CORPORATE GOVERNANCE HIGHLIGHTS 2017

Transcription

1 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem Lawrence Loh, Muhammad Ibrahim, Huong Nguyen, Nicholas Wong November 27 A Collaboration Between: Strategic Media Partner:

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3 CONTENTS List of Figures List of Tables About this Report About CPA Australia About CGIO About SID Preface Summary of Findings GENERAL CATEGORY Introduction Methodology Scope of Study The SGTI Framework Scoring Structure for the Base of the General Category Scoring Structure for the Base of the REIT and Business Trust Category General Category Key Findings Annual Trends Performance by Sector Board Responsibilities Rights of Shareholders Engagement of Stakeholders Accountability and Audit Disclosure and Transparency REIT AND BUSINESS TRUST CATEGORY Performance by Sectors The Trust Effect Structure Leverage Interested Person Transactions Competencies of Trust/Trustee Managers Emoluments Conclusion Annexes Annex A General Category Full Ranking Table Annex B REIT and Business Trust Category Full Ranking Table Annex C Classification of Industry Sectors for REITs and Business Trusts Credits

4 LIST OF FIGURES Figure : The SGTI Framework Figure 2: Average, 227 Figure : Percentile Distribution, 227 Figure 4: Average by Sector, 2 27 Figure : Board Competencies Figure 6: Disclosures of Processes and Criteria for Appraisal of Boards and Directors Figure 7: Avoiding Conflicts of Interest Figure 8: Disclosures by Dividend Policy Figure : AGM Disclosures Figure : Selected Issues of Engagement of Stakeholders Figure : Disclosures of Whistleblowing Policies Figure 2: Disclosures of Risk Management Figure : Disclosures of IPTs Figure 4: Disclosures of Communication Channels Figure : Average by Sectors Figure 6: Structure of REITs and Business Trusts Figure 7: Leverage of REITs and Business Trusts Figure 8: Interested Person Transactions of REITs and Business Trusts Figure : Competencies of Trust/Trustee Managers of REITs and Business Trusts LIST OF TABLES Table : Sample Size of General Category Table 2: Sample size of REIT and Business Trust Category Table : Five Domains of the Base Table 4: Scoring Structure for the Base of the General Category Table : Scoring Structure for the Base of the REIT and Business Trust Category Table 6: Number of REITs and Business Trusts by Sector Table 7: The Trust Effect Table 8: Emoluments of REITs and Business Trusts CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

5 ABOUT THIS REPORT Corporate Governance Highlights 27 is a joint initiative by CPA Australia, the NUS Business School s Centre for Governance, Institutions and Organisations (CGIO), and the Singapore Institute of Directors. This report is an annual series published in the last quarter of every year following the release of the Singapore Governance and Transparency Index (SGTI) rankings. This report apprises readers of the progress and continuous development of Singaporelisted companies (SGX Mainboard and Catalist) in their corporate governance practices and disclosures. Starting from this year, Real Estate Investment Trusts (REITs) and Business Trusts are also included as part of the SGTI. The 6 actively trading companies and REITs and Business Trusts that released their 26 annual reports by May 27 have been assessed by the SGTI 27. This report examines and analyses data from the CGIO databases of the Governance and Transparency Index (GTI) from 2 to 2 and the SGTI from 26 to 27. Disclaimer: This report has been prepared in good faith on the basis of information available at the date of publication, any errors remain the responsibility of the authors. The organisations, authors, publishers, and their employees, and affiliates are not responsible or liable for any loss, damage, cost or expense incurred or arising from any use of this report or any communication given in relation to this report. The data and analysis from the report may be quoted with proper and explicit acknowledgements. CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

6 ABOUT CPA AUSTRALIA Founded in 886, CPA Australia is one of the world s largest professional accounting bodies representing more than, members working in 8 countries around the world, with more than 2, members working in senior leadership positions. We have offices in markets throughout the world, including all Australian capital cities, Hong Kong, Beijing, Shanghai, Guangzhou, Indonesia, Malaysia, Singapore, Vietnam, New Zealand and the United Kingdom. CPA Australia advances its members interests through education and knowledge exchange, the development of professional networks, advocacy in relation to policy, standards and regulation and the promotion of value of CPA Australia members to employers, government, regulators and the public. The worldrenowned CPA designation is synonymous with professional credibility and international portability. CPA Australia has been operating in Singapore for years, having arrived in this market in under the auspices of the Colombo Plan. For more information, please visit cpaaustralia.com.au 6 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

7 ABOUT CGIO The Centre for Governance, Institutions and Organisations (CGIO) was established by the National University of Singapore (NUS) Business School in 2. It aims to spearhead relevant and high impact research on governance and sustainability issues pertinent to Asia, including corporate governance and corporate sustainability, governance of family firms, statelinked companies, business groups, and institutions. CGIO also organises events such as public lectures, industry roundtables, and academic conferences on topics related to governance and sustainability. NUS Business School is known for providing management thought leadership from an Asian perspective, enabling its students and corporate partners to leverage global knowledge and Asian insights. The School is one of the 7 faculties and schools at NUS. A leading global university located in Asia, NUS is Singapore s flagship university, which offers a global approach to education and research, with a focus on Asian perspectives and expertise. Its transformative education includes a broadbased curriculum underscored by multidisciplinary courses and crossfaculty enrichment. Over, students from countries enrich the community with their diverse social and cultural perspectives. For more information, please visit bschool.nus.edu.sg, or go to the Think Business portal, which showcases the school s research. CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem 7

