Accreditation body for corporate governance?

IT DOESN'T exactly roll off the tongue but an accreditation body for corporate governance just could be the next big thing.

Outgoing Singapore Exchange chief executive Hsieh Fu Hua raised the idea earlier this month, suggesting companies could voluntarily seek independent accreditation of their corporate governance processes and framework from such a body.

Mr Hsieh likened this seal of approval to the voluntary ISO standards that many Singapore companies pursue.

An accreditation body for corporate governance is certainly a novel idea; no country seems to have introduced such a feature, say market observers.

Corporate governance expert Mak Yuen Teen is all for it.

Associate Professor Mak said: 'If there is a need for an external auditor to issue an independent opinion on the financial numbers reported by management, there would seem to be a similar need for an external party to provide an independent opinion on the representations about corporate governance made by the company.'

Retail investors might find a general overall stamp of quality helpful as it alleviates the need for them to wade through the byzantine codes of corporate governance used here.

Mr Hsieh said investors can get a better idea of the strength of each company and make better investment decisions which will eventually enhance the overall quality of the marketplace.

Certainly, the general notion of getting various industries to be certified as a means of raising standards seems to be gaining ground.

Some months ago, the setting up of an accreditation body for tax experts was announced.

Even for pre-schools, there will soon be a voluntary quality assurance and accreditation framework to gauge standards.

Two weeks ago, the Ministry of National Development suggested in a consultation paper that there should be an accreditation body for property agents.

As for the idea of an accreditation body for governance, that could gain traction among corporate Singapore eventually.

Wong Partnership partners Joy Tan and Annabelle Yip, who head the firm's local corporate governance practice, believe an accreditation body would have a positive effect on the governance culture in Singapore.

Still, Ms Yip pointed out: 'Companies can already appoint external consultants such as one of the Big Four accounting firms or law firms to identify areas of improvement. Many companies also have an internal audit function which helps perform this process as well.'

If it is going to mirror the ISO certification, Ms Yip said this may be an expensive and even intrusive process. After the accreditation is received, reviews and updates will need to be done annually, for example.

Management time and accreditation costs are just two of the key issues.

Another is how effective the body will be in raising corporate governance standards.

Blue chips already have much higher levels of corporate governance than smaller companies. It is possible that having an accreditation body will just reinforce that divide - blue chips get the certification easily while the ones which do need to pull up their socks sit back and do nothing.

Another concern is that investors will start relying on the certification and be lulled into complacency and fail to do their homework.

All it takes is for one bad egg to appear and investors will complain that the accreditation process is a failure.

If a scandal occurs and investors lose large sums of money, it will still be for the regulatory authorities -  the Monetary Authority of Singapore and the Singapore Exchange -  to step in.

At the end of the day, an accreditation body may just add layers to the upholding of corporate governance standards without significantly improving the end result.

Companies already get detailed guidance from the code of corporate governance. Investors would be better served if companies followed the code in letter and in spirit rather than be distracted by other processes as well.

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Cai Jin runs every Monday and covers financial matters and corporate governance issues that can affect investors. The two Chinese characters marry wealth with good fortune - the two crucial factors that any investor needs to prosper.