Benchmarking for Strategic Corporate...
Transcript of Benchmarking for Strategic Corporate...
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Benchmarking for Strategic Corporate Governance:
Findings from Governance & Transparency Index 2011
Assoc Prof Lawrence Loh
Centre for Governance, Institutions and Organizations
NUS Business School
11 July 2011CPA Forum 2011
The GTI Project
Conducted by:
Sponsored by: Supported by:
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Corporate Governance: The Challenge
• Shareholder interest
– Protection
• Business interest
– Value
• Classical principal‐agent problem
– Conflict of interest
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Corporate Governance: The Context
• Mega‐failures: Enron etc
• Accounting firms: From Big 5 to Big 4
• Global economic crisis 2008‐2009:
No firms too big to fail
• Singapore issues:
– Staying competitive, comparative
– Standards in listed companies
– S‐chips
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Corporate Governance: The Context
• UK: Cadbury Report 1992 & others
• US: Sarbanes‐Oxley Act 2002 & others
• OECD: Principles of Corporate Governance 2004
• Singapore: Code of Corporate Governance 2005
– Proposed revisions ‐ Consultation Paper (June 2011)
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State of Practice in Singapore
• Focus
– Board
– Remuneration
– Accounting & audit
• Emerging
– Risk management
– Shareholder engagement
• What’s the next big thing?
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GTI Objectives
• Assess companies on
– corporate governance disclosure & practices
– timeliness, accessibility & transparency of financial results announcement
• Recognize companies that go beyond simply meeting Code
• Provide benchmarks for comparison
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GTI Framework
Board matters (Max = 35 points)
Remuneration matters (Max = 20 points)
Accountability & Audit (Max = 20 points)
Transparency & Investor Relations (Max = 25 points)
Base Score (Max = 100 points)
Adjustments for bonuses/penalties (+/‐)
Overall GTI Score8
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GTI Coverage• 657 companies that released annual reports in 2010
• Exception for companies with September year‐end (cut‐off: 31 January 2011)
• 3 companies that have not released any annual report in 2010: Updated using their latest announcements
• Companies excluded:– Companies with secondary listings
– Newly‐listed companies
– REITs, Trust & Funds
– Companies that did not release their annual reports during time period
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GTI Information Sources
• Annual report
• Company announcements: 1 January 2009 to 28 February 2011(Note: Announcements made until 30 April 2011 used to update score if publicly announced)
• Corporate website
• Information obtained from companies
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GTI Findings: Board Matters
24% 25%
15% 15%
19%
0%
5%
10%
15%
20%
25%
30%
Majorityindependent
board
Halfindependent
board
One‐thirdindependent
board
Independentchairman
Non‐executivechairman withunrelated CEO
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GTI Findings: Board Matters
21%
74%
20%15%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Fully independentNC*
Majorityindependent NC(incl. chairman)*
Process fordirector selection
disclosed
Criteria fordirector selection
disclosed
* % based on number of companies with nominating committees (NC)
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GTI Findings: Board Matters
30%
60%
11%
36%
0%
10%
20%
30%
40%
50%
60%
70%
Process for boardappraisaldisclosed
Criteria for boardappraisaldisclosed
Process fordirector appraisal
disclosed
Criteria fordirector appraisal
disclosed
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GTI Findings: Remuneration Matters
5% 7%2%
70%
83%78%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Executive Directors Non‐Executive Directors Top 5 Executives
Exact remuneration Bands of $250k with upper limit
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GTI Findings: Remuneration Matters
17%
66%
33%
6%
0%
10%
20%
30%
40%
50%
60%
70%
Performancemeasures disclosed
Short‐termincentives used
Long‐termincentives used
Framework forNED fees disclosed
15Note: NED ‐ non‐executive director
GTI Findings: Audit & Accountability
56%
38%
48%44%
78%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Fullyindependent
AC
All non‐executive AC(with IDchairman)
Majority withfinancial
background
At least onewith financialbackground
Chairman withfinancial
background
16Note: AC ‐ audit committee; ID ‐ independent director
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GTI Findings: Audit & Accountability
26%20%
9%
75%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Disclosure of keyrisks
Disclosure of howrisks are managed
Disclosure offramework used
Whistleblowingpolicy in place
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GTI Findings: Transparency & Investor Relations
2% 4%11%
80%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
<30 days 30 ‐ 40 days 41 ‐ 50 days 51 ‐ 60 days
Timeliness of reporting
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GTI Findings: Transparency & Investor Relations
86%
74%
51%
71%64%
0%10%20%30%40%50%60%70%80%90%100%
Companywebsite inannual
report/SGX
Separate IR linkon website
IR contact inannual
report/website
Latest annualreport
available onwebsite
Latest financialresults
available onwebsite
19Note: IR ‐ investor relations
GTI Findings: Transparency & Investor Relations
• On average, time gap between date Notice of AGM sent to shareholders and date of AGM is 18 days. Only 3% of companies have gap of 28 days or more
• Only 3% of companies disclose detailed information regarding vote results at AGMs
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GTI Findings: Bonus Points
6%
31%
5% 5%3%
0%
5%
10%
15%
20%
25%
30%
35%
Having a positiveCG confirmation
statement
Description ofhow company
assessesindependence
Independenceincludes
independencefrom majorshareholders
Separate board‐level riskcommittee
Reducingpercentage ofshares to be
issued on a non‐pro rata basis
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GTI Findings: Penalty Points
43%
18%
15%
43%
26%
23%
Non‐disclosure of director information
Tenure of IDs
Busy directors
Same IDs on all 3 committees
CEO/MD/ED not subject to re‐election
Issue of share options to IDs
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GTI Findings: Summary
• State of disclosure practices remains largely unchanged from previous issue
• Average overall GTI score of companies is 31 (compared to 33 in previous issue)
• A few companies made significant improvement in disclosure & practices but majority follow only minimum standards required by Code (8% received score of 50 points or more)
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GTI Findings: Top 5 Companies
1. Singapore Telecommunications Ltd (109 points)
2. Singapore Exchange Ltd (101 points)
3. Keppel Corporation Ltd (91 points)*
3. Keppel Land Ltd (91 points)*
5. SATS Ltd (88 points)
* Joint third
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Beyond GTI
• Role of board
–Control (brake) vs value (accelerator)
– Intelligent trade‐off, balancing
• Purposeful governance
–How can board help company?
– Is bureaucratic red‐tape reappearing as corporate governance?
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Beyond GTI
• Beyond accounting, towards strategy
– 2 sides of same coin
– 2 hands to clap
• Calibration & measurement
– Beware of groupthink
– Board becomes management
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Board Posture
“Stamper”
“Shaper” “Synthesizer”
“Shooter”
StrategyRole
AccountingRole
High
High
Low
Low
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Board Challenges in Strategy
• Mindsets
• Dynamics
• Structures
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