Singapore’s plan to review its corporate governance code reflects a growing focus on best practice on disclosure in Asia and may herald a wave of similar moves in the region, says David Smith, Asia head of corporate governance at Aberdeen Asset Management.

It is also timely, he noted, as there are areas where investors want to see more transparency among listed companies – namely, around the ‘comply-or-explain’ regime and the appointment of independent directors. Indeed, a KPMG survey in July highlighted a number of areas where improvements are needed.

“It’s been a while since they looked at the code, so it’s a good time to revisit it from a philosophy and application point of view,” said Smith. It was last reviewed in 2012 and before that in 2005.

New council

The Monetary Authority of Singapore announced the new Corporate Governance Council on Monday, which will review the CG code. This follows the city’s adoption of stewardship principles in November last year to encourage responsible investment and promote good stewardship practices among the investor community.

It also reflects regional momentum. Japan introduced a Stewardship Code last year and is working on making what are seen as much needed CG improvements, while Malaysia released a draft code last year.

The Singapore council has not yet met to come up with any recommendations or changes to the code, and it will consult the public on any proposals before finalising them.

There are areas where governance improvements could be made, according to a survey of the quality of corporate disclosure conducted by KPMG and commissioned by Singapore Exchange last year.

Published in July, it pointed out certain key areas of deficiency, namely: board diversity, remuneration, board and executive performance criteria, adequacy and effectiveness of risk management and internal controls, internal audit and investor relations.

Comply-or-explain changes?

One area the Singapore CG Council said it would review is how to make the ‘comply-or-explain’ regime more effective. This has been one of the recent “hot-button issues” in the news, noted Smith, who is on the council. It warrants discussion because investors tend to receive less detail than they would like about why companies are deviating from the CG Code, he added.

In the UK, said Smith, the approach is often dubbed “comply-or-complain” because companies tend to comply or grumble that a requirement is too onerous. But in Singapore, corporates tend to simply say they have not complied without explaining why, he noted.

Director appointments

The council is also likely to consider the issue of appointment of independent directors and board composition, said Smith. “We’ve publicly said that perhaps there needs to be more detail of how directors are elected and boards are structured.”

“A rethink may be in order,” he added, “because directors effectively serve at the pleasure of the king [that is, the controlling shareholder].”

Ultimately, the council should conduct a deep, bottom-up analysis of the director election process, rather than “tinkering” and making marginal changes.

Singapore’s CG standing

As for the overall quality of CG in Singapore, in September in took top spot regionally with a score of 67 out of 100 in the bi-annual survey by the Asia Corporate Governance Association. On a global context, it is further down the scale. Last year Australia was included as a benchmark and ranked 78.

“The question is, is high-60s good enough for Singapore?” said Smith. “The rules and regulations are generally OK, and enforcement is pretty good, but they have some way to go [to match global best governance practice].”

Singapore is not massively deficient in terms of CG, but overall there needs to be a “caffeine shot” to the CG ecosytem, he noted. “How do we get shareholders more engaged? If a board is not being robust enough, they need to be willing and able to change the board.”

Council composition

Meanwhile, there is only one asset management firm on the council – Aberdeen – though Singapore’s Securities Investors Association is also present. Some may feel there should be more investors represented.

Still, the composition of the council may reflect that Singapore is has a big focus on supporting venture capital and start-ups. For example, Nick Nash of new internet platform provider Garena Group is there, along with the president of the Association of Small & Medium Enterprises.