Following the recent introduction of a new set of guidelines enhancing corporate governance within financial institutions (FIs) in Singapore, we invited industry participants to a roundtable event to share their views on the impact of the new guidelines.
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The new guidelines in context
In response to the global call for governments and regulators to review their corporate governance regimes to ensure that the systemic weaknesses revealed in the wake of the recent global financial crisis are addressed moving forward, in December 2010 the Monetary Authority of Singapore (MAS) issued the “Guidelines on corporate governance for banks, financial holding companies and direct insurers which are incorporated in Singapore” (the Guidelines). This coincided with the issue of the Banking (Corporate Governance) (Amendment) Regulations 2010 and the Insurance (Corporate Governance) (Amendment) Regulations 2010.
On 27 January 2011, we hosted senior personnel, including heads of legal and compliance functions, company secretaries and industry experts from both local and multinational FIs to discuss the practical effects that the Guidelines will have on their businesses and, more broadly, their institutional strategy and commitment to corporate governance. The participants included:
|Wilson Ang||Of counsel||Norton Rose (Asia) LLP|
|James Ankers||Director, Financial Institutions Group||N M Rothschild & Sons (Singapore) Limited|
|Rachel Armstrong||Asia Regulations Correspondent||Thomson Reuters|
|Diane Chee||Vice President, Associate General Counsel, Asia Pacific||Chartis Asia Pacific Pte Ltd|
|Ward Coombs||Partner, Assurance (Financial Services)||Ernst & Young LLP|
|Matthew Escritt||Senior associate||Norton Rose (Asia) LLP|
|Linda Hoon||Group Secretary & Head of Management Practice||DBS Bank Ltd|
|Patricia Lee||Commissioning Editor, Asia||Complinet|
|Melanie Ng||Vice President - Group Compliance||United Overseas Bank Limited|
|Noel Ong||Head of Compliance, Consumer Banking||Standard Chartered Bank|
|Jake Robson||Partner||Norton Rose (Asia) LLP|
|Ivy Soh||Assistant Vice President - Corporate Secretarial||Chartis Asia Pacific Pte Ltd|
|Daniel Yong||Partner||Norton Rose LLP|
We are grateful to the participants for their invaluable insight.
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What does corporate governance mean?
Risk management, accountability, culture, integrity of individuals and the institution, confidence, checks and balances - these were some of the diverse views expounded by the participants when asked what corporate governance meant to them. The debate quickly centred on whether corporate governance is generally seen by the market as a tool for protecting and enhancing long-term shareholder value or whether it is an extra layer of (sometimes costly) procedures and rules stifling dynamic executive action.
It soon became clear that these seemingly contrary positions were in fact reconcilable; in much the same way that the debate surrounding executive remuneration has focused on incentivising long term value creation over the search for short term profits, a robust corporate governance philosophy will, in the long term, protect stakeholder interests as the board formulates and pursues the organisation’s business strategy.
The participants universally accepted the need for FIs to be subjected to higher standards of corporate governance, recognizing the importance that FIs have on a nation’s economic and social fabric, in particular, to the retail sector. Whilst most companies are responsible primarily to shareholders who have taken an informed risk in deciding to invest, this is not necessarily the case with deposit-taking institutions which have a far wider class of stakeholders to consider.
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What aspects of the new regime are seen as the most problematic?
Time commitment of independent directors
Several participants expressed concern over the requirement for the Nominating Committee to include guidance on the time commitment expected of individual directors, specifically Independent Non-Executive Directors (INEDs). Participants considered whether existing practices are adequate, since the Guidelines offered little to go on by way of an appropriate starting point. Some participants were concerned not to set the bar too high compared to their counterparts in the industry.
In addition to possibly resulting in a “box-ticking” exercise that prioritises objectively verifiable measurements of commitment such as days spent in the office and meetings attended, one participant expressed concern that the setting of quantitative targets threatened to blur the boundary between executive directors and NEDs. For instance, if a NED found himself unable to achieve the requisite level of time commitment in the exercise of his duties, would he be tempted to run the risk of becoming involved in matters that more properly fall within the purview of executive directors.
Limitation on number of directorships
The requirement for the Nominating Committee to provide guidance on the number of directorships that a board member should be able to hold was generally felt to be an unnecessary restriction. One participant saw this as something more properly decided by the relevant director himself and that such limitations might actually serve to lower governance standards within the jurisdiction by reducing the (inherently limited) pool of suitably qualified candidates.
Deemed loss of independence
Under the Guidelines, a director is deemed to have lost his ‘independence’ automatically after 9 continuous years’ service. The presumption is not rebuttable.
One participant illustrated the potential difficulty that this requirement may give rise to with the example of and independent director in the midst of a project during which term he crosses the nine-year threshold. MAS’ rejection of a rebuttable presumption approach during the consultation feedback may in fact make succession planning more challenging.
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Conclusion - Is corporate governance a question of culture?
In our recent Financial Institutions survey, A Matter of Perspective, conducted in 2010, 94 per cent of the respondents felt that Singapore’s regulatory environment was a driver for FIs to conduct business out of Singapore. Participants were generally in agreement that Singapore has consistently succeeded in striking the right balance between promulgating pro-business policies and upholding its reputation for sound fiscal management.
A point most clearly articulated and thoroughly debated during the discussion was the proposition that good corporate governance is as much a question of culture as it is a system of prescribed rules. The leadership of an organisation may attempt to find ways around regulations, no matter how prescriptive they might be, if a genuine culture of good corporate governance did not form the ethos of that organisation. Conversely, an organization could be operating in a regulatory environment that was ‘thin’ on corporate governance but nonetheless believe in and act on the virtue of good corporate governance policies, thereby enhancing stakeholder value in the long term.
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