More independent directors, but board sizes shrinking in Singapore: SID report

BOARDS in Singapore are appointing more independent directors, even as the average board size is shrinking, according to a report published by the Singapore Institute of Directors (SID) on Wednesday (Nov 3).

The 2021 Singapore Directorship Report found that the percentage of independent directors on boards has risen to 54.4 per cent. It marks an increase from 50.7 per cent in the previous report in 2018, and 47.5 per cent when the study was first conducted in 2014.

The report - which is in its fourth edition - highlights some of the emerging trends on listed boards, following revisions to the 2018 Code of Corporate Governance and codification of certain requirements in the listing rules.

Ng Wai King, chairman of the Singapore Directorship Report working committee at SID, said: "Following the revisions to the Code of Corporate Governance in 2018, the 2021 Directorship Report shows a clear shift towards having greater independence on boards, with more independent directors being appointed, along with greater separation of CEO and chairman roles."

The report found that 75.1 of companies now have different individuals serving in the positions of chairman and CEO, up from 67.1 per cent in 2014. A greater proportion of companies are also appointing independent chairs, with 30.8 per cent of boards having independent chairs, up from 23.1 per cent in 2018.

Some 77.7 per cent of firms were observed to have at least half or more of their board being made up of independent directors, an improvement of 7.4 percentage points in 2018, and significantly higher than the 54.5 per cent in 2014.

The report noted that the introduction of certain provisions in the 2018 Code likely contributed to the increasing percentage of independent directors on the board. Provisions 2.2 and 2.3 require that independent directors make up a majority of the board where the chairman is not independent; and for non-executive directors to make up a majority of the board.

At the same time, the study found the average board size has been shrinking. The most common board size has dropped to 5, from 6 in previous studies. Some 25.8 per cent of the companies studied in 2021 had 5-member boards, up from 22.9 per cent in 2018.

This could be an "unintended effect" from provisions 2.2 and 2.3 in the 2018 Code. The report noted: "Firms appear to be taking steps to comply with these requirements by reducing the numbers of their executive directors as well as appointing more independent directors and/or non-independent non-executive directors."

During a panel discussion at the launch of the report, associate professor Victor Yeo, from Nanyang Technological University's Nanyang Business School, observed that this is an issue mainly in small caps - with a market capitalisation under S$300 million - which form around three quarters of the study's sample. Large caps on the other hand are seeing a trend of larger board sizes.

The study also found an improvement in firms taking steps to refresh their boards. In the 2021 study, 24.6 per cent of independent directors had served for more than 9 years, down from 28.1 per cent in 2018. It comes amid new rules that take effect next year, which require a 2-tier vote be taken to continue treating directors that have served for more than 9 years as independent.

Even as nominating committees look at refreshing their boards, Singapore Exchange Regulation head of listing compliance, June Sim, said during the panel that they would need to be mindful of the experience of the directors.

"If they have a track record of not being able to help... or leaving companies in jeopardy, right, that's when you should really look very hard at their experience and evaluate if they can bring value to the board."

In terms of diversity, the study found that the number and percentage of women directors on boards has been increasing gradually since 2014, but "gender diversity on boards remains a challenge".

Just 12.7 per cent of all board seats are occupied by women, but it still represents an increase from 10.8 per cent in 2018. When it comes to the chairman position, only 6.5 per cent are women.

Even so, the study found that more than half of all boards (52.7 per cent) now have at least 1 woman director, up from 49.3 per cent in 2018, and nearly a fifth of boards have more than 1 woman director.

Women taking on executive directorships increased at a slower pace compared with the percentage growth of women taking independent directorships, and non-independent non-executive directorships.

The survey also found that there is an increasing trend of women taking on multiple board positions, compared to a declining trend for men, which may suggest that issuers are seeking the same pool of women to take on board positions.

Deloitte Southeast Asia chief executive, Philip Yuen, said that there is a need to build a sustainable pool of women leaders.

"A lot of board members are often recruited from the executive level. So clearly, we do need to develop women leaders in the C-suite," he said, adding that for the pipeline to continue, companies and boards should also look at the "critical middle management level, where women often stall in their career advancement".

Annabelle Yip, senior consultant at WongPartnership, said it is disappointing that women board participation remains in the low teens. She said: "The fact is the pipeline is there, it's just that whoever is making the decisions in relation to appointing board directors, they're not seeing the available pool that is there."

While she noted that there are steps being taken to drive board diversity, she added that the issue may need to be relooked, and stronger measures could be necessary, if the numbers continue to only move slowly.

SID vice-chairman, Adrian Chan, who moderated the panel discussion, noted that the topic of remuneration disclosure saw a "frustrating lack of improvement".

The 2021 report found that 37.6 per cent of companies were providing detailed disclosure, a slight improvement from 33.2 per cent in 2018. Meanwhile, 54 per cent of companies provided remuneration disclosure in bands in the latest survey.

Panellists noted that companies often cite reasons such as competitive pressures and poaching when choosing not to provide a detailed breakdown of remuneration but they highlighted that such information is already available to people who look for it.

WongPartnership's Yip said: "I don't know whether it's just a mindset shift that needs to take place, but clearly, that mindset shift is not going to change without some sort of overarching kind of encouragement from the regulator or from maybe investor expectations."

The report also noted that there is growing awareness to make sustainability a board agenda item, and companies are beginning to establish a separate sustainability board committee, but at a "tentative pace".

Just 8 firms - all large-cap companies - disclosed information about the presence of a board-level sustainability committee. The overwhelming majority (98.8 per cent) of companies did not disclose information on or do not have a sustainability board committee, the study found.

The Singapore Directorship Report 2021 studied information from 695 listed entities, comprising 658 companies, 24 real estate investment trusts and 13 business trusts.

It is produced by SID, with the support of the Accounting and Corporate Regulatory Authority and Singapore Exchange, and in partnership with Deloitte, Handshakes, Nanyang Technological University and Singapore Institute of Technology.