Com­pa­nies need good stew­ard­ship in ad­di­tion to good cor­po­rate gov­er­nance

Editor Tim Charl­ton sat down with Stew­ard­ship Asia Cen­tre’s CEO Mr Ong Boon Hwee to un­der­stand what it means to go be­yond lead­er­ship for a firm’s sus­tain­abil­ity.

Singapore Business Review - - INTERVIEW -

mar­kets to in­vest in rather than in­di­vid­ual com­pa­nies, a trend that has gained mo­men­tum post-cri­sis. In the case of a pas­sively man­aged fund, the port­fo­lio man­ager may not have as much keen in­ter­est in the run­ning of any one com­pany es­pe­cially if the man­date is to sim­ply match the index.

Low-cost funds even do away with ac­tive fund man­agers, and in­stead rely on al­go­rithms to bal­ance the port­fo­lio. But when the com­put­ers are do­ing the in­vest­ing, the ques­tion be­comes who is en­gag­ing with the board on be­half of share­hold­ers to en­sure the com­pany is be­ing run, or “stew­arded”, with the longterm in­ter­ests of share­hold­ers in mind. It is this lack of con­nec­tion be­tween share­hold­ers and man­age­ment, which gets ex­tended even fur­ther when many fund man­agers out­source man­age­ment de­ci­sions to proxy com­pa­nies, that is a key con­cern for Mr Ong. “Some funds don’t even deal with the com­pa­nies, they just give de­ci­sions to the proxy com­pa­nies, so you get a frag­men­ta­tion of own­er­ship and many lay­ers be­tween the share­hold­ers and the board,” Mr Ong said. “Per­haps in­sti­tu­tional in­vestors would want a 10% share­holder to take a stake with a board seat but not con­trol so that they can bet­ter af­fect stew­ard­ship over the com­pany,” he added.

We need to look at the val­ues that drive com­pa­nies and how to en­sure that the share­hold­ers have the cor­rect un­der­stand­ing of the long term view.

Ar­tic­u­lat­ing prin­ci­ples of stew­ard­ship

The in­dus­try-led Sin­ga­pore Stew­ard­ship Prin­ci­ples (SSP) for Re­spon­si­ble In­vestors ini­tia­tive was in­tro­duced in Novem­ber 2016, sup­ported by the MAS and the SGX, with the aim of ar­tic­u­lat­ing prin­ci­ples of stew­ard­ship which can sup­ple­ment more tra­di­tional con­cepts around cor­po­rate gov­er­nance. One thing Stew­ard­ship Asia Cen­tre would like to see more of is the con­cept of giv­ing a board a man­date from share­hold­ers rather than re­ly­ing on them to pick the best strate­gies on their own. The man­date con­cept would es­tab­lish what the board’s am­bi­tions and risk ap­petites are, and what its pur­pose is, so that they can bet­ter rep­re­sent the in­ter­ests of the share­hold­ers.

There is still much work and re­search to be done in what de­fines good cor­po­rate stew­ard­ship, as op­posed to good cor­po­rate gov­er­nance, but it is an area that the Stew­ard­ship Asia Cen­tre is con­tin­u­ing to work on to en­sure that busi­nesses are run­ning for the longterm ben­e­fit of the share­hold­ers. Ul­ti­mately good stew­ard­ship comes down to val­ues. “We need to look at the val­ues that drive com­pa­nies and how to en­sure that the share­hold­ers have the cor­rect un­der­stand­ing of the long-term view to ben­e­fit and sus­tain not just the cur­rent gen­er­a­tion but also future ones.”

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