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Investing In Companies On The Singapore Exchange: Knowing Your Rights (And Responsibilities) As A Shareholder

As a shareholder, your most important right is to attend, ask questions of the management and vote at a company’s Annual General Meeting (AGM).

 

This article is written in collaboration with SIAS. All views expressed are the independent opinion of DollarsAndSense.sg

When we invest in the stock market, many of us do so with the intention of beating the meagre interest rates banks give us on our savings, or to grow a nest egg for our retirement.

What we may overlook is the fact that investing in stocks essentially makes us part-owner of a real company, with a real underlying business. While this aspect remains invisible on price charts, these companies are trying to expand their business, grow profits, reduce costs, beat out competitors, employ good people, manage their cashflow, invest for the future, provide customer service, comply with regulations and handle many other day-to-day operations.

Being Responsible For Your Investment Decisions

As an investor, we are putting our hard-earned money into these companies, and we need to be accountable for our investment decisions. This starts with thinking about a company’s business and assessing how it fits into our investment portfolio before deciding to invest in its stocks. What we should not do is simply invest because we get a hot tip from a friend or out of fear of missing a bull run.

Here are some things we can do to make more responsible investing decisions:

#1 We need to have a good reason to invest in a company. This means educating ourselves about its business and future growth prospects, including any risks the company may face.

We should also familiarise ourselves with some of our rights as a shareholder (which we will go into greater details below).

#2 Our risk appetite sets the barometer for the kinds of investments we should be making. While it’s easy to say that we want to achieve the highest returns possible, the reality is that the highest returns usually come with the highest risks.

If we get very anxious at the first sight of markets turning red, we may not have the appetite to take large risks with our investments.

#3 Understanding our ability to take risks should also be a consideration. If we are young, just starting out our careers and with decades to go before retirement, our risk profile enables us to take on riskier investments compared to someone who is nearing retirement or has heavy financial commitments towards their family or their own business.

This is because younger investors have decades to ride out market volatility to capture long-term gains, while those closer to retirement or have heavy financial commitments may need to cash out their investments in the short-term, even if the market experiences a crash.

Read Also: Young Working Adults In Singapore – How You Can Build An Investment Portfolio To Pay For Major Life Expenses

#4 Regularly reviewing and monitoring our investment portfolio is also crucial to being a successful investor. We need to dedicate sufficient time to do this if our portfolio is going to stay relevant over the long-term.

Staying on top of our investments help in the early identification of any wrong investment decisions we make, or flag companies we have invested in that become unsuitable. Over time, this also builds our knowledge base and experience as an investor.

At the end of the day, it is our money to invest, and we should not put it into investments we do not fully understand or are unsuitable for us, regardless of how rosy it may look. Once we have made a decision to invest in a company, we also need to know our rights as a shareholder (albeit, a minority one).

Understanding Your Rights As A Shareholder

How we earn returns from our investment in a company is primarily through our rights to its profits and assets. As a company grows, its share price should rise, and it may potentially pay out more dividends as well.

Apart from this, we should also be clued in to other ownership rights that we may not fully appreciate until our investments become distressed. While these are detailed on the Companies Act for Singapore incorporated companies, the Securities and Futures Act, as well as the SGX Rulebook for companies that wish to be listed on the local market, it is likely to be too complex and jargon-filled for retail investors to comprehend, let alone enforce.

This is where an organisation such as the Securities Investments Association (Singapore), or SIAS, comes in to create better outcomes for the investment community in Singapore through its 4-pronged approach to:

a) empower investors through education and information;
b) safeguard and protect investor rights;
c) promote fair and transparent corporate governance standards, regulations and practices; and
d) advocate sustainable stakeholder relationships in the investment community

On its website, SIAS has a handy guide for investors to easily understand their rights as shareholders. In this guide, some of the common shareholder rights we should be familiar with include:

#1 The right to attend, speak and vote at a company general meeting, especially with regards to major business decisions. This is one of the most important rights as a shareholder, and we need to make good use of the time interacting with the company’s management team at general meetings.

In fact, SIAS has also published a detailed guide on understanding the code of conduct and best practices at general meetings, explaining the lawful rights of shareholders, as well as what shareholders can expect before a general meeting is called. It also includes some rules of etiquette in relation to shareholders and the chairman of the meeting.

Since 2016, SIAS has spearheaded an effort to raise the levels of transparency and corporate governance by going through companies’ annual reports and asking relevant questions on their business strategies, financial information, corporate governance and/or sustainability.

To-date, SIAS has submitted more than 788 sets of questions to companies, with requests that they be answered during their general meetings and posted on SGXNet for the benefit of all shareholders. Shareholders can also take this chance to understand why these questions were asked, digest the company’s answers to the questions, and seek greater accountability themselves by asking questions.

#2 Shareholders also have the right to information, including registers of members, directors (and their shareholdings), secretaries, auditors, as well as company announcements through SGX, company’s financial position, the minutes of general meetings and more.

In its annual reports, companies should also disclose (among other pertinent information):

– Remuneration policies, and full disclosure of remuneration of individual directors and the CEO
– The independence status of directors on its board and the selection, appointment and re-appointment process of new or existing directors

Shareholders also have the right to obtain information on the general meeting agenda at least 14 days (for ordinary resolutions) and 21 days (for special resolutions) beforehand.

#3 As shareholders, we also have the right to be treated fairly. While this sounds vague, it actually allows for shareholders to go to court to remedy situations where:

– Directors’ powers are exercised i) in an oppressive manner to a shareholder or ii) in disregard of a shareholder’s interest; or
– There is an act or resolution that unfairly discriminates against a shareholder

#4 Being entitled to the assets of a company, especially relevant in the event of delisting or insolvency (where they will be ranked behind employees and debtholders).

#5 Listed companies are also required to disclose their corporate governance practices. There are 13 principles in total, including a portion on Shareholder Rights and Engagement which is split into two principles and details good practices that companies should adopt.

i) Shareholder Rights And Conduct Of General Meetings

Source: SGX

ii) Engagement With Shareholders

Source: SGX

Asking The Right Questions

Beyond scrutinising a company’s annual report and asking questions during its Annual General Meeting (AGM), shareholders have to keep abreast with company news and announcements as well to be able to ask the right questions.

Earlier this year, CapitaLand Limited announced that they would acquire Ascendas-Singbridge from Temasek Holdings in an $11 billion deal creating Asia’s largest diversified real estate group. In occasions such as these, where minority shareholders may be unsure of the deal, hearing both positive and negative reactions, SIAS also plays a role in hosting and moderating a dialogue session between CapitaLand Limited and retail shareholders. This allows shareholders to pose their questions or air their uncertainties directly to the company.

Many of us would also have heard of the recent Hyflux insolvency saga. This put both bondholders (who invested in Hyflux bonds that were listed on SGX) and shareholders in a bind. While tensions flared, SIAS raised a list of 23 questions, with many sub-questions, to the Hyflux board regarding past years performances and potential debt and business restructuring.

Read Also: Stocks Or Bonds: The Pros And Cons Of Each Of These Investments

In addition, for Hyflux shareholders and bondholders to better understand the situation, SIAS also raised relevant questions to PUB, regarding water purchase price from Hyflux’s Tuaspring facility and selling price to Singapore households.

The power of asking the right questions will lead to greater transparency and accountability from companies’ management teams and board of directors. Taking SIAS’ lead, we should look at relevant materials, including annual reports, company announcements as well as industry news to pose questions and receive responses from the companies that we have invested our hard-earned money into.

Find out more about SIAS below: