Mark Vaessen blogs on a discussion on corporate governance in Asia: consistency is the key.
Asia — it’s a huge and diverse region that has seen extraordinary levels of growth in some of its major economies. This makes it an exciting part of the world to do business in. With the rapid pace of change, driving strong standards of corporate governance in the region is crucial.
Based on a fascinating discussion on the topic with audit committee chairs and investors in Kuala Lumpur recently, things are moving in the right direction — though there is more to do.
We may be going through a period of change and volatility in the world but, at the same time, technology and connectivity have made it a smaller place. Major Asian corporations are playing a bigger part on the global stage as trade becomes more internationalized.
A positive result of this is that standards of corporate governance have also been internationalized. Large Asian corporations have to meet the same standards as others — and are doing so.
This was something that Dato’ Mohamad Idris Mansor, chair of the audit committee at Malaysian oil and gas corporation Petronas, was very clear about: “We have to go the way things are moving globally because we are a global business. Immediately, [if] there is a failure of proper disclosure of information, then there will be distrust.”
But if there are clear codes and standards in force in the region, that the largest corporations are embracing, are they being followed in spirit as well as letter further down the chain through the mass of Asian companies? This is perhaps the real challenge now.
As Ken Pushpanathan, audit committee chair at Bursa Malaysia, observed: “We do have all the best-in-class practices, but whether and how it’s enforced and practised is the tricky bit.” For Nik Hassan bin Nik Mohd Amin, chair of the audit committee at Country Heights Holdings, a problem is that sometimes standards are “selectively implemented.”
Discussion participants gave examples of some smaller companies where the board only meets four or five times a year, or accounts are approved with only cursory discussion, or where everything is effectively decided by the chairman and a few others.
Pru Bennett, Head of Investment Stewardship for APAC at BlackRock, said that one of the keys to addressing this is to turn the perception of corporate governance from being a compliance issue to one that has strategic implications. For their part, this is something that institutional investors need to engage with companies on. “Our focus is more on competence as opposed to ticking the box for independence. We’re looking for boards that can challenge management in a constructive way,” she said.
Pru Bennett, Head of Investment Stewardship APAC, BlackRock; Datuk Dr. Syed Muhamad Syed Abdul Kadir, Audit Committee Chair, Malakoff Corporation Berhad; Leslie Eu, Audit Committee Chair, YTL Corporation Berhad; Mark Vaessen. Partner, KPMG in the Netherlands and Project Lead, Value of Audit.
There is also the continuing need to drive management competencies through skills development and training.
Auditors have a key role to play too. Datuk Dr. Syed Muhamad Syed Abdul Kadir, chair of the audit committee at Malakoff Corporation, said that auditors are crucial because they need to “validate” information. It’s important for auditors to have a private session with the audit committee where they are “very frank” and can be “very explicit in explaining to audit committee members the weaknesses and areas for improvement”.
Leslie Eu, Audit Committee Chair, YTL Corporation Berhad; Datuk Dr. Syed Muhamad Syed Abdul Kadir, Audit Committee Chair, Malakoff Corporation Berhad; Mun Kong Foong, Head of Audit, KPMG in Malaysia; Mark Vaessen. Partner, KPMG in the Netherlands and Project Lead, Value of Audit.
More broadly, governance in the region is a complex issue because standards of public governance — the standards and conduct of political authorities — set the all-important context within which companies operate.
As complex as it may be, however, there are reasons to be positive overall. The challenge now is to drive consistency throughout the corporate chain.