Distinguished guests, ladies and gentlemen; good morning.
Thank you for inviting me to speak at this aptly named event: Corporate Governance for the Value Era.
What does it mean to be living in a value era?
This will be my 12th year at SGX Group and I do not remember a period in which value has been so important.
In Singapore, we have launched a Value Unlock programme.
Japan, South Korea and Malaysia all have their own Value-Up plans.
These initiatives beg the question: Why do regulators around the world now feel a need to remind boards and management about the importance of value creation?
Isn’t growing and delivering returns why companies are listed in the first place?
Or have these goals taken a back seat to something else?
Every year since 2016, the Centre for Governance and Sustainability at the NUS Business School has been putting together the Singapore Governance and Transparency Index.
The index has evolved over the years, but its purpose has remained constant: painting a picture of the state of corporate governance among Singapore’s listed issuers.
This annual snapshot tells us which issuers are doing a good job disclosing their interested-party transactions or answering investor questions.
It reveals shortcomings and reminds boards to step up their disclosures.
It also celebrates those issuers that are doing well and sets standards to which others can aspire.
In this value-focused era, however, it is time for boards and management to remember why corporate governance is being measured at all.
So often, corporate governance is thought of in terms of inputs for an annual report.
How many independent directors do we have?
How many meetings did our directors attend?
How much is our CEO or chairman being paid?
How has that remuneration changed in response to the year’s revenue and earnings?
These inputs are concrete, measurable and provide a sense of comfort.
A board that is 50% independent is eminently defensible to the public.
A remuneration package that rises 10% if earnings are up 20% likely does not attract scrutiny.
The inputs become the desired outcome.
Yet, good governance is not an end in itself.
It is the practical expression of a board that is working to create value for all.
The duty of the director is to the collective whole, to all shareholders, not to the controlling shareholder alone, and this principle is hard coded into the SGX Listing Rules.
Now, let me say that again because it is important: the duty of the director is to all shareholders, not to the controlling shareholder alone.
It is the fulfilment of this duty that will make the most difference to an issuer in this value era.
Why do I say this?
In Asia, Singapore stands out for the highly concentrated ownership of its listed companies.
According to a recent OECD report, only Indonesia, Sri Lanka and the Philippines have a higher level of ownership concentration.
More than two-thirds of our boards must routinely battle conflicts of interest between controlling and minority shareholders.
Meanwhile, institutional ownership of stocks in Singapore is also among the lowest in Asia.
This combination of high ownership concentration and low institutional ownership may partly explain why Singapore has suffered from a valuation discount, the Singapore discount, with a sizeable proportion of our listed issuers trading below their book values.
In many markets, institutional investors are a key enforcer of market discipline.
Sophisticated investors with significant stakes have both the incentive and the influence to hold boards and management accountable for value creation.
They can push for cash to be productively spent, idling assets to be disposed of and weak businesses to be restructured.
The Equities Market Review Group convened by the Monetary Authority of Singapore has recognised the importance of this market discipline.
Through the Equity Market Development Programme, the EQDP, public monies are being used to develop a pool of institutional asset managers that can engage issuers and strengthen the value focus.
Importantly, these EQDP managers have Singapore-focused mandates – giving them both the local knowledge and the incentive to challenge underperformance and push for the unlocking of shareholder value.
Now, this is important – having an incentive to challenge.
If you are a Singapore-focused fund you will have the incentive.
If not, you just won’t.
Building this market discipline takes time, though.
The primary responsibility for value creation will continue to rest with boards – and especially with independent directors.
Independent directors must become the primary source of objective challenge.
They must provide oversight when interests diverge.
They must ensure decisions are taken not just for controlling shareholders, but for all shareholders.
Independent directors are not simply participants in the governance framework.
They are among its most important guardians.
They are key to the continuance of Singapore’s stock market momentum.
Institutional investors with global mandates will not allocate funds to Singapore if companies in Singapore are not best in class.
So, our directors must step forward if our companies are to step up.
Good corporate governance is not about playing it safe or avoiding risk.
In this value era, we need directors who are prepared to ask difficult questions, challenge conventional thinking and keep companies focused on what ultimately matters: creating sustainable value for shareholders – all shareholders.
As we celebrate the SGTI achievers today, let us also remember that the ultimate measure of corporate governance is how it is creating value for all shareholders.
