Rewarding Good Governance

Foreword from ShareInvestor

This article “Rewarding Good Governance?” by R Sivanithy was first published in The Business Times on 20 Sep 2017 and is reproduced in this blog in its entirety.

A balance between regulatory ‘sticks’ and ‘carrots’ or incentives can encourage firms to practise good governance

Is there scope here to reward firms that practise good governance?

In other markets, regulators have recognised that the traditional approach of deterrence through penalties represents only one side of the coin and is perhaps overly focused on the negatives without regard for positives.

Consider for example, that Bursa Malaysia last month announced that it is implementing a “Green Lane Policy” for its top 30 listed companies based on their corporate governance conduct and disclosure practices.

In a nutshell, the policy grants certain privileges to these listed companies including faster issuance of circulars to shareholders.


BM said it aimed to recognise and reward these firms by facilitating a more efficient time-to-market for their corporate proposals. These would include major asset disposals, privatisations and related-party transactions.

“This means these listed companies may issue such circulars to their shareholders as soon as they are ready without having to wait for the exchange to review the same,” said BM. “Further, the exchange will fast-track the processing of complex circulars (which are still required to be reviewed by the exchange) submitted by these listed companies,” the bourse added.

BM added that the list of eligible firms will be reviewed periodically and that it may expand the eligibility criteria to allow a broader pool of listed companies to be included “with the necessary measures and controls to ensure that the exchange continues to be facilitative of listed companies’ needs without compromising regulatory objectives”.

The practice of trying to reward good corporate behaviour isn’t new – over in the US, there is a “Well-Known Seasoned Issuer” or WKSI (pronounced “wiksy”) programme that was introduced in 2005 which allows WKSIs to register an indeterminate amount of securities when filing a shelf registration document.

(Shelf registration or shelf offering or shelf prospectus is a type of public offering where certain issuers are allowed to offer and sell securities to the public without a separate prospectus for each act of offering and without the issue of a further prospectus).

Furthermore, a WKSI need not pay any registration fees at the time of the filing of the registration statement.

Prior to 2005, issuers were limited to registering the amount of securities that they intended to sell during the two-year period following the filing of a shelf registration statement.

A WKSI is defined as a company that has filed all annual, quarterly and current reports in a timely manner, and either has a market capitalisation exceeding US$700 million or has issued US$1 billion in registered debt offerings over the past three years.

Note the difference in emphasis of the Green Lane and WKSI policies – they focus on the positives instead of on the negatives.

Here, readers would be familiar with the approach that the Singapore Exchange (SGX) takes – it issues queries for odd price movements or to clarify particular issues relating to annual reports or corporate announcements, “Trade with Caution” notices when something fishy is indicated, for example when the exchange detects unusual patterns in trading and traces the activity to small groups of individuals and for certain cases, SGX sometimes issues public reprimands when rules can be proven to have been broken.


This wielding of regulatory “sticks” to ensure that companies adhere to the rules is par for the course but perhaps there should be balance coming from regulatory “carrots” or suitable incentives to encourage companies to practise good governance on their own accord.