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More diversity needed on company boards

If a company has a long-serving chairman, it probably ought not to have a long-serving CEO too, and vice versa

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Some chairmen at Singapore-listed companies with market caps of at least S$1 billion have been on their companies' boards for almost half a century, a Business Times study of data provided by Handshakes has found.


SOME chairmen at Singapore-listed companies with market caps of at least S$1 billion have been on their companies' boards for almost half a century, a Business Times study of data provided by Handshakes has found.

The top spot in terms of board tenure belongs to Henry Keswick, 77, at Jardine Matheson Holdings, who joined the board 49 years ago in 1967 and is its executive chairman, while City Developments' executive chairman Kwek Leng Beng, 75, was close behind at 47 years since 1969. Wee Cho Yaw, non-executive chairman at UOL Group, came in third with 43 years on the board.

Overall, chairmen of the slightly over 100 companies in the study had a median board tenure of nine years and a mean tenure of 11.6 years, the figures showed - a significantly longer duration than the average CEO tenures at these companies.

Market watchers said that while long-serving executive chairmen were likely to be the company founders or owners, and thus their lengthy terms might be more understandable. Still, it may be better for companies to have independent chairmen, they said.

Didier Cossin, a professor of corporate governance at IMD, noted that in fact, long-serving chairmen or CEOs can be considered "a global phenomenon as you might know that Rupert Murdoch, 85, has been CEO of News Corp for 64 years, and Warren Buffett has been in office for 60 years, not to mention the 91-year-old Sumner Redstone at National Amusements".

Gibson Dunn partner Robson Lee said he "would personally prefer the chairman of a listed company to be . . . the lead independent director, and for a board to comprise more independent directors" than executive directors.

"The chairman of the board should not have a long tenure. It would be good practice for the lead independent director and the board chairman position to be elected every two terms by and from among the independent directors of the board," he added. "The chairman of the board must have the moral and legal authority to veto against any management decision" that the board's "corporate governance committees" - made up of the audit, nominating and remuneration committees - are "not able to support or endorse".

However, observers pointed out that chairmen who are designated independent but have been on the board relatively long may deserve a harder look - especially those who have been on the board for longer than the nine years recommended in Singapore's Code of Corporate Governance. And if a company has a long-serving chairman, it may be more prudent to have a CEO who is not long-serving and vice versa, they added.

Out of the 95 current chairmen of billion-dollar market-cap Singapore listings on whom information was available, 31 (about 33 per cent) were executive, 37 (about 39 per cent) were independent and the remainder were non-executive.

The executive chairmen tended to have longer board terms, with a median of 19 years, while independent chairmen had a median board tenure of seven years. Observers said the gap was in line with expectations, given that executive chairmen were likely to be the firm's founders or part of its controlling family.

Among the 37 independent directors, 12 have been on the board for longer than nine years, according to the Handshakes data. The independent chairman who has been on the board longest was Hotel Properties Limited's Arthur Tan, who joined the board in 1996 and was named chairman in 2013. HPL also happens to have the longest-serving chief executive officer.

Lim Ho Kee, the former independent chairman of Singapore Post, could have been a contender for the top spot among this group had he not decided to step down earlier this year. He joined SingPost's board in 1993 and became chairman in 2003 when SingPost listed.

Observers said it was more surprising that there are still independent chairmen at large-cap listed companies here who have been in those roles for longer than nine years.

"We would expect these companies to either replace the chairmen, re-designate them to non-independent - or perhaps more likely but less desirable in my view - retain the independent status of the directors by asserting that the company has done a particularly rigorous review," said corporate governance specialist Mak Yuen Teen. "Our Code (of Corporate Governance) has very little emphasis on board renewal and succession planning, beyond a relatively soft nine-year guideline on independence, whereas the UK code has a bigger emphasis. The issue of succession planning may be particularly pertinent to those companies with executive chairmen or CEOs with very long tenure."

David Gerald, president of the Securities Investors Association (Singapore), said it would be better for companies to stick to the Code. "In the case of a chairman, he is part of a board, which forms the oversight and check and balance of the overall organisation. In such a situation, it is better to adhere to the recommendations of the. . . Code."

Lee & Lee head of corporate department Adrian Chan said that once an independent chairman hits nine years, he or she "should in theory" be considered non-independent unless a "particularly rigorous review" still finds him or her independent. That theoretically non-independent long-serving chairman should then "ideally make way for another independent chairman in the interests of board renewal".

"If he becomes a non-executive director after nine years, losing his independence but is still kept on the board, then there should be proper succession plan for him to hand over to newer incoming directors on a staggered basis. It's best to plan for succession on a laddered basis so that there is gradual renewal on the board and less disruption and instability."

He added that it was "always more tricky" to deal with entrenched chairmen or CEOs who own a substantial stake or who are founders or owners of the firm. "How do you criticise and evaluate their performance? It may be harder to convince them that a particular cause of action is not the right path or to reconsider any decision. The Code suggests that the way to ameliorate the situation is to (i) have at least half the board consisting of IDs (independent directors), who can then press the brakes if the company is heading in the wrong direction, and (ii) appoint a lead independent director, who is supposed to act like a counter-balance to the chairman."

Even with IDs, though, Prof Mak pointed out that it may be "harder to get good governance if the long-serving chairmen and CEOs are part of the founding/controlling family because if they are not open to new ideas and to constructive challenge from IDs, it will be very difficult for these IDs to be effective".

Market watchers said that if a company has a long-serving chairman, it probably ought not to have a long-serving CEO too, and vice versa.

"If both are long serving, the entrenched thinking may be worse," said Prof Mak. "It is difficult to generalise, but I think there ought to be a bit of diversity at the top of the company, so I think if one is long serving, it may be better for the other one to be fresher."

READ MORE: Long-serving CEOs: how long is too long?