| |
19 Nov 2003
Speech by Mr Tharman Shanmugaratnam, Acting Minister for Education, at the gala dinner for the Best Managed Boards Award, on Wednesday, 19 November 2003 at 7.30pm, at the Regent Hotel
Building superior business performance - looking beyond the rules
Distinguished guests,
Ladies and Gentlemen,
- We gather today amidst clearing skies, unlike the storm clouds just six months ago. The Ministry of Trade and Industry has just reported that our economy grew 17% in the third quarter on an annualised quarter-on-quarter basis. Growth is being lifted by the turnaround in the US and the continued powering of the Chinese economy.
- The uptrend looks likely to continue over the next year. Europe and Japan are emerging from stagnancy, with clear signs of pick-up in business confidence and investment. Political trouble spots remain - Iraq is not getting better - but there is now a good likelihood of what the economists romantically term 'a globally synchronised recovery' in the next year.
- The recovery in the Singapore economy is already evident, both in the economic numbers and the mood on the ground. Suckling pigs are back with fury.
- But beyond the cyclical shifts in our short term growth, the longer term challenges remain. Competition for the investment dollar and the demand for quality corporate earnings and sustainable performance have intensified. We have to focus on these tasks.
Still a Central Task
- Sound corporate governance remains a central task. Weak disclosure and corporate governance is no longer merely the emerging market risk that global investors once considered. In the US, regulators and investors are busy responding to Enron, WorldCom, Tyco and several other corporate scandals, and the fallout on investor confidence generally. The Sarbannes-Oxley Act and subsequent US stock exchange rules have added to dozens of new procedures and responsibilities for board directors. Some believe the new requirements to be overly onerous and an overreaction, but there is little question that confidence in the public markets needs to be repaired. As William Donaldson, Chairman of the US SEC has observed, US investor perceptions of business leaders has never been lower. Europe has had its share of debacles, with Vivendi and ABB being best known, although with fewer examples of the large scale fraud seen in the US.
- And in Asia, corporate governance remains very much 'work in progress', with a lot more work and lot more progress being required. If anything, there is danger that the return of foreign funds to Asia will lead to slackening of reforms, and encourage business as usual amongst governments and big businesses.
Progress in Singapore
- We are making good progress in Singapore. The Code of Corporate Governance that was published two years ago was a critical milestone in strengthening our disclosure-based regime. (The Code sets out principles and best practices in four main areas of governance, namely, board matters, remuneration, accountability and audit, and communications with shareholders.) Listed companies are now required to describe their corporate governance practices in their annual reports, as well as disclose and explain areas of deviation from the Code. We also set up the Council on Corporate Disclosure and Governance last year, to monitor the developments in regulatory standards, both locally and abroad. The Council represents diverse interests across professions and businesses, and is playing a key role in catalysing and advancing governance standards in Singapore.
- More recently in January 2003, the NUS Business School set up the Corporate Governance and Financial Reporting Centre. The Centre will contribute to the research and the promotion of best practices in corporate governance and financial reporting, and will hopefully help entrench high standards among our companies.
International Rankings
- Our efforts have not gone unnoticed. Singapore was ranked top in Asia for transparency in the World Competitiveness Yearbook 2002. Both the PERC and Credit Lyonnais Securities Asia, who regularly monitor the corporate governance climate, have given Singapore the highest ratings in Asia. Last month, we saw some 400 venture capitalists at the Global Entrepolis @ Singapore event looking for investment opportunities. In different ways, they reflect confidence in the Singapore market, arising from the systems, structures and ethos of governance that have been established.
- I am also glad to note that an Ernst & Young survey of the annual reports of 30 large locally listed companies in August this year found that all had generally complied with the principles set out in the Code of Corporate Governance. For instance, all 30 companies surveyed have a nominating committee and had appointed an independent director to be the Chairman of the audit committee as recommended by the Code.
Looking Beyond The Rules
- We should keep up the momentum of improved disclosure and corporate governance practices in Singapore. It will continue to be a competitive differentiator, for our companies and for Singapore.
- I will take the opportunity to highlight two priorities going forward. First, it is critical is to recognise that good corporate governance goes beyond meeting the statutory requirements. It is not difficult for boards and executives to comply with regulatory requirements without fundamentally changing the way they run their companies.
- We should not lose sight of the end-goal. The end goal is not meeting corporate governance norms, but building lasting competitive strengths and improving the chances of superior business performance. To do this, quality matters more than form. For instance, the quality of independent directors matters more than their numerical representation on the Board. Better to have directors with the force of character to challenge management when necessary, and with enough substantive knowledge about the business to be able to spot risks and advise on strategies, than directors who are independent only because the rules define them such.
- Boards that are packed with nominally independent directors may indeed give false comfort to retail investors, and could be positively dangerous. Strong boards are those with strong minds on board, willing to test each other and able to question and advise management, not those with all the right fixtures of independence and procedure but where everyone merrily agrees with each other almost all the time. The latter is still a common phenomenon.
- The second priority lies in building strong corporate leaders. While sound corporate governance and strong disclosure practices can minimise risks to the company and prevent abuse of minority shareholders, it is a necessary but not sufficient condition for corporate success. At the end of the day, success depends on what we 'do', not what we 'do not do'. We need leaders who can 'do' - leaders who can drive companies, beat the competition and scale new heights.
- We need to focus on grooming leadership talent, in all our organisations. Corporate leaders themselves tell me that we have too many taskmasters or class monitors in Singapore companies, and too few leaders. We need people who are able to develop a clear vision of the future, and communicate it clearly across the organisation. People who can motivate and inspire superior performance among their people, and build trust even as they take tough decisions.
- To summarise, strong boards focused on quality more than form, and strong leaders, are key to superior corporate performance. They are the internal attributes of corporate success, more important than the external discipline of the market. Market discipline will sometimes act as a check on management excesses, but the markets will remain imperfect. Few investors hold a stock for very long, or long enough to take a close interest in a company. On the New York Stock Exchange for eg, the average holding duration for a stock is now down to less than 12 months. We should count on the markets continuing to display the behaviour that educationists familiarly refer to as ADHD - or attention deficit hyperactive disorder.
Best Managed Boards Award Singapore 2003
- I am happy tonight to present the Best Managed Boards Award. The creation of the Award is very timely. It recognises the critical role that company boards play in shaping corporate governance practices. The Award emphasises the importance of directors' conduct, development, performance focus and commitment. It should raise the consciousness in our Boardrooms of the need to adopt best practices that encompass not just the Code and accounting standards but emphasise the development of human capital.
- I commend the organisers for conceiving the Award and making it come to pass - the Singapore Institute of Directors, Hewitt Associates, the Singapore Business Federation, and the Business Times; the supporters - the Economic Development Board and the Singapore Exchange; and the sponsor, the Union Bank of Switzerland. Singapore is honoured to be involved in the development of this Award which is the first of its kind in the Asia Pacific. I hope the creation of this Award will accelerate the process of companies adopting good corporate governance practices in Singapore.
- My congratulations to the winner and finalists of the Best Managed Boards Award 2003. You serve as beacons for others to emulate. I hope many will be inspired to follow in your footsteps.
|
|  |
|