8 ABOUT SID The Singapore Institute of Directors (SID) is the national association of company directors. SID promotes the professional development of directors and corporate leaders. It works closely with the authorities and regulators, its network of members and professionals, such as accountants and lawyers, to identify ways to uphold and enhance the highest standards of corporate governance and ethical conduct. Formed in 8, membership of SID comprises mainly directors of Singapore publicly listed and other companies, lawyers, accountants, academics and other professionals involved in the field of corporate governance. The affairs of SID are managed by a Governing Council, comprising members elected from the general membership. The Governing Council is headed by a Chairman and supported by a Secretariat. Through its training programmes, SID aims to increase the pool of individuals who are suitable to serve as directors (executive as well as independent directors) in listed companies. Members have access to a range of resource material on corporate governance published by SID. In addition to individual membership, SID has also introduced corporate membership with a view to support and improve corporate governance practice in corporate Singapore, to become a onestop corporate governance resource base for the corporate community and to provide board director introduction service. For more information, please visit: 8 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

9 PREFACE The Governance and Transparency Index (GTI) is a tripartite collaboration between CPA Australia, the NUS Business School s Centre for Governance, Institutions and Organisations (CGIO), and the Singapore Institute of Directors. The Business Times serves as a strategic media partner. Since its inception in 2, the GTI has established itself as an independent and credible benchmark for Singapore s corporate governance. Having achieved its initial purpose, the GTI was enhanced to become the Singapore Governance and Transparency Index (SGTI) in 26. Apart from the Code of Corporate Governance, the SGTI has taken a holistic approach in its assessment by incorporating the G2/ OECD Principles of Corporate Governance, as well as capturing transformations in the local and global corporate governance landscapes. Corporate Governance Highlights 27 augments the SGTI findings jointly released at the Singapore Governance and Transparency Forum on August 27. This report highlights critical developments in Singapore companies corporate governance practices and illustrates these trends across time. A deeper interpretation and analysis of the data call attention to areas in which listed companies could improve in order to continue to thrive. It is hoped that the Corporate Governance Highlights will provide readers with meaningful insights into areas with room for improvement. As the Code of Corporate Governance is under review, the SGTI will continue to stay abreast of the evolving corporate governance landscape and update its assessment criteria accordingly, in order to encourage better corporate governance practices in Singapore. CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

10 Summary of Findings Corporate governance continues to gain prominence in today s business landscape, as it markets. The commendable progress recorded by the SGTI shows that companies are corporate governance standards., the companies in the General Category of the SGTI 27 have performed well on many of the specific indicators across the five assessment areas board responsibilities, shareholder rights, stakeholder engagement, accountability and audit, and disclosure and transparency. Singaporelisted companies reached an alltimehigh average score of. points, an increase of 2.6 points from 26. While the average SGTI score is at its highest to date, improvements are dispersed unevenly, leaving much room for improvement in certain areas. DISCLOSURE & TRANSPARENCY In general, this year s SGTI shows that disclosures on risk management, including internal controls, are strong. More than half of the companies disclosed key risks, as well as how these risks are assessed and managed (.%), with a higher portion of companies disclosing the process and framework used to assess the adequacy of risk management (.4%). Meanwhile, most companies provided assurance from their CEOs and CFOs regarding the effectiveness of their company s risk management (4.7%)..% companies disclosed key risks ACCOUNTABILITY & AUDIT Companies are accountable to their stakeholders, but the latter are frequently neglected; this year s index shows this continues to be the case. However, a small percentage of companies disclosed their zerotolerance/anticorruption programmes and procedures (8.7%) and described how creditors rights are safeguarded (.8%). In addition, when it comes to policies related to customers and employees, disclosure also remains poor. 8.7% companies disclosed zerotolerance/ anticorruption procedures.7% companies described how creditors rights are safeguarded CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

11 is increasingly seen as underpinning the integrity and efficiency of financial beginning to evolve to meet the latest developments of global and regional REITs and Business Trusts are assessed on corporate governance disclosures through both questionbased scores and trustspecific items in the SGTI. The SGTI 27 for the REIT and Business Trust Category reveals a robust average score of.4 points. HOSPITALITY AND RETAIL The Hospitality and Retail sectors had the highest average scores and aboveaverage levels of disclosure. TRUSTSPECIFIC ITEMS Among the trustspecific items, REITs and Business Trusts performed well in areas such as the competency of the REIT manager/trusteemanager by providing detailed profiles of their senior management with a minimum of three fulltime representatives with at least five years of relevant experience (7.8%). They also made significant disclosures regarding emoluments, such as the methodology and amount of acquisition and divestment fees (.%), as well as having a distribution policy in place (88.%). There are, however, a few areas requiring attention. The SGTI 27 observed a weak commitment to disclosing the rationale for the appointment of a trust/trustee manager (6.7%) and provisions for removal of a trust/trustee manager (.%). CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

