Corporate governance disclosures at all-time high for Singapore-listed companies

New unified framework sees Singtel topping the Singapore Governance and Transparency Index’s General Category, while CapitaLand Mall Trust takes the lead for the inaugural Real Estate Investment Trust (REIT) and Business Trust Category

Standards of corporate governance among Singapore-listed companies have continued to grow, with average scores under the Singapore Governance and Transparency Index (SGTI) hitting an all-time high in 2017.

Singtel topped the annual SGTI ranking in the General Category, while CapitaLand Mall Trust leads the new REIT and Business Trust Category.

This year’s index ranked a total of 606 Singapore-listed companies and 42 REITs and Business Trusts that released their annual reports by 31 May.

The SGTI assesses companies on their corporate governance disclosure and practices, as well as the timeliness, accessibility and transparency of their financial results announcements. It is published annually by CPA Australia, NUS Business School’s Centre for Governance, Institutions and Organisations (CGIO) and Singapore Institute of Directors (SID).

In SGTI 2017, Singtel retained its pole position with 124 points, while CapitaLand moved up two spots to second place with a score of 118 points. Both companies saw notable improvement due to more comprehensive disclosures of board responsibilities and stakeholder engagement.  DBS Group and Singapore Exchange tied for third place. (Please refer to Annex 1 for the top 20 results of the General Category.)

In the REIT and Business Trust Category, REITs from CapitaLand and Keppel dominated the top five positions. CapitaLand Mall Trust topped its category with 96.8 points, with CapitaLand Commercial Trust and Keppel REIT following closely behind with 95.3 and 93.3 points respectively. Other best-performing REITs and Business Trusts include Ascendas REIT and SPH REIT. (Please refer to Annex 2 for the top 10 results of the REIT and Business Trust Category.)

Best corporate governance disclosure to date

Overall, the average score for companies in the General Category is 52.3, the highest on record. This is an improvement of 2.6 points from the 2016 average of 49.7, up from the 2.1 point increase between 2015 and 2016 when the SGTI was first introduced. Together with an average increase of 3.5 points per year observed between 2013 and 2017, this suggests that companies are making consistent improvements to their corporate governance disclosures and practices. (Please refer to Annex 3 for the SGTI Average Score for General Category, 2009 to 2017.)

For the REIT and Business Trust Category, the average score of 60.4 reflected solid performances in areas such as holding analyst briefings, the timely release of financial results announcements, and the competency of the REIT or trustee-manager by providing detailed profiles of their senior management. (Please refer to Annex 2 for the SGTI 2017 Summary Statistics.)

This new category reflects the growing importance of REITs and Business Trusts in the stock market and trust-specific questions were developed to address five main areas:  structure, leverage, interested person transactions (IPTs), competency of REIT manager/trustee-manager, and emoluments. Based on the findings, 78.6 per cent of REITs and Business Trusts have at least three key executives, each with at least five years of experience relative to asset and trust management. In addition, 64.3 per cent of REITs and Business Trusts have confirmation from their trustee that IPTs are on normal commercial terms and are not prejudicial to the interests of participants.

“Singapore-listed companies have continued to raise the bar on corporate governance and transparency. But the journey for even higher standards does not stop here given the fast-changing and disruptive business landscape. Apart from compliance with regulations and standards, it is critical that leaders and directors of corporations have the strength, knowledge and flexibility to provide the moral compass for companies to function and excel,” said Melvin Yong, Singapore Country Head at CPA Australia.

Notable achievements

In general, the top 20 companies ranked in the General Category of the SGTI saw significant positive changes.

This year, SATS (11th) and Olam International (15th) made it into the top 20, moving up 15 and 21 places respectively. Both showed great improvement in practices such as the disclosure of board attendance at the Annual General Meeting. Furthermore, SATS also disclosed more details of its code of conduct, while Olam International provided a more comprehensive disclosure of its internal audit function.

The following companies also demonstrated noteworthy moves of over 10 places in the ranking compared to last year: Perennial Real Estate Holdings (+45), and Del Monte Pacific (+16).

Overall, companies are more transparent with their board and individual director assessments while their board competencies were also better maintained or improved:

• 77.1 per cent of companies disclosed a detailed board appraisal process compared to 67.4 per cent in 2016;
• 70.5 per cent of companies disclosed their new director selection process compared to 59.0 per cent in 2016;
• 77.1 per cent of companies had orientation programmes for new directors compared to 62.9 per cent in 2016.

This year’s index also saw companies paying more attention to potential conflicts of interest and taking steps to handle them appropriately. Nearly six out of 10 (58.4 per cent) companies now have a policy on directors recusing themselves from board discussions if there is a conflict of interest, up from 39.1 per cent in 2016. A slightly higher proportion (62.5 per cent) of companies disclosed that their IPTs are conducted fairly and at arm’s length, an increase from the 52.1 per cent in 2016.

“It is heartening to see the improvements our companies have made. It is a reflection of the growing awareness of the importance of good corporate governance and a testament to the efforts of all the companies in the industry, not just those at the top, to improve their governance practices,” said Joyce Koh, Executive Director, SID.

