Singapore Corporate Governance

Table of Contents
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Chapter One  PAGEREF _Toc295839968 \h
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1.0 Introduction and background  PAGEREF _Toc295839969 \h
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1.1 Problem Statement  PAGEREF _Toc295839970 \h
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1.2 Objectives  PAGEREF _Toc295839971 \h
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1.3 Data and methodology  PAGEREF _Toc295839972 \h
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Chapter Two  PAGEREF _Toc295839973 \h
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2.0 Background of Temasek Holdings  PAGEREF _Toc295839974 \h
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2.1 Temasek holdings and the publishing of good CG standards on their website  PAGEREF _Toc295839975 \h
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Chapter Three  PAGEREF _Toc295839976 \h
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3.0 Qualitative Analysis  PAGEREF _Toc295839977 \h
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3.1 Board Matters  PAGEREF _Toc295839978 \h
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3.1.2 Board of directors  PAGEREF _Toc295839979 \h
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3.1.3 The importance of separating the role of the Chairman and the CEO  PAGEREF _Toc295839980 \h
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3.1.4 Executive Vs Non Executive directors  PAGEREF _Toc295839981 \h
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3.1.5 Recommendations – Directors to have fewer Directorships  PAGEREF _Toc295839982 \h
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3.2 Remuneration matters  PAGEREF _Toc295839983 \h
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3.2.1 Employee Stock option  PAGEREF _Toc295839984 \h
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3.2.2 Recommendations  PAGEREF _Toc295839985 \h
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3.3 Accountability and Auditing  PAGEREF _Toc295839986 \h
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3.3.1Recommendations  PAGEREF _Toc295839987 \h
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3.4 Communication with Shareholders  PAGEREF _Toc295839988 \h
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3.4.1Recommendations  PAGEREF _Toc295839989 \h
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Chapter Four  PAGEREF _Toc295839990 \h
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4.0 Quantitative Analysis  PAGEREF _Toc295839991 \h
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4.1 Corporate governance and company performance  PAGEREF _Toc295839992 \h
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4.2. Other Financial Metrics  PAGEREF _Toc295839993 \h
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5.0 Conclusion  PAGEREF _Toc295839994 \h
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References  PAGEREF _Toc295839995 \h
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Appendix 1  PAGEREF _Toc295839996 \h
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Chapter One
1.0 Introduction and background
This paper involves an investigation on whether Government linked corporations (GLCs)’ or non GLCs’ corporate governance practices are of a higher standard and how these practices have impacted business practices and stakeholders.
In Singapore, corporate regulatory framework is reviewed by the Corporate Governance Committee (CGC) which was set up by Monetary Authority of Singapore (MAS), Ministry of Finance (MOF) and Attorney-General’s Chambers (AGC). The Corporate Governance (CG) report was formerly published in 2001 and revised in 2005, its purpose is to encourage Singapore listed companies to appreciate shareholder value through good CG establishment in its companies. Nevertheless, apart from the regulatory authorities, such as the SGX (Securities and Exchange Board of Singapore) and ACRA (Accounting & Corporate Regulatory Authority), a system of checks and balances is important in every listed company and may exist in the form of Board of Directors, including external and/or internal auditors. The independent directors are required to perform their duties effectively and diligently to ensure that the shareholders’ wealth is maximized.
Government linked corporations (GLCs) under Temasek Holdings have an important role in Singapore’s economic development, dominating key areas such as manufacturing, telecom, shipbuilding, trading, transportation, financing and servicing. The original intention of government involvement was to accelerate Singapore’s economic development in the early 1960s. They run on a competitive, commercial basis, which is said to be without any government privileges. This has raised a debate on whether they would perform better or worse than the private sector, in terms of the corporate governance implemented that ensures the effectiveness of management of the businesses.
1.1 Problem Statement
The main aim of the research is to gauge the performance of GLCs against non GLCs. This is based on the premise that GLCs perform better due to government support. This is mainly attributed to the fact that the government has closed off large economy areas from non GLCs and has also choked entrepreneurship as stated by Ramirez & Tan (2003).Furthermore, Ramirez & Tan (2003), state that preferential financing channeled towards GLCs would mean that they would be less liquidity constrained than non GLCs. This would also explain why they have been found to perform better than non GLCs.
