Lessons from the crisis In the aftermath of crises, corporate governance standards and practices often come under scrutiny. For instance, after the Enron/Worldcom failures, critics pointed to the lack of independence of auditors and Audit Committees, and to deficiencies in accounting standards. After the bursting of the dot.com bubble, attention was drawn to the severe conflicts of interest by brokers and analysts. The recent financial crisis has been no different. Indeed, reviews by international bodies and national agencies have found that weak corporate governance played a role in this crisis. For instance, the OECD report on "The Corporate Governance Lessons from the Financial Crisis"1 noted that "the financial crisis can be, to an important extent, attributed to failures and weaknesses in corporate governance arrangements which did not serve their purpose to safeguard against excessive risk taking in a number of financial services companies." While many of the corporate governance failures that have been uncovered so far affected financial companies, many of the structural weaknesses may also be common to large and complex listed firms. It is therefore relevant for Boards of other companies to reflect on these findings. Let me briefly highlight a few common themes. The first relates to the quality and composition of Boards. Research shows that although having a good balance of directors with a range of skills and experience that are relevant to the business of the firm is an essential foundation for good corporate governance, this was also often the most neglected.
A number of reports2 also found weaknesses in the implementation of effective risk management. In many cases, risk was not managed on an enterprise-wide basis and Boards were not fully apprised of the level of risk facing the company. Overseas regulators are now reviewing the role of Boards in providing guidance on the alignment of corporate strategy with risk-appetite, as well as on appropriate internal structures in risk management. Not surprisingly, remuneration practices have attracted the most public attention. The alignment of executive and Board remuneration with the longer term interests of the company and its shareholders is a widely accepted corporate governance principle. Nonetheless, compensation practices that rewarded staff handsomely for short-term gains, without any corresponding penalties for longer-term losses, have been blamed for encouraging excessive risk taking in some institutions. A number of jurisdictions, such as Australia and the US, are considering legislation that will address this by empowering shareholders to have a more direct role in setting remuneration. Creation of the Corporate Governance Council Financial institutions in Singapore have generally been prudent in their business, and have weathered the crisis well. Listed companies in Singapore that have maintained high standards of governance have similarly withstood the crisis. Nevertheless, we must not be  1  Kirkpatrick, Grant (February 2009), "The Corporate Governance Lessons from the Financial Crisis", OECD.