12 INTRODUCTION Corporate governance continues to gain prominence in today s business landscape, as it is increasingly seen as underpinning the integrity and efficiency of financial markets and indicating a company s performance potential. Over the years, Singapore companies have made tremendous progress in their corporate governance practices. However, businesses have also witnessed dramatic changes to an increasingly global and complex operating environment. Shareholders and stakeholders are now more proactive, seeking greater transparency and accountability for the integrity of companies corporate governance. Keeping the standards of corporate governance high is critical to Singapore s desire to cement its reputation as a regional and global hub for businesses. In recognition of the growing importance of Real Estate Investment Trusts (REITs) and Business Trusts in the stock market, starting from this year, the SGTI now includes REITs and Business Trusts, allowing them to be assessed with the same level of rigour as other companies. In order to facilitate this, SGTI is now comprised of two separate categories, namely the General Category and the new REIT and Business Trust Category. These categories are distinct and not designed to be compared directly with each other. The inclusion of REITs and Business Trusts rounds out the scope of SGTI s coverage. This improvement allows the index to remain relevant and be aligned with changes in the corporate governance landscape. In addition, the assessment timing is opportune considering this year s formation of the Corporate Governance Council by the Monetary Authority of Singapore to review the Code of Corporate Governance, which was last revised in CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

13 METHODOLOGY SCOPE OF STUDY The SGTI 27 covers the 6 Singaporelisted companies in the General Category, as well as the REITs and Business Trusts that released their annual reports by May 27. The sources of information for SGTI assessment include annual reports, websites, announcements on SGXNet, and investor relations responsiveness. Announcements made on SGXNet, as well as media coverage that occurred between January 2 and May 27, have been used to update the scores. In the General Category, a total of 4 entities were excluded from the ranking. These 4 entities included newlylisted companies that do not have a full year s financial report (7), companies listed as secondary listings on SGX (6), companies that comply with other corporate governance codes (), funds (), companies suspended from trading (), and companies that have not released annual reports for the past two years (), as in Table. Listed on SGX Mainboard as of June 27 Number of Companies Less: Newlylisted (no full year s annual report available) Listed as a secondary listing Complied with other corporate governance codes Funds Suspended from trading No annual reports for past 2 years 7 6 Total sample size considered for this study 6 Table : Sample Size of General Category As for the REIT and Business Trust Category, four REITs and Business Trusts were excluded from the overall profiling and sample for being listed as a secondary listing in the SGX () or for being newlylisted, thereby lacking an annual report (). Table 2 offers a summary of the sample size of REITs and Business Trusts considered in this study. Listed on SGX Mainboard as of June 27 Number of REITS and Business Trusts Less: Listed as a secondary listing Newlylisted (no full year s annual report available) 7 6 Total sample size considered for this study 6 Table 2: Sample Size of REIT and Business Trust Category CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

14 THE SGTI FRAMEWORK Included companies are assessed across two broad levels: Base, with items corresponding to good corporate governance practices, as well as an adjustment for bonuses and penalties. The aggregate of bonuses and penalties is then incorporated into the Base in order to arrive at the company s final and overall SGTI score. This full process is referred to as the SGTI framework. Base ( points) Aggregate of Bonuses / Penalties ( points) (Max points) Figure : The SGTI Framework Included companies are assessed across two broad levels: Base, with items corresponding to good corporate governance practices, as well as an adjustment for bonuses and penalties. The aggregate of bonuses and penalties is then incorporated into the Base in order to arrive at the company s final and overall SGTI score. This full process is referred to as the SGTI framework. This framework relies on a broad range of assessment items, encompassing all of the requirements laid out by the Code of Corporate Governance, as well as new provisions and recommendations from the G2/OECD Principles of Corporate Governance. It is important to note that under the SGTI framework, the General Category and the REIT and Business Trust Category employ different scoring structures for the Base. This is because these categories are distinct. Therefore, they cannot be directly compared to each other. Both categories share a common set of assessment items in Base, which are categorised into Five Domains, as presented in Table. Board Responsibilities Rights of Shareholders Engagement of Stakeholders Accountability and Audit Disclosure and Transparency Table : Five Domains of the Base 4 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

