Corporate Governance - Part 1 PDF

CORPORATE & COMMERICAL PRACTICE CORPORATE GOVERNANCE PART I ADRIAN CHAN Content What is Corporate Governance Principles of Good Corporate Governance Who is responsible for Corporate Governance Why Corporate Governance Disclosure-...

CORPORATE & COMMERICAL PRACTICE CORPORATE GOVERNANCE PART I ADRIAN CHAN Content What is Corporate Governance Principles of Good Corporate Governance Who is responsible for Corporate Governance Why Corporate Governance Disclosure-based Regime Copyright © 2024, Singapore Institute of Legal Education What is Corporate Governance? “Corporate governance refers to having the appropriate people, processes and structures to direct and manage the business and affairs of the company to enhance long-term shareholder value, whilst taking into account the interests of other stakeholders.” Introduction to Singapore Code of Corporate Governance (2018) Copyright © 2024, Singapore Institute of Legal Education General Principles of Good Corporate Governance Transparency Diversity Accountability Capability Integrity Leadership Fairness Sustainability 4 The Corporate Governance Ecosystem REGULATORS ACRA MAS SGX OTHER CAPACITY COMPANIES STAKEHOLDERS BUILDERS Boards Company Management Lenders & Secretary & Staff Customers Trade bodies Directors & Auditors Suppliers Business Analysts Business SHAREHOLDERS Associations partners Major or controlling Stockbroker Professional Competitors shareholders s Bodies Credit rating Institutional Media agencies Retail the Public Advisors 5 Who is Responsible for Corporate Governance? Corporate Governance Advisory Committee (CGAC) ACRA MAS SGX RegCo Advise on corporate Regulates governance issues Monitors & advocates Corporates good corporate CGAC governance practices 6 Who is Responsible for Corporate Governance? Central Role of the Board “The business of a company should be “Boards of directors are responsible for the managed by, or under the direction or governance of their companies” supervision of, the directors” UK Cadbury Committee Report on - Section 157A of the Companies Act Corporate Governance (1992) “The Board has the dual role of setting strategic direction and of setting the company’s approach to governance.... Given the centrality of the Board to good corporate governance....” Introduction to Singapore Code of Corporate Governance (2018) 7 Who is Responsible for Corporate Governance? Dual Role of the Board Board effectiveness is about both conformance and performance. The effective board has to do both well Company performance – A company exists to create value – Each company having its own strategy to deliver its value proposition Regulatory conformance – Compliance with laws and regulations is necessary – But should not distract the Board from its role to ensure success for the company Why Corporate Governance? The Principal-Agent Problem In agency theory: − The agent represents his principal in business − The agent is expected to advance his principal’s interests − Problems arise when the interest of the principal and agent are in conflict In companies, the Board is the “agent” of shareholders; while management is the “agent” of the board Corporate governance seeks to align the interests of the board, shareholders and other stakeholders in a transparent and fair way 9 Why Corporate Governance? Good Corporate Governance Encourages systems and processes that are sound, transparent and understandable Helps a company make sustainable profits over the longer-term Promotes business continuity Reduces business inefficiency 10 Why Corporate Governance? Good Corporate Governance Greater lender, investor and stakeholder confidence Results in increased valuations , liquidity and share prices Cheaper access to capital Encourages entrepreneurial activity and foreign investment Reduces risks premiums 11 Disclosure-based Regime Previously, we had a merit-based approach in regulating the capital markets in Singapore, where the regulator was the gate- keeper In a significant change, we moved to a market-driven, disclosure-based regime of supervision between 1998 – 2000 Changes were made to the Companies Act, the Securities & Futures Act (“SFA”) and the SGX Listing Manual; the first Code of Corporate Governance was issued 12 Disclosure-based Regime Section 203 of the SFA is the bedrock of the disclosure-based regime as it gives the disclosure rules of the SGX the force of law and provides for criminal sanctions for failures to disclose Under Section 203, any failure to notify the SGX of any information that is required by the Listing Rules to be disclosed, that is done: intentionally, recklessly, or negligently, shall be liable on conviction to a fine not exceeding $250,000 or imprisonment not exceeding 7 years or to both. If failure to disclose is only negligent, then no criminal consequences and only civil penalty and liability 13 Disclosure-based Regime Section 331 of the SFA provides for personal accountability of directors and officers by creating personal liability on the part of directors and officers for breaches of disclosure rules This section states that any offence committed by a body corporate that is committed with the consent of the connivance of, or is attributable to any neglect on the part of any officer of the body corporate, that officer as well as the body corporate shall be guilty of that offence and be liable to be punished accordingly 14 Notice Copyright © 2024, Singapore Institute of Legal Education. All rights reserved. The Course materials are developed by the Singapore Institute of Legal Education, based on the content, syllabus, and guidance provided by the Chief and Principal Examiners and their teams. No direct or indirect reproduction, publication, communication to the public, adaptation or any other use (that is prohibited and/or proscribed by copyright laws) of the Course materials in whole or in part in any form or medium is allowed without the written permission of the Singapore Institute of Legal Education. Part B Candidates should refer to the Code of Conduct for more information, particularly, the sections on conduct and behaviour, and the use of SILE resources. 15