Singtel, SGX, MCT lead new index on board diversity

Singapore

SINGTEL, the Singapore Exchange (SGX) and Mapletree Commercial Trust have emerged in the overall top three places in a newly launched Singapore Board Diversity Index.

The index, developed by global advisory, broking and solutions company Willis Towers Watson in partnership with the Singapore Institute of Directors (SID) and supported by BoardAgender, ranks primary-listed companies on the SGX on the basis of how diverse their corporate boards are, and awards them points in eight areas out of a maximum of 40.

The eight areas are gender, age, tenure, board independence, cultural ethnicity, international experience, domain expertise and industry knowledge.

All in, 704 companies with primary-listing on the SGX were assessed and scored, based on data - from annual reports, Web sites and research - as at June 30, 2019.

There is, however, no intended "passing score" for the index, said Willis Towers Watson.

The index comes at a time when asset managers are taking concrete steps to push for greater diversity in companies.

The current SGX Listing Rules state that by Jan 1, 2022, independent directors (IDs) need to make up at least one-third of a company's board, to create "a strong and independent element on the board".

Another rule is that IDs are allowed to have a tenure of up to nine years. Beyond that, the appointment of the ID will be subject to a two-tier vote by all shareholders, excluding directors, the chief executive and associates.

BlackRock, the world's largest asset manager, said in its corporate governance and proxy-voting guidelines for Asia (ex-Japan), Hong Kong and Chinese securities in January that it will "consider voting against the election or re-election of all non-independent directors" if the structure of the board, including the key board committees, does not meet the requirements of 2018's amended Code of Corporate Governance under the SGX Listing Rules applicable at the time of the shareholder meeting.

Like BlackRock, State Street Global Advisors, the world's third-largest asset manager, has also taken a tough stand. It said in March that it will vote against the chair of the nominating committee, or the director most responsible for the nomination process, for companies without a woman on their board of directors.

Overall, Singtel emerged in first place with a score of 31.25, followed by SGX with a score of 31. Mapletree Commercial Trust was third at 30.5.

Singtel chairman Lee Theng Kiat said that, given the current "fast-changing economic, business and technology landscape", the "breadth of perspective, expertise and backgrounds" of its board has enabled the telco to "better identify and evaluate significant opportunities and risks, resulting in better decision-making and outcomes".

The index also ranked companies by market capitalisation, with real estate investment trusts (Reits) and business trusts ranked separately.

Among large-cap companies (more than S$1 billion), Singtel took pole position. In the medium-cap category (S$300 million to S$1 billion), agri-business Mewah International was top.

Among small-cap companies (under S$300 million), real estate and agriculture firm Hong Lai Huat Group fared the best; among Reits and business trusts, Mapletree Commercial Trust's board was most diverse.

Scoring for the index was on a five-point scale for each of the eight areas, with zero awarded for the least diverse and five, the most diverse.

For instance, under the gender aspect, a score of zero would indicate that the company's board has either no women or no men; a score of five means that women directors make up 41 to 60 per cent of the board.

Of the 704 companies's boards, half were found to have no women.

As for board independence, 63 per cent of companies had a score of three, meaning IDs made up 41 to 60 per cent of the board.

One per cent of companies had no IDs at all; another 1 per cent had boards where up to a fifth of the members were IDs - so these two groups of companies are still shy of the one-third requirement in the run-up to Jan 1, 2022.

Shai Ganu, managing director of Willis Towers Watson said at the launch of the index, which took place at a webinar, that diversity "does not automatically guarantee board effectiveness". However, diversity is a proxy for the extent to which a board hears varying opinions.

Separately, Adrian Chan, vice-chairman of SID, told The Business Times that the discussion to broaden diversity beyond just gender is "long overdue". He said while an index that measures other aspects of diversity should ideally have been set up "two to three years ago", the launch comes at an opportune time - just as the "nine-year rule" is closing in.

Given that there will be "a lot of refreshing" of boards next year, the index could give boards "something to think about", he added.

Mr Chan, speaking at a panel discussion at the launch of the index, said that although a board that is too diverse could face increased conflict among the directors, having greater diversity is still "a worthwhile goal to pursue".

"We shouldn't shy away from diversity in fear of greater conflict (or) harder-to-manage boards... Board culture and board dynamics is not just the function of the chair; every member must play a role. But the chair has an especially difficult role and heavy responsibility to make sure that it all comes together."