15 The Board Responsibilities domain includes questions on board independence, board size, CEO Chairman separation, board competencies, board appraisal, and board and directors remuneration. The Rights of Shareholders domain includes questions related to the rights and treatment of shareholders. This domain is also reinforced with additional assessment criteria, covering issues such as the appointment of an independent party for vote validation, the recording of shareholder questions and answers from the Board, management in shareholders general meetings, and the conduct of interested person transactions. The Engagement of Stakeholders domain assesses companies accountability to a broader set of stakeholders beyond the shareholder. The Accountability and Audit domain considers the composition of the audit committee and the risk management and internal controls of the company. In the last domain, Disclosure and Transparency, companies are assessed on disclosures relating to interested person transactions, investor relations, and directorships held by directors. SCORING STRUCTURE FOR THE BASE SCORE OF THE GENERAL CATEGORY Companies can obtain a maximum base score of points under the Five Domains: Board Responsibilities ( points), Rights of Shareholders (2 points), Engagement of Stakeholders ( points), Accountability and Audit ( points), and Disclosure and Transparency (2 points). Five Domains Board Responsibilities Rights of Shareholders Engagement of Stakeholders Accountability and Audit Disclosure and Transparency Total 2 2 SCORING STRUCTURE FOR THE BASE SCORE OF THE REIT AND BUSINESS TRUST CATEGORY Table 4: Scoring Structure for the Base of the General Category For the REIT and Business Trust Category, the companies are evaluated on a similar set of criteria but with added coverage for the unique nature of their operations. The Base for REITs and Business Trusts includes: the Five Domains (7 points) and trustspecific items (2 points) that focus on structure, leverage, interested person transactions, competency of REIT manager/trusteemanager, and emoluments. Five Domains (7 points) Board Responsibilities Rights of Shareholders Engagement of Stakeholders Accountability and Audit Disclosure and Transparency Structure Leverage Trustspecific items (2 points) Interested Person Transactions Competency of Trust Manager Emoluments Table : Scoring Structure for the Base of the REIT and Business Trut Category CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

16 GENERAL CATEGORY KEY FINDINGS ANNUAL TRENDS 27 is the ninth year of GTI publication and the second of the enhanced SGTI instrument. The average score of. for companies in the General Category is the highest ever recorded GTI 2 GTI 2 GTI 2 GTI 22 GTI 2 GTI 24 GTI 2 SGTI 26 SGTI 27 Figure 2: Average, 227 This is a 2.6point improvement from the 26 average score of.7, accelerating improvement over the 2.point increase between 2 and 26, when the SGTI was first introduced. This closely matches the steady average increase of.6 points per year between 2 and 27, signifying that companies are making consistent improvements in their corporate governance disclosures and practices th Percentile th Percentile 2th Percentile Figure : Percentile Distribuition, 227 More significantly, companies that scored lower in previous years are improving at a faster rate than their betterscoring counterparts, as evidenced by the narrowing score differentials between the 2th and 7th percentiles. 6 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

17 PERFORMANCE BY SECTOR In terms of performance by sector*, it is evident that the Financials sector continues to have the best corporate governance practices. With a high average score of 67., Financials significantly outperforms other sectors. The Consumer Staples (.), Real Estate (.), and Telecommunication Services (.) sectors have the next highest average scores. Together, these top four sectors have also consistently improved more and outperformed all other sectors. The Information Technology sector has seen the greatest average score improvement. With an impressive average increase of 2.%, this sector has more than recovered from its 7.2% average decrease in the previous year. Despite this laudable achievement, however, the average score of the Information Technology sector remains on the lower end of the spectrum. As such, there is still room for improvement for companies in this sector to practise better corporate governance. Another noteworthy mention for a sector with the best improvement is the Industrials sector, with a.% average score increase. In contrast, the Materials sector continues to perform poorly, with an average score of., making it the lowest performing sector. Alarmingly, it is also the only sector that saw its average score decline this year. Companies in the Consumer Discretionary sector and the Utilities sector are therefore encouraged to put in more effort to achieve a higher governance standard. Despite the encouraging improvement across almost all sectors and the alltime high SGTI score of., this is less than half of the maximum achievable SGTI score of points. The constantly improving trend, however, is a sign that companies are evolving consistently in tandem with the ongoing review of the Code of Corporate Governance. *Companies are classified into sectors according to the Global Industry Classification Standard (GICS). The GICS is an industry taxonomy developed by MSCI and Standard & Poor s. It is a fourtiered, hierarchical system consisting of sectors, 24 industry groups, 68 industries, and subindustries. CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem 7

18 GTI 2 GTI 26 SGTI 27 Financials Consumer Staples.8.. Real Estate Telecommunication Services Industrials... Energy.2.. Health Care Utilities.6.. Consumer Discretionary..4.2 Information Technology.7.7. Materials AVERAGE SCORE Figure 4: Average by Sector, CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

19 BOARD RESPONSIBILITIES The SGTI 27 reveals that assessed companies have generally adopted more comprehensive disclosures of board responsibilities and stakeholder engagement, resulting in an overall improvement in the Board Responsibilities domain. % 8% 7% % % 4% % 2% % % Has board diversity policy Has orientation programmes for new directors Figure : Board Competencies Encourages directors to attend ongoing professional education programmes Assessed companies have also generally improved in terms of Board Competency. Specifically, more companies have established orientation programmes for new directors (77.%) and encouraged directors to attend continuing professional programmes (72.8%), showcasing a continuous effort to ensure that newly appointed directors are familiar with the company s business, and in order for directors to stay relevant to the development of the company they oversee, as well as to the market. Improvement is also seen in the number of companies that disclosed their board diversity policy, up from.4% to.%, demonstrating that more companies recognise the value that diversity brings to board decisionmaking. The majority of companies continue to have at least one independent director with relevant experience (8.%). CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

