Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Monday, 23 May 2016

SIAS New Initiative to Improve Corporate Governance

The Securities Investors Association of Singapore (SIAS) has recently proposed a new initiative it hope to push out: Spend $1million per year for 5 years to hire Analysts to run through listed companies' annual reports and generate questions to ask during their respective Annual General Meetings (AGM).

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The concept of getting its members and SGX to contribute money for SIAS to engage analysts to conduct research and analysis on listed companies in my view is a waste of resource and time. 
While it may seem to be the correct thing to do – having analysts put up questions with regards to the companies' financial well-being and corporate governance, the questions raised would only receive an mediocre answer from the management to “pass” the question. 
Without a strong shareholder with the support of many other shareholders pushing for change, the existing management of most companies would not make any huge changes to the company – there are simply no laws that requires management to really listen to shareholders. 
Management can also dismiss the questions being asked as insignificant because of the notion “management knows best because they are managing the business”. 
Management may also agree to change as per shareholders’ wish, but if changes do not occur after a year, the management would be not held accountable.

Throughout corporate America, we have seen many examples of shareholders unable to go against management simply because they did not rally enough shareholders’ support and because management owns enough shares to silence the noise. 
In Singapore, majority of the listed companies have management owning more than 50% of the total shares outstanding. 
I believe the Singapore market is currently work on the mantra “if you think the management is incompetent, invest your money elsewhere”, which was prevalent during the early days of US’s corporate activism.

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I think there are 2 better ways to solve the issue than engage a group of analysts to ask questions. One, we promote shareholder activism the way US does, getting activist investors to get on the board of these companies and push for improvements for the shareholders. 
Two, we change the laws to allow minority shareholders’ votes to be able to overwrite management’s shares when certain events are triggered, events such as a buyout or change of management (especially if they are major shareholders).

Remember to offer your opinions. If you don't put your two cents in, how can you expect to get change?

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