Singapore: Where firms are found wanting in corporate governance issues

From Business Times (Singapore), by Jamie Lee

When it comes to corporate governance issues involving Singapore-listed entities, companies fare worst in the area of shareholder rights.

More encouraging: SMRT Corp was ranked in the top 10 companies based on the overall index in fiscal 2010

This is the finding of a running corporate governance study.
Under the Singapore Corporate Governance Index, which is managed by Singapore Management University's Sim Kee Boon Institute for Financial Economics, companies are scored on their performance in five categories that are aligned with OECD governance principles: rights of shareholders, equitable treatment of shareholders, roles of stakeholders in corporate governance, disclosure and transparency, and board responsibilities.

Their performance in each category was based on a data review of Singapore listings from fiscal 2007 to fiscal 2010.
The poorest score was on shareholder rights, with a mean of 35.28.

The study, presented by Associate Professor Jeremy Goh at a corporate governance event, showed that few companies made public their shareholder meeting minutes.

The use of cross-ownership, or pyramid shareholding, is a common practice, he also noted in a working paper on the index.

Companies also do poorly when it comes to explaining the roles of stakeholders in corporate governance.

For example, while they recognise their obligations towards their employees, few companies touch on environmental issues.

Companies scored best on equitable treatment of shareholders, with a mean of 89.08, as several of them made proxy voting easy for shareholders, the study showed.

The top 10 firms based on the overall index in fiscal 2010 include Cerebos Pacific, Singapore Exchange, SMRT Corporation, and WBL Corporation, though the specific ranking was not revealed.

In line with several other studies in China, Hong Kong, Korea and Thailand, findings from the index also showed that good corporate governance is associated with higher market valuation, though Prof Goh was quick to point out that causality has not been established.

'It could be the other way round - that big firms have the resources to do the right thing,' he said.
The index will now be used as part of research in determining winners for two corporate governance awards - the Singapore Corporate Governance Award (SCGA) and the Most Transparent Company - which are given out by the Securities Investors Association (Singapore) or SIAS.

This was established under a three-year agreement between SIAS and SMU that was signed yesterday.

SIAS also plans to incorporate the use of an integrity index in its evaluation for the SCGA from this year onwards.

The integrity index - developed by global consultancy Corporate Executive Board - evaluates companies on issues such as how it encourages employees to speak up against unethical behaviour within the firm.