SIAS: Gems is not a different governance code for SMEs

Published November 07, 2014

Edited version of “Letter to the Editor” first published in Business Times on November 6, 2014

I REFER to the article “New corporate governance rating framework for SMEs” (BT, Oct 28), which reported the discussion on corporate governance of small and medium enterprises (SMEs) at the SIAS Global Corporate Governance Conference.

The session highlighted that almost 80 per cent of the companies listed on Singapore Exchange are worth below S$500 million, and discussed the corporate governance of SMEs and that the existing governance ratings methodology may not be sufficiently useful for assessing the governance of smaller companies.

Current governance ratings assess companies primarily based on their disclosures of governance practices over a one-year period.

Current governance ratings also do not recognise different regulatory risks between local and foreign companies.

Mak Yuen Teen also presented a new initiative, the Governance Evaluation of Mid and Small Caps (Gems) by Saicsa (Singapore Association of the Institute of Chartered Secretaries and Administrators) and SIAS (Securities Investors Association Singapore), developed by Prof Mak for the evaluation of SME governance.

Gems was developed through a review of existing governance ratings (both local and international), reflections based on the experience of various organisations and individuals involved in CG (corporate governance) ratings and awards, the changing landscape (increasing percentages of listed SMEs and foreign listings), and review of the literature on what matters most in governance, especially for smaller companies.

It takes into account governance issues important to SMEs, such as ownership (e.g., stability of ownership by largest shareholder) and quality and stability of management and board (e.g., experience of potential successor to most senior management position and the experience of the Executive Chairman/CEO).

Gems focuses more on quantifiable and verifiable metrics including factors that are of greater importance to SMEs, evaluates governance practices over a three-year period as opposed to one year in other ratings, and includes criteria that differentiates companies based on their regulatory risk, which are included in Gems but not in other ratings surveys.

SIAS wishes to clarify that Gems is not a different regulatory regime or code for SMEs, and all SMEs should comply with the existing Corporate Governance Code.

SIAS agrees with the comments by Tay Woon Teck of RSM Ethos, as his comments were about whether the Corporate Governance Code should be tiered and not about Gems. Nevertheless, SIAS recognises that different things matter to SMEs when it comes to governance.

David Gerald

President & CEO


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