Wednesday, October 21, 2009

Corporate Governance Accreditation

In Singapore, there is a proposal for listed companies to seek voluntary accreditation of their corporate governance processes and framework from an independent body. This is akin to the ISO certification process. As this report suggests, while such accreditation will better inform retail investors regarding corporate governance practices followed in a company, this could also be riddled with difficulties. For example:

Management time and accreditation costs are just two of the key issues.

Another is how effective the body will be in raising corporate governance standards.

Blue chips already have much higher levels of corporate governance than smaller companies. It is possible that having an accreditation body will just reinforce that divide - blue chips get the certification easily while the ones which do need to pull up their socks sit back and do nothing.

Another concern is that investors will start relying on the certification and be lulled into complacency and fail to do their homework.

All it takes is for one bad egg to appear and investors will complain that the accreditation process is a failure.


At the end of the day, an accreditation body may just add layers to the upholding of corporate governance standards without significantly improving the end result.

Companies already get detailed guidance from the code of corporate governance. Investors would be better served if companies followed the code in letter and in spirit rather than be distracted by other processes as well.
Looking at a parallel concept, India has witnessed the emergence of corporate governance ratings, which are offered by the leading rating agencies. However, the track record of the concept’s success is dismal, as very few companies have in fact availed of such rating. At a broad level, there exists of the issue of impartiality and independence of any rating or accreditation body, including the question who pays for such rating. More than that, a rating or accreditation process may cause corporate governance to taken on a process-oriented character (more than it already is) and may deviate attention from issues of substance.

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