The Art of Good Governance

(Source: SCCCI)

How should board directors carry out their duties as arbiters of public trust? What should companies do to boost performance while ensuring that sufficient safeguards are in place? In an age of increasing dissatisfaction over how companies and charities are governed, how does one balance the need for innovation with control?

To find out the answers to these questions (and more), I signed up for a talk organised by the Singapore Chinese Chamber of Commerce and Industry yesterday by Mr JY Pillay, Chairman of the Singapore Exchange, who spoke about corporate governance and its implications for both public-listed firms and Small Medium Enterprises (SMEs). Mr Pillay is one of the movers and shakers in Singapore, and has helmed various leading organisations as the former chairman of Singapore Airlines, Temasek Holdings and DBS Bank, amongst others.

The first and most deeply felt point was that robust governance is a pre-requisite for a healthy enterprise. By ensuring that the right procedures and processes are in place, good governance helps to strengthen the labour productivity of an organisation. I suppose what it does is to help snip wayward business practices in the bud, especially those which may lead to substantial costs in reputation if left unchecked.

Leadership is also key in the strong governance of any organisation. It is easier for good practices at the top to percolate all the way to the bottom, than for positive habits to move upstream. Board members must be seen to be independent, without having an "outside hand" influencing their viewpoints. While board directors and executives help to set the tone, however, it is still crucial for vigilance to be applied at every level.

On the issue of the preferred code of ethics to be adopted by individual organisations, board directors, particularly those of public-listed firms, have a heavy responsibility to shoulder. They are vested with the public's trust in these organisations and have to ensure that conflicts of interest are resolved wherever possible. They should also keep abreast of the latest developments in this arena. In Mr Pillay's own words, "stasis is not an option".

Contrary to popular belief, governance guidelines should be instrumented from the very beginning of an enterprise. While SMEs have an advantage in being nimble and flexible relative to large listed companies, they still need to practice the principles of governance. While the Monetary Authority of Singapore (MAS), Accounting and Corporate Regulatory Authority (ACRA), and Singapore Institute of Directors imposes strict rules and codes of ethics for listed firms, such principles can still be adopted by smaller start-ups.

To build a positive reputation for their brands, SMEs should examine best practices in governance while evolving their own systems and parameters. It is advised that they should not formulate codes of ethics too early in the game. Rather, what really counts is to ensure that the values, principles and laws which are already in place are codified in the guidelines.

In a sense, corporate governance can be considered more of an "art" rather than a "science", since it must be aligned very closely to the cultural norms prevalent in the governing board and the organisations. It should evolve in a measured way in any organisation and be improved and refined through trial and error.

Labels: , , ,