Corporate Governance Report interviews CapitaLand CFO Arthur Lang on the impact of corporate governance on Asia’s real estate industry and investment
Corporate governance is a major issue when it comes to Asia’s real estate industry. It has become increasingly important for companies operating within the sector to monitor and refine their processes, to reduce the chances of corruption and fraud, and maintain the trust of stakeholders. Corporate Governance Report spoke to Arthur Lang, CFO of CapitaLand – one of Asia’s largest real estate companies – to find out about their culture of compliance, and the challenges they face expanding their services in developing countries.
Corporate Governance Report: Mr. Lang, what is CapitaLand’s approach to corporate governance?
Arthur Lang: You know, I think at the end of the day what is really the most important thing is to ensure that corporate governance, or the right level of corporate governance, is institutionalised, and I would say internalised by all the employees at CapitaLand. I think they need to understand the reason why we’re doing this. There’s always the tendency when it comes to corporate governance or compliance processes to be treated as a necessary inconvenience, or a check in the box type of exercise. I think this is what we want to avoid, and we want to make sure that the conduct of business that the employees internalise is the fact that, at the end of the day, we are answerable to our stakeholders.
We want to make sure that the conduct of business that the employees internalise is that we are answerable to our stakeholders
Corporate Governance Report: What challenges do you face when it comes to developing countries such as China?
Arthur Lang: I think there needs to be the organisational patience to ensure that we play the long game. I think for CapitaLand we have paid our tuition fees. We’ve been in China for almost 20 years now, and in the beginning it was very challenging. I think one needs to understand the business culture, the business practices, the regulatory requirements, and the market dynamics of the specific country. Even for China, if you look at individual cities, each has very different characteristics from the other. So I would say the challenges that we face are quite unique, and I think the challenge is basically to make sure that the organisation is behind you, and make sure that it’s willing to commit and play the long game, because there never is an overnight success story.
Corporate Governance Report: Well you’re based in Asia, but you also deal with Australia, so do you find there are higher standards when it comes to corporate governance there, and how do you address this?
Arthur Lang: In terms of higher levels of corporate governance, I think for us it’s not so much that we have presence in Australia or not. I think it’s more the fact that we have eight listed entities within the CapitaLand Group. Some are listed in Singapore, one is listed in Australia, and the others are listed in Malaysia. If you look at the jurisdictions and being a listed company, I think we bring about a higher level in terms of scrutiny when it comes to corporate governance; there are also higher expectations from shareholders and investors.
We have a zero tolerance for corruption, and this I would say comes from the very top, from my board, from my CEO, down to the employees and the rank and file
Corporate Governance Report: How does CapitaLand manage corruption?
Arthur Lang: We have a zero tolerance for corruption, and this I would say comes from the very top, from my board, from my CEO, down to the employees and the rank and file. So we do place a lot of emphasis on ensuring that we have the right policies and the right processes in terms of stamping out any fraud, or any type of corruption. I think that in terms of responsibilities of management and employees, it is very clear that there needs to be an anti-corruption culture in the organisation. Now, having said all that, it’s nice to have processes, it’s nice to have a lot of these policies in place, but at the end of the day it’s actually the people that matter, so we need to really focus, and we do focus a lot on hiring right. The right people for the job. And when I say right, it’s not only people who are smart, who have the technical skills, but more importantly people with the right moral compass, and also people with integrity.
Corporate Governance Report: What steps does CapitaLand take when addressing risk assessment and management?
Arthur Lang: We’re not going in to look at situations where we want to entirely remove all risk, because if that’s the case we might as well close shop. Because if there’s no risk that we’re going to take, there’s no return we’re going to make. So I think how we approach risk management is, if you look at the organisation, what is the capacity or the appetite for risk, and how does that appetite and capacity relate to the corporate strategy? And once I think this risk appetite is clearly stated or agreed upon between the board and management, it is much easier. Then we can make decisions based on this risk appetite that we have agreed upon, and all the risk limits and processes and all that can be tied in, or can be set with regards to this. So whether it’s investment opportunities, whether it’s treasury policies and all that, that will be guided by the type or amount of risk that we want to take. So within these parameters we will look at basically all the key risks that our group will face in our various markets, and what are the right controls, and whether these controls are effective.
We’re not going in to look at situations where we want to entirely remove all risk, because if that’s the case we might as well close shop.
Corporate Governance Report: How have real estate investment trusts grown in Asia, and how do you see them developing?
Arthur Lang: If you look at why the REIT product has been so successful in Singapore, I would say it’s because of, one, I think the right regulatory framework; I think there was a lot of support from the regulators to really grow this asset class, and very clear, transparent policies. How I see this developing, I think there is still a lot of potential in the REIT market, particularly in Singapore. Singapore is a wealth centre for not only southeast Asia, but I would say it is fast becoming a wealth centre for the world, and capital preservation, wealth preservation is very important now. Especially in very volatile markets, where sometimes if you just put into products where you’ve got wild swings in value, sometimes you lose your wealth. So I would say a lot of investors want to preserve their wealth, and I think the REIT product is one of the most suited products to preserve wealth, because it is yield based, it is based on cashflow, and it is very beneficial from a tax perspective to the retail investors. So I see a lot of potential and promise for the REIT product.
Corporate Governance Report: And finally, how do you aim to develop corporate governance within CapitaLand.
Arthur Lang: I think what is important is, we need to continue to focus on communicating very consistently and very frequently to our stakeholders. Especially in these markets now, it’s very volatile, things change, a lot regulatory policies change, a lot of accounting standards change, and I think as a result stakeholders will appreciate the fact that we’re open, we have a very open channel of communication with them.
Corporate Governance Report: Mr. Lang, thank you.
Arthur Lang: Thank you Jenny.