Parallels between Grand Slam tennis and the Singapore stock market


    The Business Times, 7 August 2023


    EARLIER this year, I tuned in to some Grand Slam tennis, the French Open, on television. Even though it was the latter stage of the tournament, when matches are expected to be more exciting and stakes higher, the players were unknown – at least to me. Also, quite a number of seats were empty.

    No one disputes the branding or prestige of the French Open. Its organisers do whatever is necessary to ensure the event is well run. If the players are not well known, however, the spectators will not turn up.

    This story has parallels with our market. The organisers of the French Open set it up for success by establishing ground rules and seeding players, so match-ups are attractive.

    In the same way, the Singapore Exchange (SGX) and SGX Regulation (SGX RegCo) do all we can to ensure the market is fair, orderly and transparent; and the companies are attractive to potential investors. We do this in three ways.

    First, our admission process. The French Open has rules on entry invitations into the main draw and the qualifiers. This is to ensure quality.

    SGX RegCo similarly has rules to ensure companies listing are those people would want to invest in. We have rules on profitability and market capitalisation, and those ensure good governance and internal controls.

    We have also worked with the Association of Banks in Singapore to raise standards of due diligence conducted on listing aspirants.

    All rules must have room for discretion and flexibility to enable innovation and development. In the French Open and other major tournaments, a few “wildcard” slots are made available and often given to promising young players.

    We have built similar flexibilities into our rules. One example is the admission of special purpose acquisition companies (Spacs).

    Such flexibility must, however, be exercised judiciously. We consider factors such as the sponsors’ track record and experience, so only quality sponsors can list Spacs on our market.

    Our rules align the interest of sponsors with shareholders, so there is incentive to find high-quality targets.

    Second, evolving our rules. Earlier this year, we made changes to the nine-year rule for independent directors (IDs).

    When the rule was first introduced, companies had some flexibility to retain quality IDs. Over time, we observed this flexibility was being used liberally rather than sparingly. We then hard-coded a nine-year cap on the independence of directors.

    The changes to the rules on IDs, and earlier reforms requiring companies to put in place a board diversity policy, should be read together. Both are designed to work in tandem – to prod companies to renew and refresh their boards, and to ensure directors have the necessary skills, talents, experience and diversity.

    The infusion of new blood can help companies update themselves, improve performance and branding, and become more attractive to investors. If existing directors simply play musical chairs, swapping across companies, corporates are unlikely to achieve these objectives.

    While the nine-year rule imposes a nine-year limit for IDs, it does not guarantee them a nine-year term. Just as tennis players work hard to maintain their rankings, directors should make sure that they earn their seats and continue to add value.

    Nominating committees should evaluate directors’ performance every year to make sure they deliver benefit to companies.

    On Jul 28, Deputy Prime Minister Lawrence Wong announced the Singapore Institute of Directors’ new accreditation framework for directors to help uplift the profession.

    The Centre for Governance and Sustainability may want to consider incorporating this into the Singapore Governance and Transparency Index (SGTI) scoring framework, so companies and directors that make the effort to upskill receive appropriate recognition.

    Here, we can draw another parallel to tennis. On Jul 16, 21-year-old Carlos Alcaraz beat the veteran Novak Djokovic for the men’s singles title at Wimbledon.

    Viewership on BBC’s various platforms for the whole tournament was record-breaking; and the emergence of fresh blood, namely Alcaraz, may have had something to do with it.

    Similarly, the entry of new directors with new ideas may make our companies more attractive in terms of business growth and investor interest.

    Third, using technology. Most Grand Slam tournaments have, since 2006, introduced the use of Hawk-Eye technology to improve line calls and the quality of adjudication. The same technology underpins the Video Assistant Referee in football.

    These systems may be more accurate than human judges, but they have not been without controversy. Every tennis player wants a smooth game, without repeated line-call challenges and interruptions.

    The public queries SGX RegCo issues to companies function much like such challenges, and can have a chilling effect on the market. We have thus introduced technology such as artificial intelligence and other regtech solutions to reduce false positives.

    The outcome is that queries are fewer and of higher quality. Our regulatory resources are also freed up to focus on higher-risk areas.

    We are also doing more behind the scenes to actively engage our companies on our expectations and how they can make appropriate and timely disclosures.

    As companies become more adept at producing clear, current and comprehensive disclosures, we believe we won’t be querying them as much.

    The market should function more smoothly as disclosure quality improves. This is a work in progress, and we have already seen some positive signs.

    An attractive capital market isn’t just about the exchange. The individual companies and their branding are just as important, if not more.

    Governance is inseparable from branding. That is why the SGTI scores – for individual companies and collectively – are a useful signal of how our companies are doing and contribute to their branding.

    Just as the ATP tennis ranking is important for a player’s brand, the SGTI is crucial to how companies are viewed, their brand positioning, and their long-term sustainability.

    The writer is CEO of Singapore Exchange Regulation. This commentary is an excerpt from a speech he delivered at the Singapore Governance and Transparency Forum 2023.