Publication: The Business Times, p 13 Date: 12 April 2012 Headline: Boardrooms due for re-calibration Boardrooms due for re-calibration Along with the debate linked to inc make up at least half the board, re T HE old, thorny issues of Singapore's Code of Corporate Governance refuse to go away. With no cap proposed on tenures oflong-sew- ing independent directors or the number of directorships that an ind~vidual should have. fresh debate may start on whether compa- nies here can, and will, explain their position on these matters to the public. The demand and supply dynamics for directors in Singapore will also be due for some re-cahbratlon, if proposed changes to the code are approved After seekmg market feedback, the Corporate Govern- ance Council watered down its initial proposal to have a nine-year p u r e limit for independent directors. and in- stead, directed companies that have long-semng inde- pendent directors to explain the reasons that such individ- uals are still independent. This will affect a significant number of companies list- ed m S~ngapore, according to a report released just this week by management consultancy Hay Group. The report focused on non-executive directors from 200 large compa- nies in four South-east Asian countries Singapore, Malay- sia. Tha~land, and Indonesia. It showed that out of 50 uni- dentified companies of large market cap in Singapore, 62 per cent have at least one independent director who has served more than nine years on their board. There is also further evidence that independent direc- tors of Singapore-listed companies tend to stick around. Hay Group's report showed that the median tenure of in- dependent directors in Slngapore of seven years is the longest among the four countries it looked at. Malaysia fol- lows S~ngapore wth SIX years, Indonesia with four-and-a- half years, and Thailand has a median tenure of three years. Market participants agree that the nine-year mark is a suitable point for companies to assess the directors' mde- pendence, but note that how this assessment would be re- layed to the public is quite something else "Various arguments have been thrown into the nng. from 'need for fresh blood', 'a long tenure is objectivity compromised' to 'an independent old guard is more pow- erful to counter management short-termism'," observes associate professor Themin Suwardy, deputy president, Singapore, CPA Australia, and associate dean (cuniculum &teaching) and MPA programme director at the school of accountancy at the Singapore Management University (SMU). "The revised code does require a 'particularly rig- orous test' but doesn't provide ~nformation on what it com- prises. This could potentially result in an ~mplementation issue." Whether this would bring more board renewal is also suspect at this point. "With this, Singapore could end up with some companies endlessly rolling over independence judgements - we could still see independent directors that serve for about 15 years, as we do now," says David Smith, head of corporate governance at Aberdeen Asset Man~gement Asia. "It would be good to see some thoughtful disclosure on why an individual is classed independent with hoards. demonstrating that they've really had a hard look at the issue, as opposed to the boilerplate-style disclosure we tend to get m many situations," he adds. What compounds the issue is that In Asla, there is much less interaction between investors and board mem- bers, says Mr Smith. "While we have generally good dis- cussions with management, there are sometimes broader corporate governance issues that we'd like to discuss with board members, and the chairmen in particular, and, un- fortunately, this dialogue is rare." Veteran investor Ang Hao Yao notes that the quality of disclosure will be another teU-tale sign of companies bear- mg good governance standards. "We would probably see some companles produce serious statements with proper analysis of the directors' performance and some compa- nies presenting bland standard statements This would be one of the reports where investors can use to separate the wheat from the chaff,"he said. "Similarly, serlous compa- nies would be inclined to put in place a renewal plan for directors whereas other companies may not want to con- sider any changes." Director's resume And for there to be proper evaluation and adequate expla- nation, companies should include the director's resume, and in particular, updates to the resume over the past nine years to show h ~ s continued activeness, his attend- ance record, third-party board evaluation analysis, and the chairman's endorsement, notes Mr Ang. "It could also include a disclosure of the strength of the director's sup- port from minority shareholders based on the votes he garnered from minority shareholders for h ~ s most recent re-election bid." fependence and multiple directorships is another code revision proposal - that independent directors !ports JAMlE LEE l 2. ; b ' .I c yr. *da * &mu& 3C 1111 - 1111 m111 FILE PHOTO Changing guidelines: After seeking market feedback, the Corporate Governance Council watered down its initial proposal to have a nine-year tenure limit for independent " directors, and instead, directed companies that have long-serving independent directors