20 Companies also made greater disclosures on appraisal processes and criteria. More than twothirds of the analysed companies disclosed their board appraisal process (77.%) and criteria (6.8%). Also, more than half of the assessed companies disclosed their appraisal processes (.8%) and criteria (.2%) for individual directors. However, a number of companies did not make these disclosures, especially regarding the appraisal of individual directors. As directors bear heavy responsibilities, with some holding multiple directorships, it is recommended that companies institute formal processes to evaluate whether each director has fulfilled their duties. % Disclosure of Board Appraisal % Disclosure of Director Appraisal 8% 8% % % 4% 4% 2% 2% % % Process Criteria Process Criteria Figure : Disclosures of IPTs 2 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

21 RIGHTS OF SHAREHOLDERS In addition to the ability to participate effectively in general meetings and have timely access to companyrelated information, shareholder rights also encompass the right to fair treatment and dividends. To protect shareholder rights, companies are paying more attention to potential conflicts of interest and taking steps to handle any such conflicts appropriately. This is seen in the increasingly prevalent disclosure of a policy requiring directors to abstain from participating in board discussions in which there is conflict of interest, up from.% in 26 to.4% in 27. In addition, disclosures of interested party transactions (IPTs) are being conducted such that they are fair and at arm s length, rising from.% in 26 to. in 27. % % 8% 7% % % 4% % 2% % % Directors abstained from board discussions when conflicted IPTs are conducted at arms length Figure 7: Avoiding Conflicts of Interest However, companies still lack disclosures on dividend payments. Among companies that distributed dividends, about onequarter (24.4%) disclosed their policy on the payment of dividends, while 2.2% of the companies that did not pay dividends disclosed the reasons. In order to increase transparency and accountability to shareholders, companies could consider adopting and disclosing a dividend payment policy that safeguards shareholder rights to dividends. CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem 2

22 % % 4% % % 2% 2% % % % % Paid dividends and disclosed dividend policy Did not pay dividends but disclosed reasons Figure 8: Disclosures by Dividend Policy AGM results disclosure also improved. While descriptions of what was discussed during the AGM have been consistently disclosed, voting results have not. Yet the latter more than doubled from 6.% in 26 to an impressive 8.% in 27. % % 8% 7% % % 4% % 2% % % Disclosed detailed information on each item in the AGM Agenda Disclosed detailed information of AGM vote results Figure : AGM Disclosures 22 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

23 ENGAGEMENT OF STAKEHOLDERS The SGTI 27 marks the second time stakeholder engagement has been assessed. However, disclosures on stakeholder engagement remain weak, while scores in several areas have declined since last year. Specifically, fewer companies disclosed health, safety, and welfare policies for employees (24.6%), employee training and development programmes (.%), creditors rights (.8%), anticorruption practices (8.7%), and efforts to interact with communities (.2%). Employees health, safety and welfare 26.8% 24.6% Employees training and development 2.%.6% Customers health and safety 6.% 6.8% Creditor s rights.8% 2.2% Anticorruption 2.2% 8.7% Environmentally friendly value chain.%.2% Interaction with communities.2%.2% 2 4 Figure : Selected Issues of Engagement of Stakeholders CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem 2

24 Nevertheless, one aspect has seen improvement: disclosures relating to whistleblowing policies. Almost all assessed companies have a whistleblowing policy in place (7.%). Close to half of these companies disclose key details about the policy and allow anonymous reporting (.8%), a big improvement from the.% measured last year. The number of companies that allow anonymous reporting has steadily increased over the years, suggesting that more companies are working to create a transparent organisational culture. Hopefully, companies will also be more cognizant of and place more importance on the other aspects of stakeholder engagement in the future. % % 8% 7% % % 4% % 2% % % Has whistleblowing policy in place Key details of policy disclosed and anonymous reporting allowed Figure : Disclosures of Whistleblowing Policies Stakeholder engagement is an area that Singapore companies could work on in order to improve corporate governance practices in general and push the boundaries of better corporate governance in Singapore at large. 24 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

25 ACCOUNTABILITY AND AUDIT With the continued increase in unexpected threats to businesses, like disruptive technologies and cyber security issues, it is essential for companies to emphasize risk management and internal controls that mitigate the impact of such adverse events. SGTI 27 found that.% of the companies disclosed key risks and how these risks are assessed and managed..4% also disclosed the process and framework used to assess the adequacy of internal control systems and risk management. Disclosures in these areas have improved significantly over previous years. % % 8% 7% % % 4% % 2% % % Disclosure of key risks Disclosure of process and framework Figure 2: Disclosures of Risk Management The SGTI 27 also found that.7% of companies included a statement by the board or audit committee regarding the adequacy of internal controls and the risk management system in the annual report, while 4.7% provided assurance from the CEO and the CFO regarding the effectiveness of the company s risk management and internal control system. CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem 2

