It inspects shareholder’s behaviors rather than company disclosures.
The Securities Investors Association (Singapore) (SIAS) has launched a new corporate governance ratings methodology for small and mid caps.
SIAS noted that existing governance ratings methodology applies the same criteria for evaluating the governance of large and small companies.
As listed small and medium enterprises (SMEs) are fundamentally different from large caps, current ratings methodology may not be sufficiently useful for assessing the governance of SMEs.
Under the Governance Evaluation for Mid and Small Caps (GEMS), SMEs will be evaluated over three years rather than on an annual basis.
The new criteria focuses more on measures and indicators that reflect actual behaviour and actions such as
whether the largest substantial shareholder has sold down more than 20 percent of his or her stake over the past three years.
GEMS will also look at whether whether major shareholders or key officers engage in frequent trading of shares. It will also scrutinize the experience of CEO in the industry and whether there is another member in the senior management team with sufficient experience in the company to step up.
The new criteria will also examine regulatory risk which affects protection of minority shareholders and whether changes in executive and directors’ remuneration are linked to changes in return on equity (ROE) and total shareholders’ return (TSR). Dividend payments and policy are also in the spotlight.
SIAS stressed that GEMS is not a lower benchmark, but rather a different benchmark that is more relevant to SMEs.
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