1.2 Objectives
The main objectives of the study are:
To evaluate GLCs and Non GLCs in order to determine which category has higher corporate governance standards as seen in the corporate governance reports and in which aspects.
The thesis will also determine whether GLCs outperform non GLCs in Singapore and the factors that aid the performance of Singapore GLCs over their non GLCs.
The thesis will determine whether government ownership makes a difference to the company’s market value using financial metrics such as Tobins q.
The thesis will include recommendations on what the various companies should do in order to improve their performance in corporate governance.
This above objectives are based on the premise that GLCs tend to perform better than non GLCs because their relationship with the government which allows them to have some advantages over non GLCs. This is in such issues as easy access to funds, tenders and opportunities (Ramirez & Tan, IMF Working Paper, 2003).This is further shown in terms of the higher valuations that GLCs show compared to non GLCs which are usually caused by the ability of the GLCs to earn more revenue in investments. GLCs are also known to run more efficiently on lower expense operations than non GLCs.
1.3 Data and methodology
A case study will be carried out involving six selected companies, three of which are GLCs and the rest non GLCs. The research will analyze if GLCs or Non-GLCs adopt a higher standard of corporate governance framework. The main aim of the report is to evaluate the existence and effectiveness of GLCs and non GLCs corporate governance framework/mechanisms from the examination of published information. This will be done through both a quantitative and qualitative approach. All the six samples are selected based on market capitalization as bigger organizations require more robust corporate governance practices. The similarities of all the six organizations chosen are that they adhere closely to the Code of Corporate Governance 2005.They are also known to adhere to various corporate governance standards. The three GLCs selected are SingTel, SIA and Keppel Corporation Limited, whereas the other three non-GLCs are Willmar, Qian Hu and F&N Limited.
The research will also obtain other sources of data which will serve as sources of information towards the research. They include abstracts from literature, published financial information from companies and SGX database, EBSCO Host, Secondary research library and reference books. The data will also assist in carrying out qualitative analysis through the use of charts and graphs that will help to determine whether the premise that GLCs perform better than non GLCs is true or false.
Content analysis will also be carried out on the data collected from the companies websites based on financial reports and the company’s corporate governance standards. This will help in the deduction of whether GLCs have higher corporate governance standards than the non GLCs.
A company considered as a GLC is one that has a government stake of more than 20% in shares. According to the Singapore department of Statistics,GLCs are defined as the companies in which Temasek holdings has ownership of 20% or more from their share holding list as published on their websites.

Chapter Two
2.1 Introduction
This section will highlight the history of Temasek holdings in order to provide the researcher with an overview of the criteria used to determine whether an article is a GLC or a non GLC in Singapore.
2.2Background of Temasek Holdings
The formation of Government Linked companies by The Government of Singapore is said to have been a proactive approach towards establishing state enterprises. Hence, the government focused on key sectors namely trading, manufacturing, transportation, finance, shipbuilding and the services industry. To date, this form of state capitalism has been credited with revolutionalizing the stature of various GLC companies to the extent that they are well known corporate names regionally and even globally as is the case of Singapore Airlines.
In the year 1974, the Government of Singapore through the ministry of finance set up a limited holding company known as Temasek Holdings. The purpose of the company was to manage its savings in Government Linked Companies also referred to as GLCs. During this period 36 companies were transferred to be under the control of Temasek holdings. Since then the country has realized economic growth that has seen many companies growing into economically viable businesses.
GLCs are created under many ministries and are also accountable to them through parliament. Furthermore they are integrated under the Companies Act and do not come under the direct purview of parliament. They are also permitted to form their own subsidiaries and associated companies. During the same period in which Temasek holdings was formed two other holding companies were also set up at the same time. They included MND holdings which were owned by the ministry of national development and Sheng-Li holdings.MND holdings was later on taken over by the ministry of finance and most of its Government linked properties were transferred to Temasek. Sheng-Li holdings on the other hand became known as Singapore Technologies and is now responsible for defense related GLCs.