to explain the reasons that such individuals are still independent This proposed revision may also prompt more compa- nies to establish nom~nating committees, noted assoclate professor Suwardy, with SMU research's of the top 500 SGX-hsted companles in 2010 showing that about 10 per cent still do not have a nominating committee. A similar situation is shaping up m the area of mult~ple directorships, with the code shying away from a limit that each d~rector should have, indicating that companies should decide on what is appropriate "If the authorities could provide a guideline on the limit of directorshlps of listed companies a person can take on, it would reduce the instances of busy directors sitt~ng on boards and this would likely improve governance," says Mr Ang But Deborah Ong, divisional president, S~ngapore, CPA Australia, and partner at PricewaterhouseCoopers, be- longs In the other camp of individuals who warn against being too prescriptive. "It will depend on what the individ- ual director's day job is and also their profess~onal back- ground. For example, if you hate technical skills only, you need to develop other aspects of oversight so you need to spend more time on this," she says. Jamle d e n , As~an Corporate Governance Association secretary general. notes. "It's a bit artificial to set caps, I realise that," but adds that there can be some granularity in the number of directorships that an individual should hold "Ifsomeone is genuinely retlred, five directorshlps is probably the maximum. If someone is a CEO or charman, then probably one " In Hong Kong, the stock exchange tried to impose a cap on the number of directorships that an individual should hold, but backed down after an overwhelming ma- jor~@ of market part~cipants opposed thls. It decided that every ind~vidual should determine whether he is able to devote the necessary amount of time and attention to the company and went further to say that it would no longer pursue this Issue Along w t h the debate hnked to independence and mul- tiple directorships is another code revision proposal - that independent directors make up at least half the board in certain circumstances, such as if the.chairman is also the CEO. Making up the numbers "There is a real concern that the new rules will result in people being appointed to the board simply to make up the numbers," says Low Weng Keong, councillor, board member, and immediate past president and chairman of the board of CPA Australia. "This may simply mean that companies are not getting the skill sets they prefer to have on thew boards rather than a collapse in good corporate governance," he adds. He encourages continuous trainlng for directors, with professional accounting bodies such as CPA Australia, re- quir~ng members to achieve a certain level of rontlnual professional education each year. These could be consid- ered for directors or boards as a whole. says Mr Low. Based on the Singapore Institute of Directors' (SID) analysis of the 2010 annual reports of 706 Singapore-list- ed companies. 312 companies w~ll be affected by the lat- ter proposal, notes Sovann Giang, executive director at SID And if additional directors are to be appointed to meet the 50 per cent requirement. 395 added appoint- ments will be required, Mr Glang says Even as the debate over multiple d~rectorship contin- ues, Mr Giang suggests that existing directors can take on more. SID's analysis showed that of the 1,503 independ- ent directors in Singapore, more than 88 per cent. or 1,329 directors, hold two or fewer independent director- shlps. The required add~tional 395 appointments repre- sent only about 30 per cent of these directors, hc adds "There are many other competent candidates out there waiting to be selected," says Mr Giang. adding that acrord- ing to the database of SID's board appointment service, there are more than 400 members who are interested in becoming independent directors. In 2010. SID introduced two listed company directors train~ng programmes in partnership with the Singapore Exchange - the listed company director programme and the effect~ve board leadership programme. These have at- tracted attendance of more than 1.000 participants since their inception. SID's executive diploma m directorship programme, which is jointly organised wth SMU, has al- so attracted more than 200 participants since 2010 Mr Men also suggests that boards start looking at get- ting female directors, adding that gender quotas may be needed to get Asian companies to start thinking about the issue According to a recent study done bv NUS Business School's Centre for Governance, ~nstitutidns & Organisa- tions, over 60 per cent of listed firms did not have a single woman on their board as at February this year Just about 7 per cent of board posit~ons In listed firms wcre held by women, the same study showed. This is the second in a four-part corporate governance thought leadership series that looks at the impact of proposed re~~isions to the Code of Corporate Gooernance in Singapore. The series is brought lo you by CPA Australia, in conjunction with this year's CPA Forum that uill be held on April 26. 2022 Source: The Business Times O Singapore Press Holdings Limited. Permission required for reproduction.
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Publication: The Business Times, p 13 Date: 12 April 2012 Headline: Boardrooms due for re-calibration
Boardrooms due for re-calibration Along with the debate linked to inc make up at least half the board, re
T HE old, thorny issues of Singapore's Code of Corporate Governance refuse to go away. With no cap proposed on tenures oflong-sew- ing independent directors or the number of directorships that an ind~vidual should have. fresh debate may start on whether compa- nies here can, and will, explain their position on these matters to the public. The demand
and supply dynamics for directors in Singapore will also be due for some re-cahbratlon, if proposed changes to the code are approved
After seekmg market feedback, the Corporate Govern- ance Council watered down its initial proposal to have a nine-year p u r e limit for independent directors. and in- stead, directed companies that have long-semng inde- pendent directors to explain the reasons that such individ- uals are still independent.
This will affect a significant number of companies list- ed m S~ngapore, according to a report released just this week by management consultancy Hay Group. The report focused on non-executive directors from 200 large compa- nies in four South-east Asian countries Singapore, Malay- sia. Tha~land, and Indonesia. It showed that out of 50 uni- dentified companies of large market cap in Singapore, 62 per cent have a t least one independent director who has served more than nine years on their board.
There is also further evidence that independent direc- tors of Singapore-listed companies tend to stick around. Hay Group's report showed that the median tenure of in- dependent directors in Slngapore of seven years is the longest among the four countries it looked at. Malaysia fol- lows S~ngapore w t h SIX years, Indonesia with four-and-a- half years, and Thailand has a median tenure of three years.
Market participants agree that the nine-year mark is a suitable point for companies to assess the directors' mde- pendence, but note that how this assessment would be re- layed to the public is quite something else
"Various arguments have been thrown into the nng. from 'need for fresh blood', 'a long tenure is objectivity compromised' to 'an independent old guard is more pow- erful to counter management short-termism'," observes associate professor Themin Suwardy, deputy president, Singapore, CPA Australia, and associate dean (cuniculum &teaching) and MPA programme director at the school of accountancy at the Singapore Management University (SMU). "The revised code does require a 'particularly rig- orous test' but doesn't provide ~nformation on what it com- prises. This could potentially result in an ~mplementation issue."
Whether this would bring more board renewal is also suspect at this point. "With this, Singapore could end up with some companies endlessly rolling over independence judgements - we could still see independent directors that serve for about 15 years, a s we do now," says David Smith, head of corporate governance at Aberdeen Asset Man~gement Asia.
"It would be good to see some thoughtful disclosure on why an individual is classed independent with hoards. demonstrating that they've really had a hard look at the issue, as opposed to the boilerplate-style disclosure we tend to get m many situations," he adds.
What compounds the issue is that In Asla, there is much less interaction between investors and board mem- bers, says Mr Smith. "While we have generally good dis- cussions with management, there are sometimes broader corporate governance issues that we'd like to discuss with board members, and the chairmen in particular, and, un- fortunately, this dialogue is rare."
Veteran investor Ang Hao Yao notes that the quality of disclosure will be another teU-tale sign of companies bear- mg good governance standards. "We would probably see some companles produce serious statements with proper analysis of the directors' performance and some compa- nies presenting bland standard statements This would be one of the reports where investors can use to separate the wheat from the chaff," he said. "Similarly, serlous compa- nies would be inclined to put in place a renewal plan for directors whereas other companies may not want to con- sider any changes."
Director's resume And for there to be proper evaluation and adequate expla- nation, companies should include the director's resume, and in particular, updates to the resume over the past nine years to show h ~ s continued activeness, his attend- ance record, third-party board evaluation analysis, and the chairman's endorsement, notes Mr Ang. "It could also include a disclosure of the strength of the director's sup- port from minority shareholders based on the votes he garnered from minority shareholders for h ~ s most recent re-election bid."
fependence and multiple directorships is another code revision proposal - that independent directors !ports JAMlE LEE
l
2. ;b '
.I
c yr. *da
* &mu& 3C 1111 - 1111 m111
FILE PHOTO
Changing guidelines: After seeking market feedback, the Corporate Governance Council watered down its initial proposal to have a nine-year tenure limit for independent " directors, and instead, directed companies that have long-serving independent directors to explain the reasons that such individuals are still independent
This proposed revision may also prompt more compa- nies to establish nom~nating committees, noted assoclate professor Suwardy, with SMU research's of the top 500 SGX-hsted companles in 2010 showing that about 10 per cent still do not have a nominating committee.
