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Wednesday 7 January 2009
‘Comply or Explain’: SGX Must be Stricter
I refer to the letter ‘Thoughts on SGX’s regulatory stance’ by Mak Yuen Teen (BT, Dec 23) and ‘Buyer beware and seller beware too’ by R Sivanithy (BT, Jan 1).
I refer to the letter ‘Thoughts on SGX’s regulatory stance’ by Mak Yuen Teen (BT, Dec 23) and ‘Buyer beware and seller beware too’ by R Sivanithy (BT, Jan 1).
I fully agree with Mr. Mak’s assertion that ‘adequate and timely disclosure, effective enforcement of disclosure obligations, and transparency of enforcement actions, are fundamental to a disclosure- based regime’.
I also agree with Mr. Sivanithy’s view that ‘the practice of judging what can be privately penalised and what might be publicly disclosed is in effect a step backwards to a merit- based regulatory system, the very system that the exchange sought to scrap when the market deregulated, giving way to a disclosure-based regime’.
Whilst there has been progress in terms of disclosure by companies pursuant to listing requirements, the same cannot be said with regard to the application and adherence by boards to the Code of Corporate Governance, as evidenced by the MAS/SGX study released in June 2007. There does not appear to be any monitoring or enforcement by the Singapore Exchange (SGX) of the ‘comply or explain’ requirement.
In addition to making their enforcement actions more transparent, other exchanges (such as the Australian Stock Exchange and the Hong Kong Stock Exchange) also publish periodic reports and statistics relating to their regulatory responsibilities over listed companies, including enforcement actions and/or application of code provisions.
I am not aware of any of the boards listed in the recent BT report of companies which failed to comply with the SGX rule on immediate announcement of stock option grants having come forward to either take responsibility for breaches of a rule or to provide an explanation, contrary to good practice standards.
SGX’s rather boilerplate response (BT, Dec 16) to that article is not helpful and, in my view, does not send a sufficiently strong signal about the importance of complying with listing rules, nor does it indicate whether any action had been taken, and if not, why not.
To say that failure to disclose stock option grants on a timely basis does not mean that there is backdating is factually correct, but practically unhelpful as it may be interpreted as downplaying the infringement of the rule.
While BT and Mr. Mak should be congratulated for keeping the issue on the radar screen, I must say that the response (or lack thereof from regulators and other stakeholders) has been disappointing.
Whilst minority shareholders should take reasonable action within their means, they are often left isolated because of passivity on the part of regulators in ensuring that their legitimate rights are enforced effectively. This has the unintended result of not providing the requisite incentive for boards to behave and, at times, even abusing minority shareholders who dare to or bother to complain to the regulator.
I have personally been told in the face that ‘since SGX has not acted on your complaint, we are okay’. It is never clear whether SGX systematically monitors compliance with listing rules and Code provisions, or whether it acts when complaints are made.
It is possible that SGX may have censured a company but the company may have told a minority shareholder that it had not been censured and therefore had done nothing wrong. It was only in a couple of cases where companies had rather carelessly publicly put words into SGX’s mouth that the bourse had felt compelled to set the record straight, turning a private censure into a more public one.
As an independent director myself, I would also add that corporate governance can truly improve only if boards, shareholders and regulators all take their roles seriously.
Serious-minded independent directors will have limited ability to play an effective role in improving governance if there is a lack of support from regulators.
My wish for 2009 is for SGX to review its supervision, enforcement and disclosure of enforcement action with regard to the ‘comply or explain’ requirement of the Code and listing requirements - before our own version of ‘sub-prime governance’ engulfs us.
1 comment:
‘Comply or Explain’: SGX Must be Stricter
6 January 2009
I refer to the letter ‘Thoughts on SGX’s regulatory stance’ by Mak Yuen Teen (BT, Dec 23) and ‘Buyer beware and seller beware too’ by R Sivanithy (BT, Jan 1).
I fully agree with Mr. Mak’s assertion that ‘adequate and timely disclosure, effective enforcement of disclosure obligations, and transparency of enforcement actions, are fundamental to a disclosure- based regime’.
I also agree with Mr. Sivanithy’s view that ‘the practice of judging what can be privately penalised and what might be publicly disclosed is in effect a step backwards to a merit- based regulatory system, the very system that the exchange sought to scrap when the market deregulated, giving way to a disclosure-based regime’.
Whilst there has been progress in terms of disclosure by companies pursuant to listing requirements, the same cannot be said with regard to the application and adherence by boards to the Code of Corporate Governance, as evidenced by the MAS/SGX study released in June 2007. There does not appear to be any monitoring or enforcement by the Singapore Exchange (SGX) of the ‘comply or explain’ requirement.
In addition to making their enforcement actions more transparent, other exchanges (such as the Australian Stock Exchange and the Hong Kong Stock Exchange) also publish periodic reports and statistics relating to their regulatory responsibilities over listed companies, including enforcement actions and/or application of code provisions.
I am not aware of any of the boards listed in the recent BT report of companies which failed to comply with the SGX rule on immediate announcement of stock option grants having come forward to either take responsibility for breaches of a rule or to provide an explanation, contrary to good practice standards.
SGX’s rather boilerplate response (BT, Dec 16) to that article is not helpful and, in my view, does not send a sufficiently strong signal about the importance of complying with listing rules, nor does it indicate whether any action had been taken, and if not, why not.
To say that failure to disclose stock option grants on a timely basis does not mean that there is backdating is factually correct, but practically unhelpful as it may be interpreted as downplaying the infringement of the rule.
While BT and Mr. Mak should be congratulated for keeping the issue on the radar screen, I must say that the response (or lack thereof from regulators and other stakeholders) has been disappointing.
Whilst minority shareholders should take reasonable action within their means, they are often left isolated because of passivity on the part of regulators in ensuring that their legitimate rights are enforced effectively. This has the unintended result of not providing the requisite incentive for boards to behave and, at times, even abusing minority shareholders who dare to or bother to complain to the regulator.
I have personally been told in the face that ‘since SGX has not acted on your complaint, we are okay’. It is never clear whether SGX systematically monitors compliance with listing rules and Code provisions, or whether it acts when complaints are made.
It is possible that SGX may have censured a company but the company may have told a minority shareholder that it had not been censured and therefore had done nothing wrong. It was only in a couple of cases where companies had rather carelessly publicly put words into SGX’s mouth that the bourse had felt compelled to set the record straight, turning a private censure into a more public one.
As an independent director myself, I would also add that corporate governance can truly improve only if boards, shareholders and regulators all take their roles seriously.
Serious-minded independent directors will have limited ability to play an effective role in improving governance if there is a lack of support from regulators.
My wish for 2009 is for SGX to review its supervision, enforcement and disclosure of enforcement action with regard to the ‘comply or explain’ requirement of the Code and listing requirements - before our own version of ‘sub-prime governance’ engulfs us.
Tan Lye Huat
HIM Governance
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