2.3 GLCs Resemblance to Private Enterprises
Ramirez & Tan (2003), state that Singaporean GLCs have a close resemblance to private enterprises. The government runs on the notion that competition is the key to efficiency other than ownership. This has come to be termed as the managerial view in the question of public versus private ownership. Hence, GLCs in Singapore are said to be run on a commercial basis. They are mainly focused on the bottom line performance of the organization. In Singapore, most of the GLCs have also been privatized partially. The GLCs are also listed on the local stock exchange. Unlike private firms, they have not been used for the purpose of employment generation. In terms of competition, GLCs are known to compete with each other, private companies and even multinational companies.
2.4 Temasek holdings and the publishing of good CG standards on their website
Temasek holdings are known to list its portfolio on its website. However, not all of its numerous subsidiaries and other related companies have been highlighted. Under the holdings standards companies are considered to be GLCs if the Government has shares that are equivalent to or more than 20 per cent (Ramirez et al, 2003). In Singapore GLCs are known to have a major presence in three main areas .These are manufacturing, transport, storage and communications also referred to as TSC and lastly Multi industry.

Chapter Three
3.1 Introduction
The section will highlight the various corporate governance standards that are adhered to by GLCs and non GLCs in Singapore. A comparison will be made between the two groups in order to determine which of the two has higher corporate governance standards and in which areas.
3.2 Qualitative Analysis
In Singapore, key areas in the code of the corporate governance framework are set out by the corporate Governance committee (CGC).Through content analysis of various literary works and articles the research will look at the role played by the samples in each of the areas cited in the corporate governance framework. The areas are as follows; the Board matters, Remuneration, Accountability and Audit and Communication with shareholders.
3.3 Board Matters
Board matters include the issues that affect an organisation. They include detailed discussions and decisions made regarding the organisation (Crowther & Aras, 2008).The issues include such matters as the company’s financial situation, remuneration matters, nomination and other issues concerning the organisation.
There has also been a rising concern toward the issue of directors holding too many directorships to the extent that they fail to perform their duties well in some cases.


3.3.1 Board of directors
The main actors in corporate governance according to Prasad (2006) are the management, board of directors and the shareholders. The board of directors becomes successful in their role due to many factors that influence the overall success of the board. In Singapore, a lot of scrutiny has been directed towards the fact that various board members tend to be involved in many board duties in different companies which may impair their functioning and focus in certain areas of management. To this respect, certain companies have come up with measures that restrict the number of boards that a board member may be part of in order to acknowledge them as part of their board group (Prasad, 2006). The following information regarding the number of board groups that an individual may be apart of was found out from the six case study companies in the article.
At Keppel proposed members in its board should not be part of more than six principle boards. At SIA all new appointments and re-elections of board members require the approval of a special member, usually the minister of finance who is incorporated into the board. The directors also have appointments in other companies which are more than six unlike Keppel that stipulates a minimum.SIA does not have such a clause. SingTel also lacks a clause that stipulates the number of boards that a board of directors should participate. F&N lacks a similar clause thus its board members are not restricted on the number of boards they can sit on however they also have a board executive committee whose function is to oversee the business affairs of F&N. The group also reviews proposals and projects before submissions to the board for approval. Qian Hu also lacks a clause that limits the number of board members that the directors should be apart of but clearly stipulates their roles and duties.
From the above information, it is imperative to note the importance of limiting the number of principal boards chaired by the board members in order to ensure that the directors show full participation in the company affairs and also improve their focus on the company. Furthermore, apart from Keppel, the remaining GLCs and Non GLCs do not limit the number of boards that a director may chair.
3.3.2 The importance of separating the role of the Chairman and the CEO
The chairman is known to be the leader of the board. The CEO and the Chairman have different roles to play in an organization. The role played by the Chairman includes systemizing the components of the business and the performance of the board. The chairman also ought to lead the board in the determination of its strategy and the fulfilment of its objectives. Furthermore, the Chairman is required to make sure that the board has accurate and clear visibility of current results and future processes. The chairman also ensures that board committees are co-ordinated well and that the company has healthy relationships with its shareholders.
Other roles of the CEO include making sure that the company has a proper relationship with the public and that there is a good working relationship amongst all the board members. The CEO is required to be impartial with his dealings with the board members and not deal with them on a one on one basis but as a group. Furthermore, the CEO is also required to come up with a strategic plan for the company that would see it grow in future. According to Steger (2004) if the CEO and the Chairman work well together then the company could realise the increase in good value creation which would be positive for the company.
