Published in Business Times, January 08, 2013
LETTER TO THE EDITOR
Israeli corp governance standards are much higher
ON Jan 3, Sarin Technologies made an announcement which was a refreshing change from the doses of negative news during the year just past about the corporate governance of S-chips, business trusts, proposed glamour listings such as F1, and even lauded established companies like Olam.
Sarin is a company incorporated in Israel and listed on the Singapore Exchange (SGX) Mainboard. It is thus subject to the SGX listing rules and has to comply with or explain its situation in accordance with the Singapore Code of Corporate Governance. As a company incorporated in Israel, it also has to comply with Israeli Company Law. Sarin’s announcement highlights several recent changes in the latter, which put our corporate governance standards in the shade.
Some of the Israeli Company Law changes are consistent with our existing corporate governance standards. However, they have given the force of law to some of the existing guidelines in our Code of Corporate Governance and enhanced them.
Examples include requiring the audit committee to put in place a whistleblowing policy (including the protection of whistleblowers), the establishment of a remuneration committee, and directors possessing the necessary skills and time to discharge their responsibilities and having to give a written statement to the company to that effect.
Israeli Company Law imposes higher standards of corporate governance in a number of key areas compared to what currently exists in our regime. For example, an “external director” who is independent and possesses special qualifications (such as accounting or finance expertise) must be elected by a majority of shareholders who are not controlling or interested shareholders, or not objected to by more than 2 per cent of non-interested shareholders (“special majority”).
Another important requirement is for a comprehensive remuneration policy for officers to be approved by a similar special majority, although the board can still adopt the remuneration policy if it is rejected by shareholders. In general, the remuneration packages of the CEO, controlling shareholders and their relatives also require the approval of the special majority.
Rules on disclosure and approval of related-party transactions have also been enhanced to improve minority shareholder protection. What this means is that minority shareholders in Sarin, including Singapore shareholders, will have more say over the appointment of the “external director” and approval of a transparent remuneration policy and remuneration packages of key officers, and greater protection in general, compared to minority shareholders in even Singapore-incorporated companies.
It is ironic that an emerging market like Israel (albeit classified as “developed” by MSCI) has now run ahead of us in key corporate governance requirements because it recognises the importance of protecting minority shareholders. It should certainly make us humble when we make claims about our own “world-class” standards of corporate governance.
Mak Yuen Teen
Associate professor
NUS Business School
