The Importance Of Corporate Governance In Singapore

Introduction.

Corporate Governance in the U.S is often seen as the epitome of shareholder value orientedness. In country rankings published by Governance Metrics International (GMI), the U.S is ranked 4th with a score of 7.16, while Singapore is ranked 17th with a score of 4.82 (GMI Ratings 2010). With reference to how countries are being evaluated in this index, these rankings signify that the U.S performs better than Singapore in terms of Board Accountability, Financial Disclosure, Internal Controls, Protection of Shareholder rights, Remuneration, Market for Mergers and Acquisitions and Corporate Behavior. Since Corporate Governance mechanisms are meant to reduce agency costs, one would expect that good Corporate Governance leads to less

Shareholders, as principals, have invested interest in the performance of the firm within their portfolio because returns on investment will directly affect their wealth. However, managers, as agents appointed to run the company in the best interest of shareholders, may not always do not so due to other personal or organisational goals they seek to achieve. The resultant residual between the agent’s decisions and those that maximise shareholders’ value, together with costs incurred by the principal to monitor and bond the agent (remuneration), are considered agency costs (Jensen and Meckling 1976). Corporate Governance clarifies the formal structure (in form and on paper) of ownership and control within the company to reduce agency costs in meeting Shareholder’s “investment-backed expectations” so that Shareholders are willing to pledge their capital and economies can grow with access to credit (Macey 2010). Good Corporate Governance is also most likely to be valued by longer-term investors, such as Life insurance and Pension funds, as it ensures long term value creation, performance and sustainability of

Firstly, the Company law regulates the internal structure of companies by stipulating directors’ duties and liabilities and shareholders’ rights (Puchniak and Tan 2012). The Securities Law criminalises false disclosures and statements, insider trading and market rigging practices. Secondly, statutory boards such as the Accounting and Corporate Regulatory Authority (ACRA) ensures that accounting and auditing standards are met by business entities in Singapore (ACRA 2014). Thirdly, listing requirements in the Singapore Exchange (SGX) details on board committee composition, related party transactions, share issues and disclosure (SGX 2014). Lastly, the Government also regulates corporate behavior through its shareholding of GLCs and other assets held by Temasek Holdings. Through its shareholding of a large proportion of Singapore listed companies, Temasek Holdings provide the Government with an extra vehicle of control by its share of voice at shareholders’ meetings, to be able to advocate for stronger Corporate Governance within portfolio companies (Temasek Holdings