Firms that fancy foreign listings might want to rethink following measures like SGX’s ‘naming and shaming’

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The trendy topic among many regional companies at the moment is whether or not they should list abroad, especially in Singapore. The general feeling among majority shareholders is that their companies could be valued more highly if they ventured farther afield.

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But with big money comes even bigger responsibilities. Last month (April 13), the Stock Exchange of Singapore (SGX) cracked down on those breaching its listing rules; it published a “name and shame” notice of errant directors on its website.

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The notice included the following:

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● The name of the company involved;

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● The name of the director(s) involved;

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● The individual director’s role and tenure to date in the company;

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● The listing rule(s) which the said director(s) breached; and

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● SGX’s detailed findings against the director(s) concerned.

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Since 2004, there have been only 10 errant directors caught out by SGX. But what is really striking is that most of these directors held two top posts each – executive chairman and chief executive officer (CEO), executive director and CEO, or executive director and chief financial officer.

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It is again in contrast to Singapore’s code of corporate governance, which says a company’s chairman (in principle) should not also be its CEO. And rightly so, because keeping them apart makes it more likely that the company’s board will have stronger control over what it does.

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The SGX’s rule goes on to say: “SGX-listed companies should consult the exchange before they appoint any of these persons as a director or member of their management”.

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Our combing through this “name and shame” list also showed that most of these directors had breached listing rules 103(5) and 703(1).

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The first rule, 103(5), states plainly that the directors of a company that is issuing shares must act in the interests of all its shareholders, particularly where one of the directors or substantial shareholders has a material interest in any transaction entered into by the issuing company.

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Listing Rule 703(1) says such a company must declare any information that it knows about any of its subsidiaries or associated companies which would otherwise establish a false market for the company’s securities or be likely to affect materially the value of these securities.

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A deeper reading of SGX’s detailed findings on the errant directors’ violations seems to show that their most common breaches are:

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● failing to act in the interest of all his or her company’s shareholders;

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● failing to submit accurate information to SGX;

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● failing to disclose material information in good time; and

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● failing to obtain, let alone disclose, shareholders’ approval of a transaction between the director’s company and one of its directors or major shareholders.

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Quite often, the errant directors also broke Listing Rule 114, which regulates the accuracy of submitted information. The rule also stipulates that the issuing manager must “exercise due care and diligence” in ensuring the accuracy and completeness of such information as well as inform the exchange of all matters which should be brought to the bourse’s attention.

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If they have not done so, they would have to answer to the exchange’s special auditors.

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Most of those named and shamed by SGX are mainland Chinese – seven of 10, to be precise – with the rest being two Malaysians and a Singaporean.

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All their companies, however, have some exposure to China, and all but two have since been delisted.

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Closer to home, Bursa Malaysia has the power to take action against a director who is the “directing mind and will” of a listed company. The phrase “directing mind and will” comes from a 1915 judgment by Britain’s lord chancellor Viscount Haldane and refers to an employee of a company who is so responsible for its key decisions that his state of mind and actions in doing anything for the company must be taken as the intent of the company.

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Well, Bursa’s powers against such errant directing minds and wills is to slap a sanction or penalty on them and reprimand them publicly (with or without a fine) through a media release of their transgressions.

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By the way, the fines which such errant directors have to pay must come out of their own pocket, and they cannot ask their companies to reimburse it. Bursa has directed any director that has done so to return such reimbursements.

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In so saying, we do not know of many other exchanges in the region that rap the knuckles of errant directors as Bursa does.

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Given things like SGX’s naming and shaming, anyone who fancies a foreign listing might want to think twice, especially if those who do so are mainly foreigners from foreign companies. SGX and other bourses must balance between wanting more foreigners to list with them and ensuring that they have good and sound directing minds and wills.

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There is a silver lining to SGX’s naming and shaming: as we champion more transparency for good governance, the regional or Asean bourses could perhaps pool all such lists into a centralised list to warn others against such wrongdoers, as well as to use as a basis for blacklisting.