benchmarking for strategic corporate...

© CGIO‐NUS Business School 1

Benchmarking for Strategic Corporate Governance:

Findings from Governance & Transparency Index 2011

Assoc Prof Lawrence Loh

Centre for Governance, Institutions and Organizations

NUS Business School

11 July 2011CPA Forum 2011

The GTI Project

Conducted by:

Sponsored by: Supported by:

2


Corporate Governance: The Challenge

• Shareholder interest

– Protection

• Business interest

– Value

• Classical principal‐agent problem

– Conflict of interest

3

Corporate Governance: The Context

• Mega‐failures: Enron etc

• Accounting firms: From Big 5 to Big 4

• Global economic crisis 2008‐2009:

No firms too big to fail

• Singapore issues:

– Staying competitive, comparative

– Standards in listed companies

– S‐chips

4


Corporate Governance: The Context

• UK: Cadbury Report 1992 & others

• US: Sarbanes‐Oxley Act 2002 & others

• OECD: Principles of Corporate Governance 2004

• Singapore: Code of Corporate Governance 2005

– Proposed revisions ‐ Consultation Paper (June 2011)

5

State of Practice in Singapore

• Focus

– Board

– Remuneration

– Accounting & audit

• Emerging

– Risk management

– Shareholder engagement

• What’s the next big thing?

6


GTI Objectives

• Assess companies on

– corporate governance disclosure & practices

– timeliness, accessibility & transparency of financial results announcement

• Recognize companies that go beyond simply meeting Code

• Provide benchmarks for comparison

7

GTI Framework

Board matters (Max = 35 points)

Remuneration matters (Max = 20 points)

Accountability & Audit (Max = 20 points)

Transparency & Investor Relations (Max = 25 points)

Base Score (Max = 100 points)

Adjustments for bonuses/penalties (+/‐)

Overall GTI Score8


GTI Coverage• 657 companies that released annual reports in 2010

• Exception for companies with September year‐end (cut‐off: 31 January 2011)

• 3 companies that have not released any annual report in 2010: Updated using their latest announcements

• Companies excluded:– Companies with secondary listings

– Newly‐listed companies

– REITs, Trust & Funds

– Companies that did not release their annual reports during time period

9

GTI Information Sources

• Annual report

• Company announcements: 1 January 2009 to 28 February 2011(Note: Announcements made until 30 April 2011 used to update score if publicly announced)

• Corporate website

• Information obtained from companies

10


GTI Findings: Board Matters

24% 25%

15% 15%

19%

0%

5%

10%

15%

20%

25%

30%

Majorityindependent

board

Halfindependent

board

One‐thirdindependent

board

Independentchairman

Non‐executivechairman withunrelated CEO

11


21%

74%

20%15%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Fully independentNC*

Majorityindependent NC(incl. chairman)*

Process fordirector selection

disclosed

Criteria fordirector selection

disclosed

* % based on number of companies with nominating committees (NC)

12



30%

60%

11%

36%

0%

10%

20%

30%

40%

50%

60%

70%

Process for boardappraisaldisclosed

Criteria for boardappraisaldisclosed

Process fordirector appraisal

disclosed

Criteria fordirector appraisal

disclosed

13

GTI Findings: Remuneration Matters

5% 7%2%

70%

83%78%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Executive Directors Non‐Executive Directors Top 5 Executives

Exact remuneration Bands of $250k with upper limit

14


GTI Findings: Remuneration Matters

17%

66%

33%

6%

0%

10%

20%

30%

40%

50%

60%

70%

Performancemeasures disclosed

Short‐termincentives used

Long‐termincentives used

Framework forNED fees disclosed

15Note: NED ‐ non‐executive director

GTI Findings: Audit & Accountability

56%

38%

48%44%

78%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Fullyindependent

AC

All non‐executive AC(with IDchairman)

Majority withfinancial

background

At least onewith financialbackground

Chairman withfinancial

background

16Note: AC ‐ audit committee; ID ‐ independent director


GTI Findings: Audit & Accountability

26%20%

9%

75%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Disclosure of keyrisks

Disclosure of howrisks are managed

Disclosure offramework used

Whistleblowingpolicy in place

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GTI Findings: Transparency & Investor Relations

2% 4%11%

80%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

<30 days 30 ‐ 40 days 41 ‐ 50 days 51 ‐ 60 days

Timeliness of reporting

18



86%

74%

51%

71%64%

0%10%20%30%40%50%60%70%80%90%100%

Companywebsite inannual

report/SGX

Separate IR linkon website

IR contact inannual

report/website

Latest annualreport

available onwebsite

Latest financialresults

available onwebsite

19Note: IR ‐ investor relations


• On average, time gap between date Notice of AGM sent to shareholders and date of AGM is 18 days. Only 3% of companies have gap of 28 days or more

• Only 3% of companies disclose detailed information regarding vote results at AGMs

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GTI Findings: Bonus Points

6%

31%

5% 5%3%

0%

5%

10%

15%

20%

25%

30%

35%

Having a positiveCG confirmation

statement

Description ofhow company

assessesindependence

Independenceincludes

independencefrom majorshareholders

Separate board‐level riskcommittee

Reducingpercentage ofshares to be

issued on a non‐pro rata basis

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GTI Findings: Penalty Points

43%

18%

15%

43%

26%

23%

Non‐disclosure of director information

Tenure of IDs

Busy directors

Same IDs on all 3 committees

CEO/MD/ED not subject to re‐election

Issue of share options to IDs

22


GTI Findings: Summary

• State of disclosure practices remains largely unchanged from previous issue

• Average overall GTI score of companies is 31 (compared to 33 in previous issue)

• A few companies made significant improvement in disclosure & practices but majority follow only minimum standards required by Code (8% received score of 50 points or more)

23

GTI Findings: Top 5 Companies

1. Singapore Telecommunications Ltd (109 points)

2. Singapore Exchange Ltd (101 points)

3. Keppel Corporation Ltd (91 points)*

3. Keppel Land Ltd (91 points)*

5. SATS Ltd (88 points)

* Joint third

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Beyond GTI

• Role of board

–Control (brake) vs value (accelerator)

– Intelligent trade‐off, balancing

• Purposeful governance

–How can board help company?

– Is bureaucratic red‐tape reappearing as corporate governance?

25

Beyond GTI

• Beyond accounting, towards strategy

– 2 sides of same coin

– 2 hands to clap

• Calibration & measurement

– Beware of groupthink

– Board becomes management

26


Board Posture

“Stamper”

“Shaper” “Synthesizer”

“Shooter”

StrategyRole

AccountingRole

High

High

Low

Low

27

Board Challenges in Strategy

• Mindsets

• Dynamics

• Structures

28

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