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Singtel convinced to stay the course

Transformation in the face of disruption is essential to excel over the long term, says Simon Israel, chairman of the telecoms firm, which won gold for Best Managed Board (Large-Cap).

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"Key to my role is ensuring we have a board fit for strategy, the right board dynamics, and a constructive working relationship with management, with openness and trust at the centre of it." - Singtel chairman Simon Israel

OSTENSIBLY, Simon Israel's job at Singapore's biggest listed company by market value is to be its chairman - a role he carries out remarkably well, going by the gold prize Singtel picked up in the Best Managed Board category for Large-Caps at this year's Singapore Corporate Awards. But the way he sees it, what he does at the telco goes beyond the title.

"I think of myself more as a chief alignment officer than a chairman - this means building alignment within the board and alignment between the board and management on the issues that need to be addressed, the strategic themes we want to examine, the strategic mandate given to management to take the business forward, and the performance and health metrics that we follow," Mr Israel, born a New Zealander and now a Singapore citizen, said in an e-mail interview with The Business Times.

"Key to my role is ensuring we have a board fit for strategy, the right board dynamics, and a constructive working relationship with management, with openness and trust at the centre of it."

Boards also must grapple with three major trade-offs: between the short-term and long-term; between protecting the core versus transforming it; and between allocating capital to the core versus new businesses, he notes.

"The overarching principle is to take the right decisions for the long term and accept that there are short-term consequences that have to (be) managed. As examples, investing in a transformation may hit earnings growth in the short term and flow through to share price. You need to have the conviction to stay the course.

"There is always resistance to changing the core of a business - people are more comfortable with the status quo unless confronted with a burning platform. Taking a longer-term view suggests that transforming your core to remain relevant in a changing world is essential, or someone else is going to eat your lunch," he adds.

"At the same time, investing in new businesses provides new sources of growth in earnings and optionality for the future. Boards have the challenge of ultimately deciding how to balance these factors when it comes to allocating capital and resources."

And all of that has to be accomplished while effectively dealing with what he calls the biggest challenge Singapore boards face today: disruption.

Disruption requires companies to "build board and leadership capacity to deal with that", Mr Israel says, noting that Singtel identified the risk from disruption about five years ago via a joint board and management "strategic planning process and then embarked on a journey to transform our business".

Like any journey, this came with forks in the road. It "required the board to make choices around various strategic paths, reallocate capital, redefine our risk appetite and create a climate that was supportive of the risks around a transformation", he said.

"The board invested considerable time to learn about the new spaces we wanted to invest in, making annual trips to technology centres such as Silicon Valley, Boston and Israel. This gave the board the needed context and understanding to feel comfortable about the investment decisions that needed to be made . . . We are living in a digital age and the risk of disruption to traditional businesses is growing exponentially. In some industries, it is only regulation that holds this back. In this environment, change becomes the norm and transformation a business imperative."

Mr Israel, who also recently became chairman of Singapore Post - of which Singtel is the single largest shareholder - says the most important corporate governance takeaway from his long career is "substance over form".

"It is less about box ticking and more of softer factors. Effective boards have the right people, culture, values and board dynamics. It is about the quality and skill sets of the people around the table, their intellectual honesty, the robustness of discussion, and how this is brought together in sound decision-making. Effective boards have a constructive, transparent and supportive relationship with management, with a clear understanding of respective roles. They create a climate for management to succeed within a defined risk appetite."

And though he stresses that he does not want to generalise "as every company's circumstances are unique", having a strong governance framework and the right practices and culture "will go a long way" towards preventing any "issues" at the board, he says.

At Singtel, for instance, "board skill set needs change as strategy changes and my sense is the length of strategy cycles is getting shorter as disruption becomes more pervasive". "This suggests a clear tenure policy is important . . . My experience has been that good people get up to speed very quickly. At Singtel's board you are expected to have a view and our board dynamics ensure all views are on the table and discussed. Where there are long tenured Directors on Boards, it is important that they are not dominant."

To overcome the challenges from disruption, boards here "need to reshape themselves and become more diverse to have the capacity to address this", he says. "This suggests a greater number of less traditional director profiles - younger, technology background, digital natives, people who have built business to scale in the digital world."

Boards also need to become more agile and "create a climate where change can take place and adjust their risk appetites accordingly".

"Transformation needs to be at the heart of the board's strategic and working agenda."

Agile boards will also have the capacity to strike the right balance between upholding governance standards and the need to move fast in terms of business decisions, he notes, pointing out that the two are "not mutually exclusive" and boards can handle this balance even better "when they are forward-looking, aligned on strategy and well prepared". "While we work closely with management, we respect each other's roles and we don't cross the line."

Mr Israel added: "I would like to see more women on boards, appointed solely on merit. My experience has been that they bring different perspectives and approaches to issues and this makes for a more informed and richer conversation. In Singapore we are blessed with female talent with so many women in careers and boards just need to open their eyes to it."