26 DISCLOSURE AND TRANSPARENCY With the continued increase in unexpected threats to businesses, like disruptive technologies and cyber security issues, it is essential for companies to emphasize risk management and internal controls that mitigate the impact of such adverse events. SGTI 27 found that.% of the companies disclosed key risks and how these risks are assessed and managed..4% also disclosed the process and framework used to assess the adequacy of internal control systems and risk management. Disclosures in these areas have improved significantly over previous years. % 4% % 2% % % Policy covering review and approval of material/significant IPTs Name, relationship, nature and value of IPTs Figure : Disclosures of IPTs Companies also made slight improvements in disclosing their communication with shareholders, but the level of disclosure remains generally low. Less than onequarter disclosed that they held analyst briefings (.2%), media briefings, or press conferences (.2%), and/or made their presentation slides available on SGXNet or the company website (2.4%). 26 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

27 % 4% % 2% % % Analyst s briefings Media briefings/press conferences Presentation slides available on SGXNet/website Figure 4: Disclosures of Communication Channels Companies should focus on increasing transparency in how they handle IPTs, as well as better communicating with shareholders, in order to build credibility and better manage market expectations. CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem 27

28 REIT AND BUSINESS TRUST CATEGORY KEY FINDINGS PERFORMANCE BY SECTORS Healthcare Hospitality Industrial Logistics Office Retail Others Total Sector Number of REITs and Business Trusts Table 6: Number of REITs and Business Trusts by Sector 7.4 Average 4 2 Healthcare () Hospitality (6) Industrial (8) Logistics (4) Office (7) Retail () Others (4) Figure : Average by Sectors The REITs and Business Trusts can be classified into 7 sectors: Healthcare, Hospitality, Industrial, Logistics, Office, Retail, and Other. The REITs or Business Trusts are classified into a sector if more than % of its assets (market value) or net lettable area belongs to a specific sector. A breakdown of the classification system can be found in Annex B. The average SGTI score across all sectors is.4 (Figure 7). This indicates a fairly healthy quality of disclosure across the seven sectors. Among these, the Hospitality and Retail sectors had the highest average score and an aboveaverage level of disclosure. 28 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

29 THE TRUST EFFECT Average by Domain Board Responsibilities ( points) Rights of Shareholders (Unitholders) (2 points) Engagement of Stakeholders ( points) Accountability and Audit ( points) Disclosure and Transparency ( points) General Category REIT and Business Trust Category Difference Difference (% of Max Points).7%.%.%.% 2.% Table 7: The Trust Effect As seen in table 7, REITs and Business Trusts performed better in the Engagement of Stakeholders and Disclosure and Transparency domains. The score differences as percentages of the maximum score between the REIT and Business Trust Category and the General Category are.% and 2.%, respectively. These differences reflect significant discrepancies in the level of disclosure in these areas across both categories and can be attributed to The Trust Effect in a stakeholdercentric approach. On the other hand, REITs and Business Trusts posted poorer performance (.%) in the Rights of Shareholders (Unitholders) domain. While they did fairly well in other areas, they could be further motivated to focus more attention on unitholder rights. CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem 2

30 STRUCTURE Unlike companies in the General Category, the trustee of a REIT or Business Trust maintains full legal ownership of the trust s assets, as opposed to being held by the unitholders. In the case of a REIT, the trustee holds the assets, while a separate trust manager manages the assets. In the case of a Business Trust, the trustee both holds and manages the assets, so the trustee is also referred as a trustee manger. Due to this special structure of the REIT and Business Trust, a conflict of interest might arise between the trust/trustee manager and the unitholders. As such, in order to ensure good corporate governance, transparency in the appointment and removal of trust/trustee manager is required. However, among the REITs and Business Trusts assessed this year, just 6.7% disclosed the rationale for the appointment of trust/ trustee manager, while only.% disclosed any provisions for the removal of the trust/trustee manager. This is alarming considering the serious nature of having an entrenched trust manager. A possible risk of nondisclosure is that the trust may make it difficult to remove the trust/trustee manager from their Trust Deed, which would be detrimental to the interests of unitholders and potential investors. % 4% % 2% % % Rationale for appointment of Trust/Trustee Manager Provisions for removal of Trust/Trustee Manager Figure 6: Structure of REITs and Business Trusts CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

31 LEVERAGE In July 2, the Monetary Authority of Singapore (MAS) announced that REITs would adopt a single gearing limit of %, as opposed to the previous twotier gearing limit of % for REITs with credit ratings and % for those without. On the other hand, Business Trusts do not have to comply with any gearing limit. In order to maintain a healthy financial position, Business Trusts are required to control their own gearing and disclose the ratio and policy (if any) so that investors can select the Business Trusts most suitable to their risk appetites. In this aspect, REITs and Business Trusts performed poorly this year, with only.% of companies having a gearing policy in place. Another important indicator for prudent risk management is the gearingtodebt maturity ratio, which is computed with the following formula: GDMR Gearing Ratio (%) Debt Maturity (year) where GDMR is the gearingtodebt maturity ratio The Code on Collective Investment Schemes states that the gearing ratio should be set below %. With an average weighted debt maturity of three years, the benchmark should target a % gearing ratio per year of weighted average debt maturity. For this indicator, REITs and Business Trusts posted much better results, with.8% having balanced gearingtodebt maturity ratios (GDMR less than or equal to % per year). % 8% % 4% 2% % Gearing policy Balanced gearingtodebt maturity ratio Figure 7: Leverage of REITs and Business Trusts CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

