By Mak Yuen Teen
A few years ago, I published a commentary on the governance of governance awards and ratings. The commentary can be found on my website here:
https://governanceforstakeholders.com/wp-content/uploads/2014/09/Governance-Awards_Focus.MYT_270914.pdf
The reason why I wrote the commentary was that I was concerned about the “commercialisation” of such awards and ratings – by that, I mean commercial interests of organisations involved in giving awards and ratings leading to the wrong companies or individuals being given the awards.
I have had significant experience serving on selection panels for corporate governance-related awards and in assessing companies for corporate governance ratings in Singapore and the region. I have also been involved in developing several corporate governance ratings here and overseas (such as the Governance and Transparency Index and ASEAN CG scorecard). I am still involved in some of these work, serving on an awards selection panel in Malaysia and very soon, releasing the second edition of GIFT – Governance Index For Trusts – which rates the governance and business risk of REITs and business trusts listed here which was launched last year.
This has given me insights on what can go wrong in awards and ratings. Many of the reasons I have already discussed in the commentary mentioned above. But perhaps there is another one and that is, they do not effectively factor in the integrity of the individuals who are critical to the governance of companies – the controlling shareholder, the directors and the CEO. The proposed revision of the Singapore Code of Corporate Governance now recognises the importance of people as it defines corporate governance as follows:
Corporate governance refers to having the appropriate people, processes and structures to direct and manage the business and affairs of the company to enhance long-term shareholder value, whilst taking into account the interests of other stakeholders.
Most corporate governance definitions focus on processes, structures and rules. However, ultimately it is about the people because with the wrong people who are controlling shareholders, directors and CEOs, no amount of processes, structures and rules would really matter as they will just get around them. This is why I am also relatively pessimistic about how far reforms can go in improving corporate governance, if those reforms do not improve the ability to hold people accountable and to get rid of them if necessary.
Unfortunately, when issues regarding integrity of particular individuals are raised, the reaction of some of those involved in awards or ratings tends to be along the lines that it is “subjective”, or it is perceived as “personal” or someone having an “axe to grind” with the individuals concerned. Only when an individual has been specifically punished by regulators, such as publicly reprimanded, would this usually affect an award or rating. However, the fact is that directors and key officers are rarely sanctioned. SGX recently published a blacklist of directors, which is commendable. However, there are many other directors who will raise a red flag with me if I see them on a board, based on their prior conduct on boards through my scrutiny of companies or experiences shared by others with me. Unfortunately, awards and ratings cannot be assessed solely on “objective” criteria – especially as these objective criteria can often be gamed by companies.
I am not saying that we can always get it right with awards and ratings. But where there is a lack of proper governance around the compilation of ratings or judging of awards, or subjective assessments of individuals involved in owning, governing and managing companies are disregarded, the chances of getting it wrong is much higher. And recently, there have been a few cases of organisations involved in awards or ratings getting it badly wrong.
