Cost factor in corporate governance

The Straits Times

First published on Dec 06, 2013

Mak Yuen Teen

IT IS important for regulators to be conscious of the costs and benefits of introducing new rules (“Mixed signals from SGX” by Mr Michael Dee; Wednesday).

However, the problem is that “cost” is often trotted out as an excuse to do nothing, without a more fully considered decision as to whether particular measures should be adopted to improve transparency and corporate governance.

Some independent directors have shared with me that their efforts to improve corporate governance within companies were thwarted by a similar “cost” assertion, without consideration of the benefits.

Ironically, advisers who are themselves costing the company money are sometimes enjoined with management or controlling shareholders in arguing for doing nothing, to save costs.

There are certain things that can be done to improve the transparency and corporate governance of companies, at little or no additional cost.

For example, there are guidelines in the Code of Corporate Governance dealing with disclosure of basic corporate governance arrangements, such as the number of board and committee meetings and attendance of directors at these meetings, or types of material transactions that require board approval, where mandating disclosures should not impose undue hardship on companies.

Yet our regulators, unlike those in other markets like Australia and Britain, have been reluctant to make these disclosures mandatory.

Then there are some corporate governance requirements that may be little more than costly rituals in many instances, such as requirements for Catalist companies to have continuing sponsors rubber-stamping the firms’ compliance with the letter of listing rules; or independent financial advisers providing opinions in the context of delistings, mergers and acquisitions; and interested person transactions that add nothing to helping boards make proper recommendations or shareholders make informed decisions.

I am not suggesting that we necessarily do away with these requirements, but our regulators ought to be reviewing them to determine whether they are worth having, and if so, how to make them more useful.