Shift in Global Corporate Disclosure

A conversation with KhattarWong’s Tan Chong Huat

Mr Tan Chong Huat, Managing Partner of KhattarWong and the Head of its Corporate and Securities Laws Department, recently participated in the CSR Global Summit in Singapore. Chairman of corporate governance committees and director of several public listed companies, Tan is equipped with the expertise on corporate governance and compliance, and is experienced in corporate matters within the region.

Tan also has extensive experience in banking and project finance law in Singapore and the region. The CSR Digest caught up with the man who has been named a leading practitioner in many reputable professional publications, including Asia Pacific Legal 500, AsiaLaw Leading Lawyers.

CSRD: Many practitioners feel laws are not useful to encourage social responsibility. What are your comments on this?

TCH: It depends on how you define ‘encouraging’ social responsibility. If you mean having a set of laws in place that mandate a company must give x percent of its net profit to charity, then yes, the letter of the law would take away the spirit of corporate giving.

However, in terms of best workplace practices, non-discriminatory employment, fair treatment of all employees – that is why we have successful, comprehensive and above all enforceable labor laws, to ensure that all corporations (in Singapore) maintain a standard of employee practices that are just and uphold basic tenets of human rights.

In the grey area between doing something because the law demands it, and offering to give back to the community, I believe laws and guidelines are especially useful when it comes to matters of reporting and disclosure. While it should not serve to discourage corporate giving, enlightened corporate givers should also subscribe to the ideals of being able to stand up to scrutiny and employing best practices when dealing with CSR; and in fact, weaving these standards of disclosure and reporting into all aspects of their business.

We also are seeing a significant corporate shift globally, particularly the situation in China. The Central Government has issued guidelines in Corporate Social Responsibility compliance for state-owned and foreign-invested enterprises – a big step towards setting out a framework for companies to draw reference from, which will hopefully serve to encourage broader, better and more informed CSR initiatives and business practices.

CSRD: It is becoming clearer and clearer that integrity in financial reporting is vital for the market. Should these be laws or merely guidelines?

TCH: At present, Singapore has an extensive set of Corporate Governance guidelines that include independent directors, board members of companies to be on an external audit committee, risk management, internal controls and whistle-blowing policy. By and large it has proven itself quite successful. The point of interest to note is that while these guidelines are ‘quasi-regulatory’, the breach of certain guidelines that amount to corporate fraud are certainly supported by the enforcement of very clear legislation. It is this latter set of laws that keep things on an even keel in corporate Singapore, and would certainly reinforce the CG guidelines and act as an effective deterrent.

CSRD: Would a piece of law such as the USA’s Sarbanes-Oxley Act 2002 work in the Asian context (for example, with the recent Satyam scandal)?

TCH: Many media sources are now likening the Satyam incident to “Asia’s Enron”. In order for a Sarbanes-Oxley Act equivalent to work in Asia, it requires the expressed and committed cooperation across Asia’s political machinery, a watchdog agency to uphold the standards set out in the (Asian) Act, and the agreement across the board to employ the section 802 equivalent of penalties. While it may be prudent for individual governments to set out clear rules in terms of corporate disclosure, an all-encompassing Act applicable across Asia may not be viable at this juncture.

Ultimately, no system of frameworks, control or guards is entirely foolproof. The Satyam incident teaches us that determined management fraud resulting from a breach in ethical conduct will find ways around the tightest systems.

CSRD: Should businesses cut back on their CSR initiatives during this current economic trend?

TCH: As companies bite the bullet and cut operational costs, retrench workers and freeze spending, it may seem like natural progression to cut back on CSR initiatives or stop them altogether.

However, companies that have always approached CSR in a strategic manner and have made it an integral part of their corporate psyche will know that staying true and focused on their sustainability efforts will be key towards reaping long-term benefits. For example, KhattarWong is planning a go-ahead with various training and welfare programs we have planned for employees this coming year. Our beneficiaries will also look forward to continued fund-raising efforts and volunteer engagement. If anything, we are expanding the scope of our CSR efforts further, building on the success of the previous year to incorporate a more comprehensive approach to environmental awareness – to add to our current focus on health and education. I believe that doing our bit for the larger community in difficult times will not only help our external stakeholders, but will serve to encourage our employees and promote staff morale.

CSRD: What is the trend in the PRC in terms of CSR? Do the businesses involved in the melamine poisoning understand the ramifications of what they did?

TCH: In 2007, China’s President exhorted China’s leaders to uphold ‘scientific outlook on social development’ – an approach that includes encouraging businesses to emphasize sustainable development, put people first, and look beyond short-term profits.

Clearly, the message is for implementation of better workplace practices, stricter disclosure standards and a view towards protective the value of China’s fledgling brands. Government bodies have followed to echo the President’s message, including the Shenzhen and Shanghai Stock Exchange coming up with a list of CSR Guidelines for listed companies. Incentives and potential penalties are applied to compliant and non-compliant companies accordingly. Given the slew of scandals that have hit the Chinese manufacturing and export market in recent years and the impact it has created in terms of foreign perception of Chinese products, I believe the trend in the years to come will be for Chinese companies to step forth and be accounted as paragons of good CSR practices.

CSRD: Do you see the field of CSR growing as a specialist area in the legal profession? Why?

TCH: At this juncture, CSR is still a soft approach with no legislative impact or enforceability. However, the practice areas of corporate governance and regulatory compliance look set to grow as more and more companies recognize the importance of good disclosure standard and practices.

In anticipation of the growing needs for such services, KhattarWong has set up a Corporate Governance and Regulatory Compliance Practice Group that deals with advising boards (of directors) on matters related to due compliance with corporate governance matters, Listing Manual and Companies Act compliance requirements, requirements regarding circulars to shareholders and other shareholder matters. ◊

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