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.