In many family-owned firms listed on the Singapore Stock Exchange, the family members are often the majority shareholders leading to a concentration of power in the family’s hands. This may lead to an abuse of that power at the expense of minority shareholders as the company is being managed. Discuss how the Singapore Code of Corporate Governance, 2012 seeks to address this issue and whether or not you think that the measures are effective.
Done by: Goh Jing Kui, Alan
Table of Contents
Objectives of Singapore Code of Corporate Governance4
Effectiveness of Singapore Code of Corporate Governance7
In a study conducted by National University of Singapore (NUS) Business School’s Centre for Governance, Institution and Organization (CGIO) and Family Business Network Asia (FBN Asia) 2011, 52% of listed companies on Singapore Stock Exchange (SGX) are family-owned. It further substantiated that such “family firms tend to not fare well in the Governance and Transparency Index (GTI), indicating low level of compliance to good governance practices.”
Prior to the above study, a journal on “Family-owned Firms in Singapore” written by Associate Professor Tan Lay Hong, Nanyang Business School (NBS), has classified family businesses into different classes, ranging from strong family control to weak family control. “Strong family control is defined as family owning majority stake and holds key executive positions such as CEO or CFO. Moderate family control is defined as family owning majority stake and holds non-executive positions, or minority stake of between 30 per cent to 50 per cent, or minority stake of 10 per cent to 29 per cent but holds key executive positions. Weak family control is defined as family owning minority stake of 10 per cent to 29 per cent and holds non-executive positions.” In summary, her findings revealed that 93 per cent of family firms in Singapore are under moderate to strong family control!
The above set the context of this paper to look into how the Singapore Code of Corporate Governance (SCCG) seeks to address the highly probable concern of expropriation of minority shareholders’ interests brought about by high number of family firms with low level of compliance to good corporate governance practices. Define Problem
“Tunneling” is a term conceived in Czech Republic to describe the expropriation of minority shareholders’ interests by transferring assets and profits out of the firm to benefit those who control them. It includes, but is not limited to, usurping corporate opportunities, transfer pricing favourable to controlling shareholders, transfer of assets from firm to controlling shareholders at non-market prices, dilution of minority’s shares and insider trading. Objectives of Singapore Code of Corporate Governance
The establishment of the SCCG aims to align and balance the rights and interests of key stakeholders, including protecting minority shareholders’ interests. SCCG, though non-obligatory, is seen as a complement to Companies Act. It is widely adopted by Board of Directors as not doing so sends a signal that the Board is not committed to protecting the interests of key stakeholders, thus affecting investors’ interest in the company. To achieve its objectives, it has mechanisms in place offering good practices in areas of five aspects; control, competence, motivation, accountability and monitoring. Principles Applied
For the purpose of this paper, I would like to focus on the competency aspect as it forms the basis of who we are counting on to look after the interests of the minority shareholders; the Independent Directors. The next few principles relate:
Principle 2 of the SCCG suggests “There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs...