After the 2008 financial meltdown, which led to widespread bank collapses, hefty bailouts, and deep economic slumps, countries around the globe scrambled to ensure such a disaster would not strike again. The United Kingdom (UK) responded by introducing the Shareholder Stewardship Code in 2010, aimed at rectifying the passive stance of institutional investors — who then constituted a substantial 70% of the London Stock Exchange. This set of guidelines was designed to encourage investors to take an active role in the governance of companies they own shares in, thereby mitigating the risks of future crises. Similar stewardship codes were soon adopted across Asia, including Singapore in 2016, but few realised the underlying mismatch between the model and the market realities in the region.

In his research, Dan W. Puchniak, Professor of Law, found that institutional investors represented a mere 10% of companies’ shareholders in Asia. On the Singapore Stock Exchange (SGX), this number was only 6% while family firms, where family members were usually the controlling shareholders, accounted for 60%. He explains, “Singapore was the only country in the world that said, “Hold on a second. Actually, the problem of passive institutional investors is not the primary problem in Singapore, and institutional investors also may not be the solution.”

The first of its kind: Singapore’s family business stewardship code

In 2018, Stewardship Asia Centre (SAC), a non-profit organisation under Temasek Holdings which is dedicated to helping business and government leaders, investors, and individuals activate stewardship practices, introduced the 'Stewardship Principles for Family Businesses' (Family Stewardship Code) — the first code of its kind globally. 

The SAC was also the same entity that had introduced the Shareholder Stewardship Code to Singapore in 2016, modelled primarily around the UK’s code in 2010 that targeted institutional investors. The innovative Family Stewardship Code, consisting of seven principles, aims to ensure that family businesses are not only profitable but also well-governed and beneficial to society. With principles spanning succession, ownership and resilience, it addresses challenges that are especially common in family firms, such as succession conflicts, ‘legacy versus innovation’ and guarding against the pitfalls of hubris and complacency. The seven principles, which are non-binding to companies, were distilled from the collective wisdom of subject matter experts and successful business families. The purpose is to inspire reflection and spur action that can foster success, significance and sustainability for family businesses

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Of particular interest to Prof Puchniak are principles like “Do well, do good, do right; contributing to community” and “Embrace inclusiveness and build strong stakeholder relationships”. Both encourage family firms to strive for social and environmental objectives alongside their economic goals. This could mean transitioning to environmentally-friendly manufacturing processes or supporting social causes that resonate with the purpose and values of the family business. While the code does not provide prescriptive advice, he observes, it offers family business leaders good points of reflection and explains how such actions can benefit them through the accumulation of social capital and the preservation of the family’s reputation. Most importantly, it shows multigenerational family businesses, of today and the future, how the decisions made today can lead to a significant and positive impact on society in the long run. 

The code's holistic approach anticipates the dynamic nature of business environments and also reinforces the integral role family businesses play in shaping resilient, inclusive, and sustainable communities, thereby setting a benchmark for corporate governance and ethical leadership in Asia and beyond. This forward-thinking perspective was prescient, as Prof Puchniak explains, “Singapore’s Family Stewardship Code was, in a sense, ahead of its time in thinking about this idea about sustainable businesses. It preceded the UK by two years, which in comparison only started to adopt a sustainability focus in the 2020 edition of its Shareholder Stewardship Code.”

Leading the way for Asia: A change in thinking

While the creation of the Family Stewardship Code as a bespoke solution to Singapore’s corporate landscape demonstrates the nation’s innovative spirit, it also signals a pivotal shift in mindset - away from globalisation and towards regionalisation. 

Prof Puchniak explains, “I think Singapore is getting out of the mindset of just copying and pasting from the West and instead is saying, “We’re in Asia. We can do this on our own.” He shares that by naming the entity ‘Stewardship Asia’ instead of ‘Stewardship Singapore’, the country is showcasing its thought leadership in creating solutions for the region after decades of following global best practices. “They don’t force it on anyone, but they are creating something for the region that can then be localised further”, he adds. 

A critical crossroad for the sustainability agenda

Today, numerous Singaporean companies have pledged to adhere to these stewardship principles, but the effectiveness of the Family Stewardship Code itself remains to be seen. The Code's voluntary nature, referred to as a 'soft law' approach, raises questions about its ability to catalyse the profound changes needed in corporate governance and sustainability. The lack of mandatory compliance evidence further dilutes its effectiveness, mirroring challenges seen in Environmental, Social, and Governance (ESG) reporting, where companies may selectively disclose favourable information.

Prof Puchniak therefore asks, “Is it time for Singapore to think about a hard law approach that maybe would create another model for Asia?” This is a question that is considered in Prof Puchniak’s recent co-edited book Global Shareholder Stewardship, which is widely considered the leading book on shareholder stewardship globally.  While there are no clear answers now, he encourages the government to consider all perspectives and take incremental steps if needed. 

Building a more sustainable Asia

While the soft law approach appears to have been a good starting point for Singapore, Prof Puchniak stresses that this may not be the case in other Asian countries, especially those where corruption is prevalent. 

Nevertheless, he sees Stewardship Asia’s Family Stewardship Code as a good starting point for other Asian countries looking for corporate governance solutions that consider their local nuances and challenges. He says, “I would not say that this is just a plug and play since every society has its own richness. Singapore can inspire these countries to think about their own way forward.” 

Emphasising his belief in the need for local solutions, Prof Puchniak says, “I think the bigger lesson is, we need to get away from just importing from the West. Especially in Asia, where there are four billion people and such diversity and talent. Within the region itself, there may be commonalities, but there are important differences that should be respected for efficiency and for society to work”. It was this message – learning from Asia and the importance of understanding Asia’s diversity – that resulted in Professor Puchniak being the first Professor based in Asia to be awarded the prestigious ECGI Cleary Gottlieb Law Prize for his article No Need for Asia to be Woke: Contextualizing Anglo-America’s “Discovery” of Corporate Purpose.