Best company methodology and results
MALAYSIAN COMPANIES PERFORMED strongly across several industry sectors and other categories in Euromoney’s 2004 best Asian companies poll. IOI Corporation topped the overall poll, with Malaysia’s Public Bank, Astro All Asia Network and Tanjong all in the top 10. “It is a valid argument to say that there has been a definite improvement in the overall corporate governance environment in Malaysia over the last couple of years,” says Jamie Allen, secretary general of the Asian Corporate Governance Association (Acga).
According to CG Watch 2004, an annual Asian corporate governance survey conducted by stockbroker CLSA and Acga, Malaysia has moved up to fourth position in the region, up two places on last year. Improvement in the country’s accounting standards is well ahead of the international accounting-standards scores achieved by most other countries in the survey. “But these improvements came off a fairly low base and there remain weaknesses in some corporate governance rules, problems in enforcement and the regulatory/legal structure, and ongoing doubts about the depth of the country’s corporate governance culture,” he adds.
Volunteering to go the extra step
Corporate governance continues to be of uneven quality across Asia with most efforts at improvement resulting from regulatory enforcement rather than internal company policies. There are however some exceptional cases. Simon Wong, a consultant at McKinsey, cites one example. “Take the certification roles of the CEO and CFO in the US under Sarbanes-Oxley,” he says. “This isn’t a regulatory requirement across Asia but Singapore Telecommunications, for example, adopted this strategy as a gesture to convey transparency of accounts and thereby enhance investor confidence.” Singapore Telecommunications performed strongly in the “most convincing and coherent strategy” and “most transparent accounts” sections of this year’s Euromoney poll of analysts.
Similarly, diversified conglomerate Tanjong discloses individual director compensation, a rule that isn’t generally enforced in Malaysia. In CG Watch 2004, Tanjong is cited as one of Malaysia’s corporate governance stars. It helps that business is doing well and that guidance on new growth initiatives for the gaming division is good. Despite one communication hiccup with the investment community regarding its surprise leisure investment in Germany, management has gone all out in being as transparent as possible about the scope and potential of investment, the survey says.
Tanjong topped the “most transparent accounts” category in the poll, as well as having the “most accessible senior management” and offering the “best treatment of minority shareholders”.
Kenny Yee, equity strategist at Avenue Securities, says: “It is doing business far more professionally and it is much more transparent than its main domestic competitors, Magnum Corp and Berjaya Sports Toto. Since day one, they have been more than forth coming in providing information during its marketing trips.”
Several companies across Asia have recognized that attracting foreign investment or expanding outside domestic markets can be facilitated if they improve their corporate governance. “Businesses that are up against fierce international competition are clearly under more pressure to strengthen their corporate governance standards,” says Acga’s Allen.
Indian IT consulting firm Tata Consultancy Services (TCS), came second in “best newly listed company” category this year. Financial performance as much as corporate governance contributed to this. Belonging to one of Asia’s largest conglomerates, the Tata Group, TCS recently announced second-quarter revenue of Rs24.3 million ($54 million), up 43.58% on the same period in 2003. Net income after tax at Rs5.8 million was up 51.81%.
Following these strong results, TCS announced an interim dividend of 300% in October 2004, its first dividend payout after listing on the National Stock Exchange and The Stock Exchange, Mumbai, in August 2004. Vice-president AS Lakshminarayanan says that the listing will enable further non-organic growth and help the firm to gain more visibility.
Last month, it was announced that TCS and KLCC Property, the owner of Malaysia’s Petronas Twin Towers, will join the MSCI indices. Theses two companies accounted for two of the region’s biggest share sales this year and KLCC Property topped the “best newly listed”category. Analysts expect that their inclusion will boost their share prices as index-tracking fund managers add them to their portfolios.
Smaller companies raise their game
It isn’t just the large corporates that are voluntarily adopting good governance policies. Indian IT solutions provider i-flex, for example, scored highly in the “best small company” section. In just 12 years, i-flex has shown remarkable growth as a supplier of core banking technology to customers worldwide. This year, its growth has been primarily organic, particularly in the US, Spain, France, Russia and Latin America. Customers include UBS, Lloyds TSB and Rabobank.
R Ravisankar, global head of sales and CEO of international operations at i-flex, says that the company’s customer profile has moved from small banks in emerging markets to top tier institutions in advanced markets. “We have adopted a number of proactive measures to ensure that we retain our customers,” he says. “For example, we do full US reporting on a quarterly basis, which is something we are not required to do.”
Companies that go beyond the rules that they are required to enforce have realized the dividends. The general rule in Asia is that bigger companies with a substantial international presence tend to take corporate governance more seriously. But this year, it appears that smaller companies are recognizing this benefit.
“There is an emerging group of small to mid-cap companies that are adopting higher standards of corporate governance, as a way to get noticed by analysts and to improve their management of risk and organisational efficiencies,” says Acga’s Allen. “If you’d asked me that a year ago, I wouldn’t have been able to say that. Let’s just hope it isn’t a flash in the pan.”