32 INTERESTED PERSON TRANSACTIONS The majority of trust managers of REITs are subsidiaries of sponsors. As such, it is even more important for REITs and Business Trusts to closely control Interested Person Transactions (IPTs) and take steps to handle them appropriately. IPTs valued above S$, and greater than or equal % net tangible assets (NTA) are classified as material IPTs. Among the REITs and Business Trusts assessed this year, 6.% have their audit committees review material IPTs and give unitholders rights in assessing these IPTs. Moreover,.% require the trustee to confirm that all IPTs are on normal commercial terms and not prejudicial to the interests of participants., REITs and Business Trusts have done well in managing IPTs and safeguarding the rights and welfare of unitholders. % 8% % 4% 2% % Significant IPTs reviewed IPTs are on normal commercial terms Figure 8: Interested Person Transactions of REITs and Business Trusts 2 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

33 COMPETENCIES OF TRUST/TRUSTEE MANAGERS The trust managers (for REITs) and trustee managers (for Business Trusts) are responsible for the overall strategic direction of their entities. Specifically, they oversee operations and make decisions regarding the acquisition and divestment of properties. It is therefore important to have competent trust/ trustee managers in order for REITs and Business Trusts to make progress. Results for the competencies of trust/trustee manager are mixed. While only.% of REITs and Business Trusts have a CEO and directors with at least ten years of relevant experience, including five years at a management level, 78.6% have a minimum of three fulltime representatives (including the CEO), who each have at least five years of experience relevant to REIT management. % 8% % 4% 2% % CEO and directors with years of relevant experience, including years at management level At least fulltime representatives with years of relevant experience Figure : Competencies of Trust/Trustee Managers of REITs and Business Trusts CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

34 EMOLUMENTS, REITs and Business Trusts have done exceptionally well in disclosing emoluments. Specifically, 2.% disclosed the base fees for the trust/trustee manager. Furthermore, 2.% disclosed the methodology and amount of acquisition fees, while.% disclosed the methodology and amount of divestment fees. By using a benchmark for performance fees, trust managers are incentivised to continue outperforming themselves and possibly other trust managers. This helps ensure that trust managers are doing their best, which is in the interest of unitholders. However, only 2.8% of REITs and Business Trusts disclosed the performance fee benchmark. 88.% of REITs and Business Trusts disclosed the base fees for the trust/trustee manager. Interestingly, even though Business Trusts are not bound by these regulations, five Business Trusts have a distribution policy and have committed to the minimum % distribution. Item Base fees disclosed Methodology and amount of acquisition fees disclosed Methodology and amount of divestment fees disclosed Benchmark given for performance fee Distribution policy in place Percentage of Trusts scored 2.% 2.%.% 2.8% 88.% Table 8: Emoluments of REITs and Business Trusts 4 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

35 CONCLUSION The SGTI 27 finds across the board improvement in meeting corporate governance standards where board responsibilities, rights of shareholders, accountability and audit, and disclosure and transparency are concerned. Notable improvements include increased disclosure of the threshold of material transactions, as well as the disclosure of key risks and how they are managed. More companies are also disclosing detailed AGM results. Given the growing importance of REITs and Business Trusts in the stock market, their inclusion in the SGTI is the next logical step following the enhancement of the SGTI over its predecessor, the GTI. Doing so rounds out the scope of coverage and elevates the corporate governance ecosystem as a whole, both in Singapore and beyond. It is hoped that the SGTI ranking for the REIT and Business Trust Category will motivate REITs and Business Trusts to continue improve transparency and disclosures in order to stay top of investors minds. Within the Five Domains, REITs and Business Trusts have a notable advantage over companies in the General Category ( The Trust Effect ), wherein the engagement of stakeholders, disclosures, and transparency are concerned. However, REITs and Business Trusts fall behind companies in the General Category in terms of rights of shareholders (unitholders). CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

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37 ANNEXES ANNEX A GENERAL CATEGORY FULL RANKING TABLE Rank 27 Company Name Base SGTI 27 Adjustments for Bonuses/ Penalties SGTI 27 SGTI 26 Rank 26 Singapore Telecommunications Capitaland DBS Group Holdings Singapore Exchange Keppel Corp 2 6 Sembcorp Industries Tuan Sing Holdings City Developments 8 2 Global Logistics Properties OverseasChinese Banking Corp SATS United Overseas Bank Great Eastern Holdings Singapore Press Holdings 84 8 Olam International Del Monte Pacific Vicom Starhub MicroMechanics Holdings Perennial Real Estate Holdings Keppel T&T Sing Investments & Finance Yoma Strategic Holdings Qian Hu Corp China Aviation Oil (S) Corp ComfortDelgro Group Wilmar International Banyan Tree Holdings Singapore Airlines CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