Improvements still needed in stakeholder engagement and investor relations

Overall disclosure on stakeholder engagement continues to remain low. Only 8.7 per cent of companies disclosed their anti-corruption programmes and procedures, a decrease from the 12.2 per cent in 2016. Disclosure of relevant data on training and development programmes undergone by employees is also at 10.6 per cent, down from 12.5 per cent in 2016.

Nevertheless, there was an improvement in areas such as having an anonymous whistleblowing policy in place for 49.8 per cent of companies assessed, an increase from 33.1 per cent in 2016.

Companies were also found to be lacking in reaching out to the investor community. Only 33.5 per cent of companies disclosed the steps they had taken to solicit and understand the views of their shareholders, a deterioration from 42.9 per cent last year. Furthermore, investor relations teams are also less responsive to queries as timely responses declined from 23.0 per cent in 2016 to 11.9 per cent in 2017. There is much room for further enhancement where investor relations are concerned.

Among REITs and Business Trusts, there is room for improvement around the disclosure of fees, with only 23.8 per cent of REITs and Business Trusts providing a benchmark for their performance fees.

Associate Professor Lawrence Loh, Director of CGIO, NUS Business School, said, “For the first time, Singapore’s broad barometer of corporate governance assesses all key sectors including REITs and Business Trusts. The overall Singapore Governance and Transparency Index findings, particularly in the areas of improvements, will be useful for the ongoing review of our Code of Corporate Governance.”

Please refer to Annex 4 for the scoring methodology for SGTI2017.

Annex 1

Singapore Governance and Transparency Index 2017 General Category

Key Highlights

1. Best corporate governance disclosure to date, a sign that companies are making consistent improvements
2. Companies are making greater strides in discharging board responsibilities
3. Improvement still needed in stakeholder engagement as overall disclosure continues to remain low

Table 1: SGTI 2017 General Category Top 20 results

Source: Centre for Governance, Institutions and Organisations, NUS Business School

Table 2: SGTI 2017 General Category Summary Statistics

Source: Centre for Governance, Institutions and Organisations, NUS Business School

Annex 2

Singapore Governance and Transparency Index 2017 REIT and Business Trust Category

Key Highlights

1. REITs and Business Trusts are assessed annually under the SGTI starting from 2017
2. Strong disclosure on how Interested Person Transactions are handled
3. Improvement needed in areas related to benchmarking of performance fees

Table 1: STGI 2017 REIT and Business Trust Category Top 10 results

Source: Centre for Governance, Institutions and Organisations, NUS Business School

Table 2: SGTI 2017 REIT and Business Trust Category Summary Statistics

Source: Centre for Governance, Institutions and Organisations, NUS Business School

Annex 3

Graph 1: Singapore Governance and Transparency Index Average Score (General Category), 2009 to 2017

Note: This chart corresponds only to companies on the General Category.

Annex 4

How scoring is done

The Singapore Governance and Transparency Index (SGTI) is a joint initiative of CPA Australia, NUS Business School’s Centre for Governance, Institutions and Organisations (CGIO), and Singapore Institute of Directors. The strategic media partner is The Business Times.

Starting from 2017, the SGTI is a unified framework comprising two separate categories, namely the General Category and the REIT and Business Trust Category. These categories are distinct and are not to be compared directly with each other.

The objective of the SGTI is to evaluate listed companies, including REITs and Business Trusts, on their corporate governance practices and disclosures, as well as the timeliness, accessibility and transparency of their financial results.

For the General Category, the SGTI score has two components: the base score and the adjustment for bonuses and penalties. The base score for companies contains five pillars: board responsibilities (35 points), rights of shareholders (20 points), engagement of stakeholders (10 points), accountability and audit (10 points), and disclosure and transparency (25 points). The aggregate of bonuses and penalties is incorporated to the base score to arrive at the company’s SGTI total score.

For the REIT and Business Trust Category, the companies are evaluated on a similar set of criteria, but with added coverage on the unique nature of their operations. The base score for REITs and Business Trusts includes: items in the base score for the SGTI (75 points) and trust-specific items in the base score for the SGTI for REITs and Business Trusts (25 points) that focus on structure, leverage, interested person transactions, competency of REIT manager / trustee-manager, and emoluments.

SGTI2017 covers 606 Singapore-listed companies in the General Category as well as 42 REITs and Business Trusts which released their annual reports by 31 May 2017. The sources of information for SGTI assessment include annual reports, websites, announcements on SGXNet, and investor relations’ email responsiveness. Announcements made on SGXNet as well as in media coverage, which occurred between 1 January 2015 and 31 May 2017, have been used to update the scores.

Further information on the scoring methodology, including the full instrument, and past results may be obtained from CGIO’s website at bschool.nus.edu.sg/CGIO. Queries about the SGTI may be sent to cgio@nus.edu.sg. In order to maintain independence and fairness of the SGTI, reports or advice cannot be provided to individual companies.