By Mak Yuen Teen
I refer to the commentary “Clearing up the issues over withdrawal of Sias awards” by R. Sivanithy published in the Straits Times on June 18. It quoted from an article I wrote titled “Governance of governance awards and ratings”, which is available on this website, to support having an investor body like SIAS handing out governance and transparency awards.
I have served as chair or member of various awards over the years, including the SIAS corporate governance award (but never the transparency award) and the investor relations and CFO awards under the Singapore Corporate Awards organised by Business Times and Singapore Institute of Directors. I have also served on the CG award committee for the Minority Shareholders’ Watchdog Group in Malaysia.
From my experience, the lobbying can be quite intense and can even be unpleasant. Once I was invited for lunch by a friend who serves on boards, purportedly to catch up. When I turned up, it was not just lunch with him. I was ushered into a room with about a dozen people associated with the company, including a consultant and investor relations people, telling me how good their company is. It did not work on me as the company did not win. Some years later, the company was involved in a very public scandal.
Another time I was contacted by a “blue chip” consulting firm asking to meet up for a survey on stakeholders’ views of corporate governance. I met two young consultants and during the course of our discussions, it became clear that they were trying to get detailed insights into an award that I was involved in to gain an advantage for its client.
On committees I chair or serve on, there was always an understanding that each member of the judging panel should be free to express his or her views on any company under consideration, and that anything that is said will remain confidential. I was therefore surprised when I was once cornered by the investor relations folks of a large company during an awards night, and told that “you are apparently the one that we need to convince for us to win”. Sometimes, subtle or not so subtle lobbying on behalf of certain companies by some members of the judging panel can be detected – the chair plays an important role in ensuring that such lobbying does not unfairly favour certain undeserving companies.
There is also sometimes pressure to give more awards as those who win awards buy tables for the awards dinner, which can be a major fund-raising event for an awards organiser. As I mentioned in my article, there are even some commercial organisations that use awards as a means to sell services. When I was asked to chair an awards some years ago, I somewhat cheekily told the organisers that if I chair it, they may not be able to sell many tables because it was going to be quite strict. For several years, we failed to give a corporate governance award to an SME because we could not find one that we knew enough about or were truly comfortable with (I am not saying that there are no well-governed SMEs, but just that we often know much less about SMEs than large companies, and the governance of SMEs is much more influenced by a major shareholder like a founder or family whose values may be difficult to determine).
Having said that, mistakes can happen because good companies and people can turn bad. I have observed the culture of companies changing when the controlling shareholder or chairman changed. But mistakes can be minimised if there is proper governance around the awards (the theme of my article), including ensuring that commercial or fund-raising motives do not drive the awards.
Finally, I think when organisations that are involved in governance awards or ratings get it wrong, they should not use the excuse of analysts and broking houses also getting it wrong as a means to defend their mistakes. One of the reasons for having governance awards and ratings is to encourage investors to look beyond just the financial numbers or the analysts’ recommendations and to focus on governance and transparency factors that may be even more important for the long-term performance of companies. In the long term, one would expect good governance (in substance, not form) and performance to go hand-in-hand but one should never confuse good short-term financial performance or analysts’ optimism about a stock with good governance. Analysts and broking houses generally focus only on financial numbers, and rarely consider governance or transparency of companies or “earnings quality”.They may also be conflicted.They mostly make “buy” recommendations, sometimes “hold” recommendations but rarely “sell” recommendations. Investors blindly following “buy” recommendations may have to say bye bye to their investment.