A similar situation is shaping up m the area of mult~ple directorships, with the code shying away from a limit that each d~rector should have, indicating that companies should decide on what is appropriate "If the authorities could provide a guideline on the limit of directorshlps of listed companies a person can take on, it would reduce the instances of busy directors sitt~ng on boards and this would likely improve governance," says Mr Ang
But Deborah Ong, divisional president, S~ngapore, CPA Australia, and partner at PricewaterhouseCoopers, be- longs In the other camp of individuals who warn against being too prescriptive. "It will depend on what the individ- ual director's day job is and also their profess~onal back- ground. For example, if you hate technical skills only, you need to develop other aspects of oversight so you need to spend more time on this," she says.
Jamle d e n , As~an Corporate Governance Association secretary general. notes. "It's a bit artificial to set caps, I realise that," but adds that there can be some granularity in the number of directorships that an individual should hold "Ifsomeone is genuinely retlred, five directorshlps is probably the maximum. If someone is a CEO or charman, then probably one "
In Hong Kong, the stock exchange tried to impose a cap on the number of directorships that an individual should hold, but backed down after an overwhelming ma- jor~@ of market part~cipants opposed thls. It decided that
every ind~vidual should determine whether he is able to devote the necessary amount of time and attention to the company and went further to say that it would no longer pursue this Issue
Along w t h the debate hnked to independence and mul- tiple directorships is another code revision proposal - that independent directors make up at least half the board in certain circumstances, such as if the.chairman is also the CEO.
Making up the numbers "There is a real concern that the new rules will result in people being appointed to the board simply to make up the numbers," says Low Weng Keong, councillor, board member, and immediate past president and chairman of the board of CPA Australia. "This may simply mean that companies are not getting the skill sets they prefer to have on thew boards rather than a collapse in good corporate governance," he adds.
He encourages continuous trainlng for directors, with professional accounting bodies such as CPA Australia, re- quir~ng members to achieve a certain level of rontlnual professional education each year. These could be consid- ered for directors or boards as a whole. says Mr Low.
Based on the Singapore Institute of Directors' (SID) analysis of the 2010 annual reports of 706 Singapore-list- ed companies. 312 companies w~ll be affected by the lat- ter proposal, notes Sovann Giang, executive director at SID And if additional directors are to be appointed to meet the 50 per cent requirement. 395 added appoint- ments will be required, Mr Glang says
Even as the debate over multiple d~rectorship contin- ues, Mr Giang suggests that existing directors can take on
more. SID's analysis showed that of the 1,503 independ- ent directors in Singapore, more than 88 per cent. or 1,329 directors, hold two or fewer independent director- shlps. The required add~tional 395 appointments repre- sent only about 30 per cent of these directors, hc adds
"There are many other competent candidates out there waiting to be selected," says Mr Giang. adding that acrord- ing to the database of SID's board appointment service, there are more than 400 members who are interested in becoming independent directors.
In 2010. SID introduced two listed company directors train~ng programmes in partnership with the Singapore Exchange - the listed company director programme and the effect~ve board leadership programme. These have at- tracted attendance of more than 1.000 participants since their inception. SID's executive diploma m directorship programme, which is jointly organised w t h SMU, has al- so attracted more than 200 participants since 2010
Mr M e n also suggests that boards start looking at get- ting female directors, adding that gender quotas may be needed to get Asian companies to start thinking about the issue According to a recent study done bv NUS Business School's Centre for Governance, ~nstitutidns & Organisa- tions, over 60 per cent of listed firms did not have a single woman on their board as at February this year Just about 7 per cent of board posit~ons In listed firms wcre held by women, the same study showed.
This is the second in a four-part corporate governance thought leadership series that looks a t the impact of
proposed re~~isions to the Code of Corporate Gooernance in Singapore. The series is brought lo you by CPA
Australia, in conjunction with this year's CPA Forum that uill be held on April 26. 2022
Source: The Business Times O Singapore Press Holdings Limited. Permission required for reproduction.
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