Singapore boards need to strengthen corporate governance practices
BOARDS of listed companies in Singapore still have a long way to go when it comes to improving their corporate governance practices - particularly in the areas of board renewal, remuneration disclosure and director training.
These were among the findings in the 12th edition of the Board of Directors Survey, conducted by the Singapore Institute of Directors (SID) and released on Friday (Nov 11), and also the opinion of some of the panellists who debated the findings, following the launch of the report.
The survey, which was conducted between May and July, received 150 responses, out of 671 questionnaires sent to Singapore-listed companies. Nineteen (19) per cent of the responses were from large-cap companies, 13 per cent were from mid-cap companies, while 68 per cent were from small-caps.
More than one-third (35 per cent) of respondents had independent directors (IDs) that had served over nine years, but the bulk (67 per cent) still intend to put these directors up for shareholders’ vote at their annual general meetings (AGMs) this year. More mid and small-cap companies, compared to large-cap ones, said they would do so.
Overall, 29 per cent plan to appoint other directors to replace these long-serving IDs, while 6 per cent said they would redesignate them as non-independent and expand their board size.
The survey also found that an overwhelming majority (96 per cent) of respondents still rely on personal contacts to identify potential non-executive directors.
Disclosure of remuneration also remains an issue among Singapore boards. The survey report said there was “strong resistance” across the spectrum of companies to conform to requirements in the Code of Corporate Governance and Singapore Exchange (SGX) Listing Rules.
Just under half of those surveyed, or 70 companies, did not disclose the detailed remuneration of each individual director and the chief executive officer (CEO) on a named basis. And some 65 of these said they do not intend to make such disclosures in the next two years.
SID chair Wong Su Yen likened the survey findings to the opening lines of Charles Dickens’ novel A Tale of Two Cities - ie. “It was the best of times, it was the worst of times”.
“As I read the report, I was struck on the one hand by the progress we have made and, on the other hand, by the distance we have yet to go,” she said.
June Sim, head of Listing Compliance at SGX Regulation (SGX RegCo), who was among the panellists debating the findings, went further. “Nothing has progressed,” she said.
She said it was concerning that listed companies continue to hold back on their remuneration disclosures, particularly in the context of the turbulent fortunes endured by many during the Covid-19 pandemic. “If directors’ remuneration is not disclosed, there is no transparency in terms of how that is aligned with the company’s performance and value creation.”
Noting that developed jurisdictions such as the US, the United Kingdom and Australia have all made such disclosures a legal requirement, she added: “I don’t think we should be laggards - we should move the needle.”
Sim also expressed chagrin over companies’ attitudes towards long-serving IDs.
SGX RegCo has, since the start of this year, required IDs who have served nine years or more to no longer be considered independent unless approval is obtained at two tiers of voting: first, from all shareholders; and second, from shareholders excluding directors, the CEO and their associates.
The rule was phased in over a three-year transition period, so that companies could use the time for gradual succession planning. Instead, listed companies rushed to use the two-tier vote to retain their long-serving directors: 70 per cent of 391 long-serving ID seats up for re-election were put to the two-tier vote in 2021 to 2022, according to a Nanyang Business School study published earlier.
Sim said she found it “very difficult” to understand this reaction from companies. “To have all IDs retained because they are ‘quality directors’ does not bode well in terms of diversity and board composition.”
The regulator will be consulting the market on changing the rule, to possibly include a hard limit on directors’ tenure.
“If you look at other jurisdictions in Asia - Hong Kong, Malaysia, the Philippines, Thailand - they have hardcoded this rule too. We cannot disregard the practices in other jurisdictions,” Sim said.
Other areas of concern highlighted by the report include a decline in the proportion of respondents providing training for their directors in the last 12 months - this dropped to 66 per cent, from 77 per cent in the last survey conducted in 2019.
And, while sustainability is growing in prominence on the agenda of businesses, most are still coming to terms with how to integrate such concerns into their strategy and performance evaluation.
All respondents said they now report on sustainability, but only 54 per cent have sustainability-related key performance indicators (KPIs) in place, and less than half of these have tied such KPIs to compensation and reward.
Just two-fifths (41 per cent) have subjected their sustainability reporting process to internal review by internal audit, and only 20 per cent have obtained independent external assurance on their sustainability reports.
Decoding Asia newsletter: your guide to navigating Asia in a new global order. Delivered to your inbox. Free.
Copyright SPH Media. All rights reserved.
