Singapore had to adopt a policy of open trade, because of its small size and lack of natural resources. Under such conditions it was expected that Corporate Governance in Singapore would evolve along the lines of US and UK. In the Post Asian scenario, Corporate Governance in practice and philosophy has evolved rapidly toward the standards set by the Organization for Economic Cooperation and Development (OECD).But in Singapore Corporate Governance is still limited by 5 factors ownership structure, disclosure regime, structure of the board of directors, use of share option schemes and government corporate ownership.
The high concentration of ownership and poor disclosure combined with unclear rules in the takeover market, work in favor of owner-managers who can exploit the weak bargaining power of minority shareholders. Institutional monitoring is confined to the Monetary Authority (Singapore central bank) for financial institutions and the Stock Exchange for other firms.
The Singapore Corporate Governance system is based on the Anglo American model, which revolves around capital market controls of managerial behavior.
Companies Legislation and Shareholders Rights
The Companies Act of 1990 governs the registration of companies and is the primary source of law protecting the rights of shareholders. The Articles of Association gives in detail the rights of shareholders. A model set of Articles of Association is contained in the Fourth Schedule of the Act. Association is contained in the Fourth Schedule of the Act. The Model applies to companies that have not adopted their own Articles, or where the companies’ Articles are silent on specific issues. Under the model Articles of Association, companies are allowed to issue shares with different rights pertaining to dividends, voting or return of capital. However, Section 64 of the Act requires all ordinary shares to carry one vote per share (the exception being a management share issued by a newspaper company under the Newspaper and Printing Presses Act). Other major features of company legislation relating to shareholders’ rights include voting by proxies must be in person and not by mail, and cumulative voting for directors is not permitted.
Regulations of Takeovers
The Singapore Code on Takeovers and Mergers is the major source of guidance on the conduct and procedures to be followed in takeover and merger transactions. The Code is non-statutory and supplements and expands on the statutory provisions on takeovers found in sections 213 and 214 and the Tenth Schedule of the Companies Act. It is modeled on the UK model Code, whereby shareholders, rather than directors (as is the case in the US), decide whether to accept or reject an offer. Companies listed on the SGX that are parties to a takeover or merger also have to comply with the provisions in the Listing Manual of the SGX.
Regulation in the public sector is effected primarily by the Registry of Companies and
Businesses (RCB), which administers the Companies Act of 1990, and the Monetary Authority of Singapore, which administers the Securities Industry Act of 1986. The Companies Act requires financial statements to comply with the detailed disclosure requirements in the Ninth Schedule and to present a true and fair view. Certain differences exist in accounting and auditing requirements for private companies, public companies and listed companies.
The regulation of accounting in Singapore involves a combination of private sector and public sector regulation. The Statements of Accounting Standards (SAS) together with the rules contained in the Stock Exchange Listing Manual (administered by the SGX) and the Companies Act determine how accounting is practiced in Singapore. The two major institutions involved in private sector regulation are the professional accounting body, The Institute of Certified Public Accountants of Singapore (ICPAS), and the Singapore Exchange (SGX).
The ICPAS has sole responsibility for developing and maintaining the Statements of Accounting Standards (SAS) and issuing Statements of Recommended Accounting Practice (RAP), which specify how to account for various business transactions. Standards-setting is done through the Accounting Standards Committee, which is appointed by the Council of the ICPAS. Each new Standard becomes part of GAAP, the “accounting law of the land.” There is also the Financial Statements Review Committee of the ICPAS which reviews published financial statements for compliance with statutory requirements.
Financial Sector Regulations
The institutional environment in which corporate governance is played out would not be complete without understanding the role and importance of the financial services sector. The Singapore government as an early part of its industrial policy targeted the financial services sector for development into one of the key sector for the local economy.
The regulation of disclosure standards in financial institutions is spread over a number of institutions, namely the SGX, Monetary Authority of Singapore (MAS), Securities Industry Council, Registrar of Companies and Commercial Affairs Department of the Ministry of Finance.
Investments of banks in other commercial enterprises is limited by the Banking Act of 1970, to a specified percentage of its capital funds, in recent times it is 10% in the share capital of a company. The only exception being when a bank invests in companies set up to expand growth in Singapore.