyond can provide fresh drivers of growth. Our companies will need to equip themselves for internationalisation and cross-border deals. However, this naturally brings about a new set of risks and challenges. Operating across multiple locations introduces a layer of complexity to management and control. Companies will face new challenges ranging from supply chain coordination across geographical boundaries to different legal regimes across jurisdictions.
In a more complex operating environment, good corporate governance can make the difference between success and failure of a company’s efforts to pursue new growth opportunities. Sound fundamentals such as building up their Board with the right mix of experience across geographies and products to steer major internationalisation efforts, and ensuring that the Audit and Risk Committees have put in place appropriate controls and risk management measures will certainly help companies navigate the increasingly rough terrain.
Adopting good corporate governance practices can also help companies stand apart from their peers and allow potential investors to better understand a company. With stronger confidence from investors, Singapore companies can gain an advantage in accessing capital from international investors through the capital markets.
Maintaining a Sound Corporate Governance Environment
Singapore Corporate Governance is generally well regarded. We were ranked first in both the Asian Corporate Governance Association’s CG Watch 2010, as well as GovernanceMetrics International Global Corporate Governance country ranking 2010. To ensure that Singapore continues to be well-regarded as a jurisdiction with a sound corporate governance environment, various stakeholders will have to continue working in partnership.
At the macro-level, the Government is committed to ensuring that Singapore has a robust regulatory framework that keeps pace with international developments. As you would know, the Companies Act and the Corporate Governance Code are being reviewed.
The Companies Act is the core legislation that spells out the minimum corporate governance standards for all companies. The Ministry of Finance has received some 70 responses through its public consultation on the report of the Steering Committee on the Review of the Companies Act. The Ministry of Finance is reviewing the feedback and will provide its responses in the first half of 2012.
The Code of Corporate Governance set outs the principles and guidelines for good corporate governance. All listed companies are required to comply with the Code or to provide explanations for any deviations. The Corporate Governance Council is currently reviewing the feedback received from its consultation exercise in July and August, and I understand that it is targeting to issue its final recommendations by the end of this year.
At the companies-level, there have been many calls for companies to comply with the spirit and not merely the letter of the Code. I am heartened to know that as part of the Singapore Corporate Governance Week, 105 companies have signed the Statement of Support for excellence in corporate governance and I hope many more will join them.
There is also growing recognition that a company’s corporate governance framework should involve shareholders and other stakeholders such as investors.
Hence, at the shareholders and investors level, there is scope for a company to further engage its institutional investors for constructive inputs to improve its corporate governance practices. On the retail investor front, more can be done to better equip them to understand and interpret financial information.
Here, I would like to applaud SIAS for its strong role in promoting investor education. For example, SIAS has been an important contributor to the “My Money” series of investor education seminars organised by MoneySENSE and Association of Banks in Singapore (ABS).
The media also plays a very important role in improving investor education. In this regard, I am glad that the Financial Journalist Award will also be presented tonight.
In today’s volatile economic environment, good corporate governance can be a real plus for companies that understand its value, instead of viewing it as a non-essential distraction from business activities. The journey to good corporate governance is one of partnership between companies, the Government and other important stakeholders such as shareholders and investors. I encourage all companies to make the effort to go the extra mile.
I would like to congratulate all award winners in advance and wish you a pleasant evening ahead. Thank you.