SINGAPORE – The Singapore Exchange Regulation’s (SGX RegCo) latest changes to its listing rules represent another important step in the continuing evolution of Singapore towards a more disclosure-based and market-driven regime.
From Jan 1, 2027, listed companies will face enhanced requirements covering executive remuneration, dividend policies and investor relations. They will also be required to maintain websites for engagement with shareholders and provide investors with better information about how they create long-term value.
These are welcome changes. But their success will ultimately depend on two things.
First, companies must comply with both the form and substance of the new requirements.
Second – and perhaps equally importantly – shareholders must make proper use of the additional information they will receive because there is little point demanding greater transparency from companies if investors do nothing with the enhanced disclosures.
Form versus substance
As with most disclosure requirements, there is always a danger that compliance becomes a box-ticking exercise. After all, a company can produce pages of information without actually telling shareholders very much, a practice that is evident in many annual reports.
Investor relations policies can be filled with boilerplate language, remuneration disclosures can contain impressive-sounding performance measures without explaining whether those targets are genuinely demanding, while dividend policies can be drafted so broadly that almost any decision can be justified.
That would comply with the form of the rules while defeating their purpose.
The objective must therefore be better disclosure, not simply more disclosure.
Take remuneration, for instance. In addition to knowing how much senior executives are paid, shareholders deserve to understand what management is being rewarded for, why particular key performance indicators have been selected, whether targets are sufficiently demanding and, crucially, whether those incentives encourage sustainable long-term value creation rather than short-term earnings or share-price management.
Similarly, the requirement to maintain and describe a dividend policy should encourage boards to explain their thinking about shareholders’ capital.
The rules require companies to explain deviations from their previously disclosed dividend policies. Granted, a rapidly growing company may quite reasonably retain most of its earnings, while a mature company generating more cash than it can productively reinvest might be expected to return more of that capital to shareholders.
Shareholders should therefore acknowledge that dividends are only one aspect of capital allocation since boards continually have to choose between paying dividends, reinvesting in existing businesses, making acquisitions, reducing debt, buying back shares or retaining cash for future opportunities.
What matters is that boards explain their reasoning behind their actions surrounding use of capital.
Engagement cannot stop at the AGM
Perhaps the most significant changes, however, concern investor relations.
Companies will have to maintain an investor relations policy designed to facilitate regular, effective and fair communication with shareholders, describe their engagement activities in their annual reports and maintain a website for shareholder engagement.
SGX’s guidance goes considerably further. It contemplates companies providing information such as contact persons, expected response times for shareholder queries, access to investor materials and calendars of upcoming shareholder engagement events.
It also encourages boards and management to address substantial shareholder questions and, where appropriate, explain how meaningful investor feedback has been considered in decision-making.
This is important because shareholder engagement should never be regarded as something that happens once a year at the AGM.
Too often, the traditional model has effectively been one-way communication where management presents, shareholders listen, a handful ask questions, resolutions are voted upon and everyone meets again 12 months later.
The new framework creates an opportunity to move away from this model towards a more continuous dialogue which, if properly administered, should foster trust between companies and their shareholders.
But there is an important point here which investors themselves should recognise – companies can provide the door, but shareholders have to walk through it. In other words, shareholders must seize the initiative afforded to them by the new rules.
For years, investors have quite rightly called for greater transparency, better corporate governance and more meaningful engagement from boards.
Now that the regulatory framework is moving in that direction, shareholders must play their part by reading the enhanced disclosures, examining remuneration structures and asking whether executive rewards are genuinely aligned with shareholder returns.
They should study dividend policies and question boards when capital allocation decisions appear inconsistent with what has previously been communicated.
If a company is sitting on a large cash pile earning modest returns, shareholders should be prepared to ask why that money is not being returned to them or productively invested.
If management remuneration rises substantially while shareholder returns deteriorate, investors should ask how the remuneration committee reconciles the two.
If an acquisition destroys value, shareholders should ask what assumptions were made when the investment was approved and what lessons have subsequently been learnt.
And if a company claims to place great importance on investor engagement, shareholders should test that claim by actually engaging with it.
Importantly, none of this needs to be confrontational because constructive shareholder engagement is not synonymous with shareholder activism in its most aggressive form.
Investors should not arrive at every AGM spoiling for a fight. Rather, engagement means asking informed questions, challenging explanations where necessary and making it clear to directors that shareholders are paying attention.
Accountability requires participation
If regulators move away from prescribing outcomes and instead require companies to provide sufficient information for the market to make informed decisions, then investors cannot simultaneously remain passive and expect regulators to protect them from every poor corporate decision.
Disclosure-based regulation works best when there is an active market on the other side of that disclosure.
That includes institutional investors, analysts and fund managers, but retail shareholders also have an important role.
Indeed, the new investor engagement requirements should make it easier for individual shareholders to participate. A properly maintained investor website can provide a single location for annual reports, sustainability reports, minutes of annual general meetings (AGMs), dividend and investor relations policies, results presentations, contact information and details of upcoming engagement events.
Ultimately, good corporate governance has always been a two-way street because while boards have to discharge their fiduciary duties, shareholders have responsibilities too.
They should inform themselves, vote thoughtfully, question boards when necessary and engage throughout the year rather than simply turning up at the AGM – if they turn up at all.
The new SGX rules can improve transparency and accountability, but rules alone cannot create an engaged shareholder culture.
Nor can companies be regulated into higher valuations simply by requiring them to publish more information.
The real value of these reforms will emerge when companies provide meaningful, decision-useful information and investors actually use it.
SGX has provided the framework. Shareholders must now seize the initiative and use that framework to engage their boards, question decisions and hold directors and management accountable.
Only then will better disclosure translate into better governance.
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The writer is president and chief executive of the Securities Investors Association (Singapore).
