STI companies making more of an effort to refresh their boards, but director pool still small: report
Uma Devi
BLUE-CHIP counters listed on the Singapore Exchange last year took in the largest cohort of new directors in 5 years, Heidrick and Struggles’ Board Monitor Singapore 2022 report showed.
New director appointments for the 30 Straits Times Index (STI) counters came in at 41, up from 35 in 2020, according to the report released on Wednesday (Sep 21).
Jiat-Hui Wu, partner in charge of Heidrick & Struggles’ Singapore office, said one of the reasons behind the “increased appetite for board refreshment” this year could be the 9-year term limit for independent directors of Singapore-listed companies.
Based on Heidrick & Struggles data, Wu noted that about half of the STI directors who stepped down in 2021 had tenures of more than 8.5 years.
“With this term limit in place, we expect the trend for board refreshment to continue, as this provides companies with an opportunity to reassess and relook at the companies’ needs in the upcoming years,” said Wu.
Heidrick & Struggles’ report comes on the heels of a review by KPMG, released last week, of compliance with Singapore’s Code of Corporate Governance. KPMG’s review found 48 per cent of Singapore-listed companies had at least 1 independent director who had served for more than 9 years.
KPMG’s study covered 585 mainboard- and Catalist-listed companies, and did not distinguish between STI and non-STI counters.
Wu said the boards of STI companies may also be more sensitive to changing business needs, and could have “relooked” their constitution to better align with future requirements and business strategies.
“Board refreshment is one key factor in future-proofing boards to better equip the company to anticipate and adapt to major change,” she said.
Nevertheless, the pool from which STI companies draw their directors remains relatively small.
Compared with Hong Kong’s Hang Seng Index constituents, the report found STI companies showed a higher preference for directors who are retired and have previous public board experience.
First-time public board directors for Singapore constituents in 2021 came in at 16 per cent, versus 53 per cent in Hong Kong’s constituent counters. Retired executives for Singapore narrowly inched past active executives, at 51 per cent. Over in Hong Kong, active executives took up 55 per cent.
The report showed that STI boards displayed high levels of interest in directors with chief executive officer (CEO) roles and other C-level experience. These boards were less enthusiastic about having those with chief financial officer (CFO) or chief operating officer (COO) experience on their boards.
The average age of new directors also increased, likely as a consequence of boards expressing their preference for retired directors and those with previous public board experience. The average age of new STI directors rose to 63 in 2021, from 59 in 2020.
In 2021, 93 per cent of seats went to directors aged over 55 and only 2 per cent went to those under 45.
Wu said directors who are retired and have previous public board experience typically bring more experience and understanding of what is asked of them, with a clear distinction between what is required of an executive and a director.
Those who sat on public boards will also bring a “best-in-class understanding” of the demands and responsibilities placed on listed companies and their directors, while retired directors could have more capacity to commit to board roles.
Even so, she warned about potential drawbacks for a company if seasoned directors bring a “fixed mindset approach”.
“This might prevent them from being open to feedback and alternative points of view,” she said.
“Companies at varying stages of their life cycles require different kinds of support from their boards, and being able to pivot their advisory style accordingly based on the requirements of the companies they are serving will be important for all experienced board members.”
Gender diversity took a dip compared with the prior year, with new women directors in STI companies falling to 28 per cent in 2021 from 34 per cent in 2020.
The report also noted that some examples of what the “best-in-class” boards doing include creating a space for temporary seats at the table or bringing in voices from outside, and incorporating future business strategies and scenarios into succession planning.
