More guidance needed on governance for group companies: study

More disclosure on how listed group companies ensure good governance is needed in Asia, a new study has suggested.

The study, conducted by governance watchers Mak Yuen Teen and Chris Bennett, found that most of the large listed companies in Singapore, Australia and Malaysia are made up of group entities.

In many cases, the listed companies are holding companies and the bulk of their assets and liabilities are held by group entities rather than the parent organisation. This approach was most common for Malaysian companies, followed by those in Singapore and then Australian firms.

The study's findings, released on Wednesday, showed that the average number of group entities disclosed by Singapore listed firms is 47. This is lower than Australia's average of 93 and Malaysia's average of 90.

In all three countries, group entities contribute significantly to the financial performance and financial position of company groups.

For Singapore companies, group entities contributed an average of 42 per cent of total profit for the latest financial year, above Australian firms' share at 39 per cent but below Malaysian companies' share at 45 per cent.

This means that the performance and risks of group entities - which are legally separate from but often managerially integrated with the listed entity - will have a significant impact on the performance and risk of the listed entity, the authors said.

To address such risks, the report proposes a framework to guide parent boards of company groups on the governance of group entities.

The framework includes measures that can be used as part of a comprehensive group governance programme and environmental factors which affect the appropriate approach and measures to be used.

The report, which was published by CPA Australia and the Iclif Leadership & Governance Centre, also called on regulators to review corporate governance rules and guidelines to ensure that boards of parent companies recognise the importance of providing adequate oversight and guidance for entities throughout the group.

Associate Professor Mak Yuen Teen said many listed companies today are complex company groups operating in many industries and countries through separate legal entities, such as subsidiaries, joint ventures and associates.

"The interests of the parent and group entities can and do often conflict. These conflicts create difficulties for those who are directors of group entities who owe fiduciary duties to the group entity on the one hand, but who also have other roles within the group and different duties and responsibilities that come with those roles," said Prof Mak of the NUS Business School.

The report studied 150 of the largest companies by market capitalisation listed on the Singapore Exchange, Bursa Malaysia and the Australian Securities Exchange.

The 50 largest listed companies on each stock exchange by market capitalisation as at the end of July 2012 were included in the study sample.

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