Singapore's Puzzling Embrace of Shareholder Stewardship: A Successful Secret
The UK’s adoption of a stewardship code sparked a global shareholder stewardship movement. Singapore, as a corporate governance leader in Asia, naturally followed suit by introducing its stewardship code (Singapore Code) in 2016 through an entity named ‘Stewardship Asia’. Based on a superficial textual analysis, the Singapore Code appears to be a near carbon-copy of the UK Code. However, our article (forthcoming in the Vanderbilt Journal of Transnational Law), which provides the first in-depth comparative analysis of stewardship in Singapore, demonstrates how Singapore has turned the UK model of stewardship on its head. We explain Singapore’s unique approach to stewardship by identifying and solving three puzzles.
The first puzzle arises from the fact that institutional investors collectively own a sizable majority of the shares in most UK listed companies and, therefore, the UK Code was designed to transform these ‘rationally passive’ shareholders into actively engaged ‘good stewards’. In stark contrast, in Singapore’s listed companies institutional shareholders are an insignificant minority. Instead, controlling-block shareholders—who are able to directly monitor management or manage the company themselves—dominate most listed companies. If the UK Code was designed to solve a problem that Singapore did not face, why then did Singapore adopt a stewardship code modelled on the UK’s? We show that Singapore’s Code was modeled after the UK’s to demonstrate Singapore’s commitment to global standards of good corporate governance—what we call ‘halo signaling’.
The second puzzle: Singapore’s Code is, by comparison to the UK’s and many other stewardship codes, curiously toothless. Institutional investors, domestic and foreign, are free to adopt the Singapore Stewardship Code in whole, in part, or not at all; compliance is entirely voluntary. Institutional investors who ‘sign-up’ to the Code are not required to provide any evidence of compliance with the Code. The impotence of the Singapore Code is accentuated by the fact that—in contrast to many existing codes—it has no mechanism whatsoever to monitor whether ‘signatories’ have actually signed-up to the Code or complied with it. Moreover, the entity which spearheaded and promotes the Singapore Code, Stewardship Asia, is a private entity that has absolutely no regulatory power to supervise the implementation of the Code or enforce it. The Singapore Code does not even functionally provide a suggested model or template of what stewardship means as it encourages those who opt to follow it to ‘take steps to satisfy themselves that they adhere to their own stewardship approach’ [emphasis added].
Viewed through a UK lens, Singapore’s Code may appear to be a corporate governance sham. However, we argue that Singapore’s approach to stewardship may be crucial to its continued corporate governance success for three reasons. First, with impotent institutional investors, Singapore has no need for a stewardship code with actual ‘bite’. Second, the ‘toothless’ Singapore Code ensures that institutional investors have no added incentive to engage in potentially disruptive activism that might upset the status quo for state and family controlling shareholders in Singapore—which have been at the core of Singapore’s enormous success. Finally, Stewardship Asia is funded by Temasek Holdings, one of Singapore’s state investment arms and the controlling shareholder of many of Singapore’s largest listed companies. By introducing a stewardship code through Stewardship Asia, Temasek has effectively taken control of stewardship in Singapore, and prevented ‘bottom-up’ free-market based approaches to shareholder stewardship—which could have been more unpredictable and potentially disruptive to Singapore’s successful corporate governance model—from developing. This act of what we coin ‘pre-emptive corporate governance’ has allowed Temasek as a state controlling shareholder to maintain Singapore’s existing corporate governance regime. Thus, the third reason for a ‘toothless’ Code is that this allows Singapore to send a signal of good corporate governance without disrupting its highly successful state-controlled and family-controlled system of corporate governance.
In late 2018, Stewardship Asia introduced yet another stewardship code—this time directed at family companies. Singapore’s Family Stewardship Code is the first (and, as of late-2019, the only) of its kind in the world. The Family Code encourages family controlling shareholders to be good ‘stewards’ of their companies, and promotes the entrenchment of family control without divestment to outside non-family investors. Further, the Family Code neither actively encourages nor facilitates institutional investor or shareholder activist involvement in family companies. The idea of stewardship entrenching family ownership and being devoid of active involvement by institutional investors would have been beyond the wildest imaginations of the original architects of the UK Code.
Thus, our third puzzle is: why did Singapore introduce a second stewardship code addressed to family controlling shareholders—a constituency contemplated by no other extant stewardship code? We show that the Family Code is a strategic effort by Stewardship Asia to advance a version of ‘stewardship’ adapted to Singapore’s successful corporate environment and that addresses practical corporate governance issues faced by Asian jurisdictions, which often differ from the Anglo-American paradigm. With ‘family stewardship’, Singapore has gone even further than past corporate governance reforms by positioning itself as the standard-bearer for a specifically Asia-tailored corporate governance model.
In summary, Singapore has, with its unique brand of stewardship, seized a leadership role in the global stewardship movement while preserving—and reinforcing—its successful state and family-controlled corporate governance system.
This research relates to a broader comparative project on Global Shareholder Stewardship.
Dan W. Puchniak is Associate Professor at the Faculty of Law of the National University of Singapore (NUS), and Director at the NUS Centre for Asian Legal Studies (CALS).
Samantha S Tang is a Sheridan Fellow at the Faculty of Law of the National University of Singapore (NUS) and an Academic Fellow of the NUS Centre for Asian Legal Studies (CALS).