38 Rank 27 Company Name Base SGTI 27 Adjustments for Bonuses/ Penalties SGTI 27 SGTI 26 Rank Venture Group SIA Engineering Company M SBS Transit Wheelock Properties (S) Frasers Centrepoint Sembcorp Marine Indofood Agri Resources Dynamic Colours Global Investments 82 7 Singapore O&G Baker Technology Hong Leong Finance Ara Asset Management CNMC Goldmine Holdings Japan Foods Holdings Singapore Technologies Engineering UOL Group K Ventures Tee Land Auric Pacific Group Centurion Corp Rex International Holdings Soilbuild Construction Group Telechoice International United Engineers Hotel Royal Megachem MTQ Corp Riverstone Holdings Tiong Seng Holdings 74 6 Breadtalk Group First Resources 7 8 Fraser and Neave CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

39 Rank 27 Company Name Base SGTI 27 Adjustments for Bonuses/ Penalties SGTI 27 SGTI 26 Rank 26 IFast Corp SP Corp 7 8 Tee International Cosmosteel Holdings Asiaphos Rowsley Grand Banks Yachts Hong Leong Asia Vard Holdings Bumitama Agri Mencast Holdings OKP Holdings Overseas Education BBR Holdings (S) Delfi Pacc Offshore Services Holdings Thakral Corp Top Global UniAsia Holdings Avic International Maritime Holdings Hanwell Holdings Sino Grandness Food Industry Group Yeo Hiap Seng Ying Li International Real Estate Haw Par Corp Hock Lian Seng Holdings Huationg Global ISEC Healthcare Isetan (S) Jardine Cycle & Carriage Keong Hong Holdings Koda TA Corp Talkmed Group 4 66 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

40 Rank 27 Company Name Base SGTI 27 Adjustments for Bonuses/ Penalties SGTI 27 SGTI 26 Rank The Trendlines Group Union Steel Holdings 66 Best World International Bukit Sembawang Estates 2 27 China Sunshine Chemical Holdings 66 7 Courts Asia 8 Equation Summit ES Group (Holdings) Hwa Hong Corp 8 6 Manufacturing Integration Technology Mewah International Inc UMS Holdings 6 Vallianz Holdings 28 Abundance International AEM Holdings 88 ASL Marine Holdings 2 76 AviTech Electronics 27 JAPFA 28 Jumbo Group 4 OUE 7 6 Sapphire Corp 6 Singapore Medical Group 267 Starburst Holdings 6 The Hour Glass 226 TTH 6 Zico Holdings Inc AP Oil International China Flexible Packaging Holdings 6 24 CWG International Hyflux 2 24 Jason Marine Group Krisenergy LHN 2 24 Libra Group 7 4 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem

41 Rank 27 Company Name Base SGTI 27 Adjustments for Bonuses/ Penalties SGTI 27 SGTI 26 Rank Nauticawt 24 Neo Group PanUnited Group PEC Samudera Shipping Line Tat Seng Packaging Group 24 United Industrial Corp Axcelasia Inc. British and Malayan Trustees 4 Challenger Technologies 28 Figtree Holdings 6 74 Global Invacom Group 88 Heatec Jietong Holdings 226 Kencaya Agri 2 2 Kim Heng Offshore & Marine Holdings Shanghai Turbo Enterprises 2 Sheng Siong Group Singapore EDevelopment 6 6 Singapura Finance 6 74 Chew s Group 7 67 Chip Eng Seng Corp 2 Fu Yu Corp G.K. Goh Holdings 4 Geo Energy Resources 226 Interra Resources 28 Isoteam MS Holdings 4 Ramba Energy Resources Prima Group 2 4 Soo Kee Group Stamford Tyres Corp Vibropower Corp 77 Advanced Systems Automation Elektromotive Group 4 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem 4

42 Rank 27 Company Name Base SGTI 27 Adjustments for Bonuses/ Penalties SGTI 27 SGTI 26 Rank 26 HL Global Enterprises 6 Miyoshi Nordic Group PS Group Holdings Raffles Education Corp 226 Raffles United Holdings 6 74 UOBKay Hian Holdings 27 UPP Holdings 2 Valuemax Group 7 Vashion Group XMH Holdings 8 YangZiJiang Shipbuilding Holdings 4 78 CNERGY Super Holdings 78 CDW Holdings CH Offshore 78 Declout Ecowise Holdings 78 Eurosports Global Far East Group 6 78 Frencken Group 78 Hai Leck Holdings Ho Bee Land MSM International Regal International Group Super Group 78 Yamada Green Resources Asiatic Group (Holdings) Ban Leong Technologies 2 4 CaptII Emerging Towns & Cities Singapore 2 Global Palm Resources Holdings Golden Energy and Resources LHT Holdings 4 CORPORATE GOVERNANCE HIGHLIGHTS 27 Strengthening Singapore s Corporate Governance Ecosystem