The headlining of multiple corporate scandals in Singapore recently highlighted that there is no totally foolproof system of checks and balances against deliberate dishonesty. In this regard, guarding an organisation against fraud requires the vigilance of multiple stakeholders in the corporate governance ecosystem, each playing their specific role in directing and controlling an organisation’s activities so that long-term value is generated.

Companies and professionals should analyse and learn from past cases of corporate misgovernance. This goes beyond mere spectatorship or finger pointing but is intended to prevent history from repeating itself, raise the standards of corporate governance in companies and continue to build trust in Singapore as a leading financial hub.

To this end, ISCA’s Corporate Governance and Risk Management Committee organised a panel session to discuss red flags from recent corporate governance failures. More than 80 people attended the “Risk & Governance Lessons from Allied Technologies” sharing event held on July 30 at the Deloitte Singapore office.

Allied Technologies discovered that some S$33 million of its funds in escrow had gone missing overnight, when the lawyer managing the account allegedly disappeared with the money. While the saga was used as a backdrop, the panel-sharing session drew broader lessons from across recent corporate governance failures.

The session attracted senior professionals, reflecting their strong desire to better understand how to discharge their duty of care as senior personnel of their companies

(From left) Moderator Seah Gek Choo, Leader, Deloitte SEA and Singapore’s Centre for Corporate Governance, and Robson Lee, Partner, Gibson, Dunn & Crutcher LLP (centre), with the panel of ISCA Corporate Governance and Risk Management Committee members comprising Kelvin Tan, Independent Director at various companies; Basil Chan, Managing Director, MBE Corporate Advisory Pte Ltd and Independent Director at various companies, and Dr El’fred Boo, Associate Professor, Nanyang Technological University

The multidisciplinary expert panel, which comprised seasoned professionals from the audit, legal and independent directorship community, gave their take on some common red flags of corporate governance failures and engaged in a lively Q&A session with the participants. This article is a summary of the learning points from the session.


The panel highlighted some common lagging red flags of corporate misgovernance. These tell-tale signs of corporate governance failure usually appear at a later stage, when it is too late to try to address them, for example, when the company has incurred significant monetary losses. As the old saying goes, hindsight is 20/20, and it is always easier to identify what should have been done after something has happened. Other examples of lagging red flags include:

  • Diversification into industries that are seemingly unrelated to the company’s or board’s core expertise

This should raise questions about whether it was a possible case of related party transaction, or whether the board and management have the expertise to manage the new business.

  • Acquisitions that are overvalued, or insufficiently backed up with proper due diligence

This should raise questions as to whether appropriate due diligence work was conducted for the acquisition, and whether the board had adequately discharged its duty of care.

  • High turnover of directors and/or key management [example, Independent Directors (IDs), Chief Executive Officer (CEO), Chief Financial Officer (CFO), etc]

High turnover of key management or directors has traditionally signalled poor internal governance and/or the existence of lapses. In the case of Allied Technologies, there were four major departures in one particular year, with one CFO leaving the position after two months.

  • Key partners being slow to carry out agreed actions or suddenly becoming unresponsive

In the case of Allied Technologies, it had sought multiple times to recover the funds from its escrow account from the lawyer who provided repeated assurances but took no action. While companies may not be able to prevent others from committing fraud, they have to be vigilant against it and sound the alarm early when encountering sluggish or unresponsive behaviour.

Compared to lagging red flags, it is more challenging to pinpoint and identify leading red flags. Usually, things have not begun to go south, and the real intent behind certain corporate actions are not yet apparent.

Accountancy professionals in board or management positions should exercise their professional scepticism, ask when in doubt and ensure a proper documentation trail in the name of due diligence. It is crucial to be able to spot and address leading red flags early on, because they suggest a propensity for corporate lapses to happen. If spotted and remedied in time, it would make it harder for agents of misgovernance or fraud to perpetrate their crimes in companies. Examples of leading red flags include:

  • Lack of disclosure/transparency

Boards have to ensure transparency and accountability to key stakeholder groups. As such, the level of transparency of a company would usually be a good gauge of the company’s culture and how seriously the board has undertaken its duties.

Disclosure has benefits beyond simply fulfilling compliance requirements. Research shows that companies with fuller disclosure win more trust from investors, as relevant and reliable information means less risk to investors and thus a lower cost of capital.

  • Imbalance of power at the board level

When there is an absolute wield of power by one individual (for example, when a company founder also holds the position of Chairman and CEO), the independence of other directors serves as an important counterbalance against unilateral or unchallenged decisions.

Independence should not only be in form but also in substance. While there may be regulatory safeguards in place to ensure a certain level of independence in the boards, they can only do so much. Ultimately, directors worth their salt must express their independence of mind to avoid the greater dangers of group think.

The panel also cautioned that if any misgovernance happened on one’s watch, resignation would neither resolve the problem nor absolve one of responsibility. Those charged with the duty of care to the company, such as IDs, must ask questions until they feel completely satisfied, challenge assumptions when necessary and ensure a proper documentation trail of the decision-making process.

In conclusion, this article does not list an exhaustive list of red flags. Rather, it aims to share some of the key learning lessons from corporate governance failures. Management and the board have a duty to not just spot but voice their discomfort with any perceived incongruencies. This is by no means an easy feat, particularly when the tendency is to keep to the status quo, and avoid rocking the boat.