Singapore - IN most cases, companies undergo special audits to clear doubts and assure its various stakeholders.
But with its recent decision to name PricewaterhouseCoopers (PwC) as its special auditor, SingPost has inadvertently raised more doubts and opened itself to more criticism.
Defending the choice of PwC, audit committee chairman Soo Nam Chow said on Tuesday that the board had wanted to "address the matter" of the corporate governance special audit "in the most expeditious way" and was "satisfied with our own internal evaluations".
But in tapping PwC without first calling for proposals and thoroughly evaluating them, the board runs straight into the very "perceptional issue" that Mr Soo had said it wanted to avoid, and demonstrates precisely how badly SingPost's board needs a genuine corporate governance overhaul at its core.
The move might also naturally lead the market to wonder next: Are there other matters where SingPost's board may have acted in a similarly "expeditious" manner? And if so, what other information might it have neglected to deliver to the investing public?
There are several things about the board's poor handling of the special audit thus far that are unlikely to inspire much investor confidence.
SingPost announced the appointment of PwC as special auditor in a Tuesday evening Singapore Exchange (SGX) filing, in which it said it was "satisfied" PwC "has performed its own internal procedures to determine that no conflict of interest exists".
But in the filing, it left out any mention of its existing relationship with PwC - for instance, the fact that PwC has been its external auditor since the postal group's listing in 2003. This led to unfortunate conclusions. "This strikes me as a deliberate omission of a material fact," one industry insider said. "They should not have tried to shirk from the issue and instead should have tackled it head-on."
Mr Soo only acknowledged the long relationship and revealed that the board had forgone an RFP (request for proposal) after he was asked directly about these issues in a Tuesday evening media call.
Instead of being prompted, it would have been better for the board to have disclosed in its filing what is clearly relevant information, which would have gone some way towards assuring stakeholders that SingPost is giving them the full facts.
No second-tier allowed?
Another baffling aspect of the choice of PwC is how the board ruled out second-tier firms from the start, weighed up all the potential conflicts of interest across the Big Four, and concluded PwC would have the least conflict. In fact, board director Low Teck Seng declared in the call: "PwC has no conflict."
No one is doubting PwC's professionalism. But it bears repeating that the special auditor has to be perceived as independent by the market - and PwC's appointment clearly fails the market perception test. Even if Mr Soo and other directors have no personal relationship with PwC auditors, the institutional business relationship still stands, with the prospect of continuing or more engagement.
Notably, Mr Soo said the board ruled out KPMG because KPMG was "involved in a lot of internal processes . . . it's a perceptional issue."
It's a bit disingenuous to justify it so. If the board believes KPMG cannot get rid of a "perceptional issue", even with a Chinese wall, why not apply the same standard to PwC?
And why rule out second-tier firms? They could in fact be more ideal candidates to carry out the special audit. While well respected, they might also be less likely to have done prior work for SingPost or be tapped to do future work for it.
It is also difficult to understand why the board chose to forgo an RFP, particularly since a special audit can hardly be cheap. SingPost - ultimately its shareholders - is footing the bill, not individual directors. When The Business Times asked the group about the special audit fee, SingPost would only say: "This is a commercial arrangement."
Without an RFP, it would be hard to say for sure that PwC is the best choice. Mr Soo said in the Tuesday call that the board chose to forgo an RFP because it wanted to "address the matter" quickly.
But shareholders have already waited nearly four weeks, and would likely have been willing to wait a bit more if they could be satisfied that the extra time would allow the board to choose, in the most thorough way possible, a special auditor that is seen by the market as the best party to do the job.
As this is a serious matter with long-term repercussions, it is important for SingPost to start off the process on the right footing.
Corporate governance is about both fact and perception. Especially now, the board should have taken greater care to be above all criticism. It should have also been more transparent about the appointment of PwC. The pity is that this was not the case.
The appointment has been made but a change is still possible - if only to show that SingPost does take independence and transparency seriously.
This article was first published on January 21, 2016.
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