3.3.3 Executive Vs Non Executive directors
Non executive directors are also referred to as outside directors. Non executive members are known to provide an important external perspective to a business and ensure that executive members are supported in their role. In most company models the non executive members are usually the majority in the board seats than the executives. This trend is usually found in both US and UK board models. Furthermore, the US model is known to have two executive directors on the board who usually include the President or CEO and the Chief Financial Officer.
From the above information it can be deduced that Both the GLCs and Non GLCS chosen for the case study have board of directors. The companies also have annual general meetings and have proof of transparency. This can be seen through thro ugh the annual general meetings that are held between the shareholders and the board. In the meetings the companies provide full details of the financial year to their investors and shareholders.
With regard to the separation of the roles between the CEO and the Chairman, F&N has an independent chairman and CEO while Willmar and Qian Hu have the same person taking up both roles. SingTel, SIA and Keppel have also divided the roles between the CEO and the Chairman. A company that has separated the two roles shows that the company has clearly defined the roles between the CEO and the Chairman. With regard to non executive members being present on the board, all of the six case study companies have non executive members.
3.3.4 Recommendations – Directors to have fewer Directorships
Non GLCs such as Willmar and Qian Hu should consider separating Chairman and CEO positions in order to clearly delegate company priorities and to be able to reduce the workload on one individual. The CEO would be able to work in agreement with the CEO and the board members and be able to generate good working policies and strategic plans to generate more revenue.
3.4 Remuneration matters
The importance of a comprehensive remuneration package is important for a company since it helps motivate employees and to generate loyalty (DeMint, 2001). As individuals gain more experience in a firm it becomes important to differentiate their base pay from that of new graduates or interns (DeMint, 2001). Most companies are known to pay individuals based on their performance. Furthermore, most firms usually have incentive plans to reward employees who successfully meet their goals.
Many listed firms in Singapore are expected to meet their corporate governance standards by providing transparency in executive compensation. This is done through a detailed explanation of how bonuses and salaries are to be disbursed.
SingTel a GLC has gone a step further with regards to transparency. The company has provided an audit charter on its site. The company has also offered its shareholders protection against the dilution of their shares by cutting the share issues from 10% to 5% and has introduced a share limit of 1% of the total issued shares.
3.4.1 Employee Stock option
Generally all the six companies have both long term and short term remuneration packages. This is in form of long term incentives in the form of share options which are usually designed to validate the pay for performance framework. They are also aimed at rewarding and recognizing the key executive contributions to the growth of the company. The companies also have fixed components of payments which include the provision of bonuses which are linked to the individuals as well as the company’s performance.
Furthermore, GLCs tend to be more transparent in this area than the non GLCs. For instance SingTel discloses the exact amount of its director’s remuneration in its audit charter and on its website. Expected fees for non executive directors of the company as of 31 March 2007 stipulate that they should have a basic retainer fee, additional fees for appointment to board committees, attendance fees for unplanned Board meetings and also a travel allowance. Directors are also urged to acquire SingTel shares from the open market yearly. This is in their quest to fully implement corporate governance in the company. The shares should also make up 50% of their fees and be equal to one year’s fees in their shares while they remain on the board. Directors previously entitled to the share option schemes are also encouraged to hold any acquired shares beyond the vesting period. A vesting period is the time within which an employee has rights to owning company shares before the stocks can be transferred to the open market.
The directors are also paid in arrears since the compensation committee reviews remuneration through a process that considers group, company, business unit and individual performance.
At F&N, the remuneration and staff committee is made up of non executive independent directors. The committee annually reviews the level and mix of remuneration and benefits policies and practices of the company including long term incentive schemes. In the process, the committee includes the performance of the company and that of individual employees. The committee also approves salary reviews, performance bonus and incentives for senior management.
The company has two basic incentive plans which are the long term and short term incentive plans. Long term incentives are put in place to motivate and reward employees and align their interests to increase long term shareholder value.
At Keppel the remuneration committee consists of non independent directors of who five out of six are independent. This includes the chairman. The remuneration committee administers the Keppel Corporation Limited share option scheme; the Keppel Corporation Limited restricted share plan and the Keppel Corporation Limited performance share plan. The Remuneration Committee is also allowed to seek expert advice outside the company if required with regards to remuneration. At Keppel executive directors are not paid director’s fees and non executives are paid a basic fee plus an attendance fee where applicable.
