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MAS must set right tone in CG committee set-up

IT IS perhaps fitting that, in a week that celebrates Singapore's nation-building, the city-state has also unveiled substantial changes to its corporate governance landscape - with Monday's release of the newly revised Code of Corporate Governance (Code) and consequential adjustments to the Singapore Exchange's Listing Rules (BT, Aug 7).

These changes to the landscape went further than merely specifying amendments to certain aspects of corporate governance, for example, in the hard-coding of a nine-year limit for independent directors serving on the same board.

They also set the tone and approach that Singapore intends to take with corporate governance, going forward.

The work, however, does not stop here. A crucial challenge lies ahead in determining how to bring about effectively the transformation aspired to.

A lot will hinge on how Singapore's regulatory regime administers the new rules and the application of the revised principles and guidelines of the Code, with the efficacy of such changes resting with their enforcement. In this regard, the set-up of the proposed industry-led Corporate Governance Advisory Committee (CGAC) will be especially important.

The Corporate Governance Council (CG Council) - that put together the newly revised Code and of which I was part - recommended that the CGAC have advisory and advocacy functions and work closely with the regulators in upholding corporate governance standards, with the enforcement powers staying with the relevant regulators/authorities.

While the CG Council recommended that the CGAC ought to focus on advocating positive corporate governance practices, setting benchmarks and providing guidance to companies where there is ambiguity, it also recognised that it should at least be empowered to make representations to the regulator and recommend enforcement actions where appropriate.

The Council also recommended, without going into specifics, that the Monetary Authority of Singapore (MAS) consider the structure, function and composition of the CGAC when setting it up. There was feedback during the public consultation that the composition of the CGAC should be representative of participants in the capital markets, reflect important aspects of governance being considered, and incorporate diversity of thought and ideas to balance many potentially conflicting interests.

These were all recommendations the MAS accepted. MAS said it expects to establish the CGAC by the end of this year and will announce further details in due course.

There are several aspects it will need to get right.

For one, when the CGAC is eventually set up, its responsibilities and reach - and the support afforded to it by the relevant regulators and authorities - must be clearly articulated and adequately communicated to the market. There is nothing more ineffective than an advocacy body whose position is unclear. The market needs to be appreciative of the scope of the CGAC's purview, the sort of behaviours it will condone or condemn as well as the resulting action it will take/recommend.


Of equal importance is the composition of the CGAC. Just as companies ought to be mindful that their boards should be made up of competent and committed individuals, so should MAS be of the CGAC; its committee would set the tone and benchmark for the market - and its members would need to practise what they preach.

It's important that MAS selects individuals who have good corporate governance track records themselves, and reject - for example - directors who serve on too many boards, those who have been independent directors on the same boards for over nine years and/or those who have knowingly placed themselves in positions of conflict in their roles.

Members of the committee should come from diverse backgrounds, representing the various stakeholder groups and key participants in the eco-system. Those chosen ought to be picked because they are truly valid representatives of their interest groups and not just because they have a high profile or are very vocal (though that in itself should not be a disqualifier).

For example, a good representative of retail investors should be someone who actively attends shareholder meetings and has a good grasp of corporate issues; a good representative of institutional investors should be someone who invests in listed companies here and engages with their management teams; and a good representative from the academic field should be someone with not just scholarly knowledge, but who is also engaged with corporate goings-on.

Given that most CGAC members will represent certain interest groups, it is inevitable that some will be in positions of conflict when the committee looks into particular issues. This cannot be avoided but it must be a mandatory that members disclose their interests and recuse themselves in cases where a conflict arises.

It would also be refreshing to not always have the same names and faces typically appointed to such bodies, but to cast the net wider in the search for more compelling candidates. Companies are constantly being urged to do the same with their appointment of directors, and it would be admirable for the CGAC to lead by example.

It would be ideal if the CGAC chairman could serve on a full-time basis to ensure that the committee can dedicate the proper amount of time to its advocacy, advisory and semi-enforcement role.

There are other factors, of course, that come into play in establishing a good corporate governance eco-system here. But as corporate governance experts always say, setting the right tone at the top makes the difference to the whole structure.

READ MORE: Editorial: Corp governance code update a timely impetus to spur board renewal