SGX’s proposed tenure limit for independent directors advances board diversity: SGX RegCo

PLACING a limit on the tenure of independent directors does not directly make the boards of companies more diverse, but it will push them further along on their journey to becoming more diverse, a senior official of the Singapore Exchange Regulation (SGX RegCo) has said.

Chew Chin Yee, who heads regulatory development, policy and enforcement there, said on Wednesday (Oct 12): “By putting in place hard caps on how long independent directors can serve as independent directors, you help drive renewal. And by driving a renewal process, and in tandem with our requirement that boards consider diversity explicitly in their search for new candidates – I consider this a tailwind for boards in their diversity journey.”

Chew, a panellist at a virtual discussion on board diversity, at the 2022 Corporate Governance Conference, added that having independence of thought is crucial and necessary for corporate governance, irrespective of board diversity.

SGX RegCo recently announced that it intends to limit the service of independent directors, building on earlier rules that required those serving more than nine years to surrender their independent status – unless they were approved through two tiers of voting. The first tier comprises all shareholders, and the second, shareholders excluding directors, the chief executive officer and their associates.

The panel discussion, organised by the Securities Investors Association (Singapore), also touched on the board diversity disclosure requirements of SGX RegCo, the link between diversity and sustainability performance of companies, as well as the evolving duties of their boards.

The panellists generally agreed that diversity should not be pursued for its own sake, but as a means to improve a company’s performance. And studies have shown that a diverse board is a safeguard against groupthink, and is better at assessing future risks and opportunities for the company.

Under existing regulations, issuers will be required to set a board-diversity policy that addresses gender, skill and experience, among other relevant aspects of diversity.

When asked how far the market regulator would go in mandating more diversity disclosures, Chew said that gender, skill and experience were explicitly listed because studies have shown that these factors had clear benefits for companies. There may be other factors that are relevant to companies, which are supposed to consider and include in their diversity policy.

“It’s not so much about where we draw the line on what the relevant factors are. But the line is, when we are diverse enough, then it’s about finding which factors give you more delta, more outperformance,” he said.

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Corporate lawyer Rachel Eng, another panellist, pointed out that the duties of boards have evolved over time. While their responsibility in the past was to maximise shareholder value, regulations in some jurisdictions have started imposing fiduciary duties on boards to care for other stakeholders (such as their employees, suppliers and vendors) and also to mind the effects of the business on the environment.

Eng, a member of the Council for Board Diversity (CBD), said that having a diverse board would add to the skills-mix of the board and the depth of their discussions, and hence better equip the members to deal with future changes.

Lawrence Loh, a professor at the National University of Singapore who researches into corporate governance at the Centre for Governance and Sustainability, believes that board diversity has become an established concept among companies here. The problem is how nominating committees go about recruiting the candidates.

“So I think we probably need a methodology that’s structured and granular and exhaustive, (so) companies can go about doing this more systematically. There are some associations that have board postings, they have a match-making process. I think we should have more of that,” he said.

Eng said that CBD’s focus will still be on increasing women’s representation in companies’ boards, given that only 20.8 per cent of board directors are women in the top 100 listed companies in Singapore.

However, she noted that there is a growing consciousness of the need for ethnic and age diversity.