Multiple directorship issue not as big a problem as perceived: study

Singapore

A COMPREHENSIVE study of the 3,670 directors on the boards of 717 listed firms here at end-2013 has thrown up a few interesting findings on the directors' commitment, independence, pay, and diversity.

Some results led Adrian Chan, first vice-chairman of the Singapore Institute of Directors (SID), to conclude that the issue of multiple directorships "doesn't seem to be as major a problem as we perceive". He pointed to how most directors - 82 per cent - only hold one board seat. The highest number of board seats held by an individual is 10 - down from 12 a few years ago.

Those with more directorships did not skip board meetings because of their heavier commitments. In fact, they tended to have better attendance. They are also better educated, and tend to hold directorships in the finance sector.

Directors are usually appointed to represent big shareholders. They influence corporate strategy, appoint key managers and set their pay. While some argue that sitting on multiple boards allows for best practices from one to be brought over to another, others say these busy directors might neither have the time nor the ability to contribute to every company.

The study, conducted by SID and the Institute of Singapore Chartered Accountants (ISCA), was titled the Singapore Directorship Report 2014.

It found that over 90 per cent of directors holding more than one board seat attended more than three in four board meetings. This contrasts with 81 per cent of directors holding one board seat who did so. The more board seats they held, the better their attendance record.

Non-executive directors have a poorer attendance record compared to independent and executive directors. This could be because they are appointed by the major shareholder and are thus assured of their seats, said Mr Chan.

Meanwhile, independent board chairmen are a rarity, with just 18 per cent of firms having one. This is something Singapore could work on, Mr Chan said.

Having an independent chairman is advocated by international organisations like the US-based Council of Institutional Investors. An independent chairman can mitigate corporate governance issues caused by a dominant CEO who can influence the board and weaken its oversight role.

In Singapore, the code of corporate governance says that the chairman and CEO should in principle be separate persons. But if that is not the case, it calls for a lead independent director to be appointed.

On whether companies should be pushed to appoint an independent chairman, Victor Yeo, head of the division of business law at Nanyang Business School, said it will take time for Asian companies to think about separating the two roles, "as the first generation of companies starts thinking of succession planning".

Companies also do poorly on director pay disclosure, as recommended by the corporate governance code here. Just 31 per cent of firms disclose precisely how much each director earns. Mr Chan said there are concerns of embarrassment if the director is paid too much or too little. "This is also to manage internal morale. You don't want this vice-president to know how much the other vice-president is being paid, or the vice-president to know how much the CEO is being paid," he said.

Ho Yew Kee, ISCA council member and head of the accounting department at the National University of Singapore, said that disclosure will become a way of life when society opens up to the idea. "Many of us come from families where our parents don't know our salaries. It's a total trade secret," said Prof Ho.

Assoc Prof Yeo said that companies can begin by disclosing just independent director fees. "Concerns about poaching, competition shouldn't be there," he said.