Director’s fees are also subject to the shareholders approval at the annual general meetings. The company is also able to pay its non executive directors in the form of Keppel shares through their purchase from the market. This was made possible through the amendment of Article 82 of the Companies article of Association. However, the KCL option scheme was terminated on 30 June 2010 but the options granted prior to the understanding will continue being valid and subject to terms and conditions of the KCL share option Scheme.
At Willmar the remuneration committee is made up of four members, three of whom are independent including the chairman and one is non independent. The non executive directors are not paid and in 2010, the company offered a total of 25,705,000 shares to directors and key executives in the group. As of 31 December 2010 no employee of the group who was an immediate family member was awarded more than S$150,000.This was aimed at aligning the interests of executives, directors and senior management with the interests of shareholders in order to improve performance and attain company growth.
3.4.2 Recommendations
The companies should grant the option of acquiring company stocks to their employees regardless of the number of years they have worked in the company. The companies should also be emulate SingTel and strengthen its security in the trading policies for directors in 2010.
3.5 Accountability and Auditing
Accounting is referred to as the technique of recording, classifying and summarising in a significant money transactions and events which are in financial characters and interpreting the results. Rajasekaran (2004:10) defines accounting information as being advantageous to the company and management at large because of the following factors. Accounting information helps in the preparation of the budget and in planning future business plans and ventures. Furthermore, accounting helps in co-ordinating different departments and controlling managerial activities. Accounting information also serves as legal evidence which is binding to all parties in a court of law (Rajasekaran, 2004:10). They also form records that can be used for taxation purposes and also enables the top management of a company to be able to carry out extensive comparison over the development of the company over a period of time also referred to as intra-comparison.
The audit committee is usually an advisory body that is appointed by a council and given the mandate to carry out the various duties assigned to members of the audit committee as set out in an audit committee charter that has been approved by a council. The duties of the audit committee include financial reporting in which the audit committee is required to offer timely, objective and complete disclosures on the company’s financial development.
Audit committees also offer information on the company’s financial position and the results of operations, plans and long term commitments. They also help companies to be able to formulate effective control systems that will help in preventing fraud and other financial malpractices (Rajasekaran, 2004:10). Audit committees also carry out corporate control which usually requires controlling key financial and operating risk areas and systems of internal control. Internal controls enable information to become more reliable and also safeguards assets. Furthermore, it helps in improving performance management and bringing about economic and effective use of resources.
Looking at SingTel its audit committee meets at least four times a year and is convened upon the request of an external auditor (Rajasekaran, 2004:10). The proceedings of the meetings are also required to be recorded in minutes and to be produced upon request by any board member. Quarterly and annual reports are also to be reviewed by the audit committee in order to ensure integrity of financial statements.
At Willmar the audit committee also meets at least four times a year and the auditing committee can invite other directors or executives at its meetings at their discretion. The audit committee also meets to evaluate whether a previous external auditor should be reappointed in a company. At Qian Hu the members of the audit committee are only three and are required to have a financial background preferably in accounting. Financial reports are presented on a quarterly basis to their shareholders and board members get monthly financial reports (Qianhu.Com, 2011).
At Keppel the audit committee is made up of five independent directors. They are given the mandate of controlling the company’s affairs in a transparent manner. This is achieved through the dissemination of financial reports and other price sensitive information through SGXnet, SGX press releases, the company’s website and public webcast and media analyst briefings. At Keppel the committee may also investigate any matter within its terms of reference. The committee has also reviewed the whistle blower protection policy at the company which provides a means for employees and other persons to raise concerns about financial or other matters that may affect the company.
At F&N, the audit committee is made up of four members. The committee approves the fist and third quarter announcements on behalf of the board and also recommends the half year and annual financial results to the board for approval as related to SGX announcements.
3.5.1Recommendations
SingTel provides its board members with financial reports quarterly that include data on the company’s performance together with the performance of other telecommunication companies. This allows them to have knowledge of their competitor’s performance. Therefore, other companies should also adopt this strategy.
In the area of auditing and accountability the GLCs show significant improvement through their ability to constantly conduct audits and to keep their investors and shareholders abreast with the current financial situation of their companies. SingTel has been able to receive the corporate governance award c...