Raising governance standards of smaller firms on SGX will benefit retail investors

Move key to long-term sustainability of these businesses, health of capital market ecosystem

- David Gerald

(PHOTO: THE BUSINESS TIMES)

Corporate governance standards are improving, but the gains are uneven, with smaller companies trailing bigger players, according to data by the Securities Investors Association (Singapore), or Sias.

This is not surprising because while blue-chip companies such as those on the Straits Times Index (STI) have generally embraced governance reforms driven by greater public scrutiny, the need to compete for international capital, analyst coverage, and institutional ownership - smaller companies often struggle to match these standards.

For these companies, limited resources, lean management teams, and a focus on survival rather than compliance mean that governance practices often take the back seat. Yet, improving governance among small companies is critical, both for their own long-term sustainability and for the health of Singapore's broader capital market ecosystem.

Furthermore, given that the authorities are looking to stimulate interest in companies beyond the 30 components of the STI, it begs the question what can be done to raise governance standards among smaller companies to justify increased investor interest?

The reasons for the governance gap are multifaceted and in some instances structural, starting with the fact that small companies typically have fewer independent voices at the board level.

Instead, their boards tend to be dominated by founders, family members, or close associates, resulting in limited oversight and accountability. In many cases, the roles of chairman and chief executive are still combined, blurring the line between governance and management.