E. Asia risks losing lure for investment

E. Asia risks losing lure for investment

SINGAPORE (AFP): East Asia risks losing its attraction for
foreign investors if the region relaxes corporate governance
standards to spearhead capital market development, a conference
was told yesterday.

Corporate governance is the system by which companies are
directed and controlled and concerns the effectiveness and
accountability of directors to their shareholders.

"To remain as an attractive market for international investors
and thereby sustain rapid economic growth in the whole East Asian
region, there must be good corporate governance..," Singapore
Finance Minister Richard Hu said.

Hu told a conference organized by the Stock Exchange of
Singapore that the rapid expansion of regional capital markets
had created a temptation to lower standards of corporate
governance to spearhead further development.

"If we do so, standards will fall and the risk of investing in
the region increase," he warned. "In the long-run, the region
will lose its investment rating and attraction among foreign
investors.

"Investor confidence is a scarce commodity. Once lost, it will
not be easily revived," Hu said.

Detractors say that high corporate governance standards
imposed by regulators on listed companies burdens companies,
stifles enterprise and scares off potential users of the capital
market, and want guidelines to be kept to a minimum.

They also cite the high costs of maintaining monitoring
mechanisms to ensure that managements comply with procedures.

Hu said corporate governance standards helped directors manage
their companies' operations better.

"Rogue traders at NatWest and Sumitomo could not have covered
up their huge losses for so long had better internal controls
been in place," the minister said.

Corporate frauds such as the much-touted discovery of massive
gold deposits in Indonesia which turned out to be a hoax,
emphasized the "huge cost to investors as a result of the
breakdown in corporate governance," he said.

Many developing countries in Asia rely on foreign capital
inflows to finance their economic development, and financial
scandals and incidents of corporate collapse will undermine
investors' confidence, Hu said.

Adrian Cadbury, former chairman of a British committee on
corporate governance, said the emergence of "truly global
markets" would spur movement towards an international standard
which companies around the world will have to meet.

Cadbury told the conference that institutional investors
seeking opportunities outside their domestic markets would demand
properly constituted boards, reliable financial reporting, full
disclosure, effective internal financial controls and equal
treatment for all shareholders.

And companies that wish to raise money on international
markets can only do so if they obey their rules, he said,
although it can prove uncomfortable.

Cadbury cited the example of Daimler-Benz which found that the
profit it had declared in Germany became "an embarrassing loss"
when its accounts were restated in line with US accounting
standards when it sought a quotation on the New York Stock
Exchange.