Good management ranks above corporate governance

Good management ranks above corporate governance
Ron Sim,founder, chairman and CEO of OSIM International.

CORPORATE governance frameworks, while invaluable in guiding corporate behaviour, cannot be substitutes for good management, said OSIM International founder, chairman and chief executive Ron Sim.

Speaking to BT recently about the company's experience as a listed entity, Mr Sim also cautioned against a dogmatic approach to corporate governance and highlighted what he felt are common misconceptions among investors.

"Corporate governance is about transparency and accountability and it is very important for all companies," he said. "But corporate governance by itself does not run a business. The board of directors also does not run the company."

Good management is still the most critical factor, and shareholders are often best served by a management whose interest is deeply intertwined with that of the company, he said. And in this respect, the concept of vested interest - usually seen as something negative in corporate governance - is misunderstood.

"It is a myth that you cannot be vested. The truth is that everyone has a vested interest. Even independent directors have reputations to protect, and that is a vested interest, leaving aside any monetary incentives," said Mr Sim.

He cited himself as an example. He is both chairman and CEO, even though corporate governance guidelines call for the separation of the chairman and CEO roles. He is also the controlling shareholder with over 60 per cent of the company. He is deeply vested in the company, and it is this that aligns him with other shareholders and drives him to protect the company's interests, he argued.

"If you're not vested, you may not care. People like us, we will go up or down with the company. We will not be running away."

In contrast to business owners, professional managers with short-term contracts may not align their long-term interests with that of the company. Increasingly lucrative executive compensation packages also mean that just a few years on the job will be enough for many - and they will not be around to see the consequences of their actions. This could encourage a "mercenary" mentality that will not serve shareholders well, Mr Sim said. "The vested management may actually serve the company better."

The danger of having a very short-term view is also why he has maintained his long-standing opposition to mandatory quarterly reporting for mid to large-sized companies in Singapore.

Singapore requires quarterly reporting for firms exceeding $75 million in market capitalisation, a requirement that still attracts debate. Companies, executives - and even some investors - argue that quarterly reporting encouraged short-termism and increased share-price volatility, while adding to companies' compliance costs and boosting the workload of management and the board.

Corporate governance advocates argue on the other hand that more infrequent reporting could lead to even greater uncertainty in the marketplace, and that price-sensitive information should be released in a timely fashion to all shareholders.

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