Turning around on governance, transparency

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??This week: The 2023 edition of the Governance and Transparency Index (GTI) suggests that the quality of corporate governance and disclosures among Singapore-listed companies continued to improve overall over the past year.

The top of the index remains dominated by the usual suspects: Singapore national telco Singtel; local banks DBS, UOB and OCBC; flight services provider SATS; and a smattering of sector giants.

What’s also interesting is looking at which companies have changed the most over a longer-term period – five years – than over just a single year.?

One caveat is that the GTI underwent a methodological refresh in 2021, so even a five-year comparison is not entirely like for like. Nevertheless, there’s enough consistency in the methodology that the analysis period can still shed light on how companies have progressed on governance and transparency.

Between 2018 and 2023, the most improved companies, in terms of their percentile ranking for each year, are:

• Paint and air-conditioning group Natural Cool Holdings, which improved from the first percentile in 2018 to the 85th percentile in 2023;
• Healthcare group OUE Lippo Healthcare, which rose from the 13th to 85th percentile;
• Property developer Olive Tree Estates, which improved from the 24th to 95th percentile;
• Food and beverage group Sakae Holdings, which climbed from the second to 68th percentile; and
• Clinic chain Healthway Medical Corp, which rose from the seventh to 73rd percentile.

The companies that fell the most in the rankings over the same five-year period are:

• Phosphate miner AsiaPhos, which dropped from the 81st percentile in 2018 to eighth in 2023;
• Digital solutions company DiSa, which slid from the 80th to 11th percentile;
• Frencken, which was in the 80th percentile in 2018 but is now in the 11th percentile;
• Private equity investment firm TIH, which fell from the 72nd to sixth percentile; and
• Engineering services company Anchun International Holdings, which dropped from the 81st to 18th percentile.

Natural Cool’s rise is notable. The company was under a shadow for a few years beginning in 2017 regarding investigations that involved a managing director at the time, who eventually pled guilty in 2021 to rigging the shares of another listed company. Natural Cool also had a spat with an earlier chief corporate officer who took issue with his dismissal in the aftermath of a boardroom tussle.

Those troubles are in the past for the company, which has not had to deal with such spicy headlines of late. But that doesn’t mean it’s all smooth sailing now.

Natural Cool’s investment unit is being wound up, and at one time faced a claim from its landlord related to alleged unpaid rents. The company has also received a number of queries from Singapore Exchange Regulation (Regco) over the past year. While the queries do not imply wrongdoing, they suggest that Natural Cool’s disclosures could be better.

A prudent investor, knowing those facts, would probably want to do some additional due diligence before taking Natural Cool’s GTI score at face value. But that appreciation for the complexities of the company’s background might not manifest if the investor had simply accepted the GTI scores without digging deeper.

The GTI is ultimately an attempt to quantify a complex series of qualities that fall under the umbrella of governance and transparency. It’s a useful shorthand metric, but it’s also limited in its ability to capture nuances. For instance, a company could be deal-breakingly weak at accounting and audit, but if it’s strong enough in stakeholder engagement, its overall score might look OK enough to mask the shortcoming.

The GTI is great for getting a quick indicator of quality, but when it comes down to details, there’s no substitute for doing one’s own research.

?? Top ESG reads:

1. Cromwell E-Reit has obtained a five-year 165m euros sustainability-linked revolver facility for general corporate purposes
2. A nine-year term limit for independent directors is a cap, not a floor, says SGX Regco CEO Tan Boon Gin.
3. Singapore’s Climate Impact X is keeping credits from a Cambodian project in its standardised carbon credit contract amid a review triggered by human rights allegations.
4. Offshore and marine company Kim Heng is now chasing wind instead of oil and gas projects.
5. Temasek is buying up to about 3 per cent of Indian automaker Mahindra and its electric vehicle unit for about 12 billion Indian rupees (S$200 million).

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