Shareholder Empowerment in Controlled Companies: The Case of Singapore

Prevailing corporate governance literature has incontrovertibly identified the agency problems in controlled companies as those between the controlling shareholders (agent) and the minority shareholders (principal) or the “controller-minority” or “horizontal” agency problem While several corporate governance strategies have been proffered to address these agency problems in the broader milieu, here we raise and discuss two specific strategies that may be potentially deployed to address the agency problems in controlled companies. These are: (i) the participative strategy, wherein shareholders (particularly the minority) are enabled and encouraged to exercise greater participation in companies in which they have invested so as to strengthen shareholder democracy; and (ii) controlling strategy, wherein the focus is on controlling or regulating the actions of the controlling shareholders rather than empowering the minority shareholders. The core argument in this chapter is that given the predominant ownership and control exercised by the controlling shareholders in controlled companies, the participative strategy is sure to be met with impediments. Any amount of additions to the powers of the minority shareholders in corporate democracy would not be meaningful if they are required to exercise it in the shadow of a controlling shareholder’s dominance. Given the ineffectiveness of the participative strategy, the corporate governance efforts in controlled companies may instead be better spent on the controlling strategy. A system of greater monitoring of controlling shareholders, especially on matters where such shareholders may be interested, such as self-dealing transactions, would augur to the benefit of the minority shareholders. We explore these strategies by concentrating on one jurisdiction, i.e. Singapore. The study of Singapore is interesting because it ranks highly among Asian economies against indicators for corporate governance and investor protection. At the same time, the corporate sphere is replete with controlled companies, where dominant control is exercised either by business families or the state. Singapore thus provides an eminently suitable case study for when the participative strategy might work (if at all) and how that might be bolstered through the operation of the controlling strategy so as to protect the minority shareholders and address the agency problem relevant to controlled companies.