Nods to boards

Roundtable participants:

Moderator: Wong Shiying, The Business Times

Question: How many times a year does your board meet?

Peter Seah: The DBS board meets six times a year.

Ng Kee Choe: The CapitaLand board of directors met five times in fiscal year 2016. In fiscal year 2017, six meetings were scheduled.

Euleen Goh: Our board meets at least six times a year.

Neo Boon Siong: Our board meets five times a year, and also as needed.

Sumitri Menon: We hold at least four formal board meetings each year.

Question: What do you think is the single biggest black hole in corporate governance?

Mr Seah: One of the more difficult issues today is how we can raise the overall level of corporate governance in Singapore. We have made great strides in recent years. However, we need more companies to move beyond just complying with written regulations, and to embrace the principles and spirit of corporate governance.

Mr Ng: If by "black hole" you refer to something that is critically deficient in Singapore's Code of Corporate Governance or practice, I cannot really think of any. Nonetheless in our "comply or explain" regime, the review of non-compliance with the Code should be carried out rigorously. Having said that, the particular or specific circumstances of each corporation or situation for non-compliance should be given due consideration.

Ms Goh: The biggest black hole is not what you can easily identify: it is what you do not know and do not expect. That is why we believe that board diversity is critical to good corporate governance.

A broad range of experiences, backgrounds and perspectives around the boardroom table will minimise collective blindspots and the chance of being caught out by black holes.

Prof Neo: Effective risk management and controls continue to be one of the biggest challenges. Taking risks is part and parcel of business activity. However, companies must focus on achieving growth and profitability within appropriate boundaries to maximise shareholder value.

Ms Menon: In my opinion, the largest "black hole" is that too many companies still view transparency and governance merely as a box-ticking regulatory and compliance exercise.

Since Micro-Mechanics' listing in 2003, we have embraced the spirit of corporate governance as we believe accurate, complete and timely information provides the basis for sound decision making within our organisation. Our employees learn the importance of practising good governance and transparency within the group as part of our MMUniversity training programme.

Question: Should the maximum period an independent director can stay on the board be mandated?

Mr Seah: A board that needs independent directors with specific expertise or experience should be allowed to retain such directors beyond nine years, provided the board assesses the independence of these directors annually and explains why they are still able to act independently.

This allows the board more time to look for candidates with the right expertise and experience to replace these independent directors. We must take cognisance of the limited pool of individuals with the requisite experience in Singapore.

Mr Ng: Board renewal is an essential and continual process and there are compelling reasons for this, and at CapitaLand we subscribe to this principle. I would however avoid a prescriptive approach.

It is the duty of a board, taking into account the assessment and recommendation of its nominating committee, to determine the independence of a director, and this must be comprehensively and objectively reviewed.

Ms Goh: At SATS, newly appointed independent directors serve an initial term of three years and the initial term of office may be renewed for a subsequent term or terms of up to a total of three years, expiring at the annual general meeting (AGM) closest to the sixth anniversary of their initial appointment.

The tenure of each director would then be considered at the juncture, taking into account recommendations made by our nominating committee and subject to our board's approval.

Currently, none of our independent directors have served on our board for more than six years. However, independent directors could serve longer than six years if their experiences and competencies continue to be a good fit to help us achieve our long-term strategy and objectives.

Prof Neo: There should be some flexibility for an organisation to determine its board composition, based on its needs.

At Keppel T&T, we have a process of refreshing the board progressively over time so that the experience of longer serving directors can be drawn upon while tapping the new external perspectives and insights which more recent appointees bring to the board's deliberation.

Ms Menon: A particularly relevant question for our board and for me as I was appointed at initial public offering and have been serving since 2003. The board is keenly aware of the code and the need for strong and independent voices to facilitate sound decision making and ensure that the interests of all stakeholders are represented.

Our preference is to allow companies to have flexibility when making such decisions without compromising the underlying intent.

Question: Do you think independent directors should be allowed to own shares in companies whose boards they sit on and why?

Mr Seah: Yes, as long as directors are not remunerated in shares based on the performance of the company and the board requires the independent directors to retain at least a certain amount of these shares while they serve as directors.

This encourages independent directors to make decisions that benefit the company in the long term.

Mr Ng: The independence or otherwise of a director is judged on a number of factors, including his actions and judgement as a member of the board.

There is thus no compelling reason not to allow independent directors to own shares in companies whose boards they sit on.

Guide 8.3 of the Code recommends that the remuneration committee consider implementing schemes to encourage non-executive directors to hold shares to better align their interests with those of other shareholders.

The Code, however, also recognises that a large shareholding could impact a director's objectivity and judgement and hence provides for a 10 per cent limit for independent directors.

Ms Goh: Yes. This could help to better align the interests of the independent directors with the interests of shareholders.

Prof Neo: Yes. In general, independent directors should be allowed to own shares in companies whose boards they sit on. An appropriate amount of share ownership may help to align the interests of independent directors with those of the shareholders and the long-term interests of the company.

That said, the appropriate policy would depend on an organisation's business objectives and circumstances.

Ms Menon: Yes, we believe independent directors should be allowed to own shares as it is good for stakeholder alignment.

Question: In general, management is accountable to the board but it is common in many companies that management makes up the majority of the board. Should there be a requirement to ensure that management makes up a minority of the board?

Mr Seah: Yes, I think that the majority of the board should comprise independent directors. Independent board foresight is important.

Mr Ng: A key role of the board is to have oversight of the company which is being operated by management, so a separation of the board and management, among other things, is essential.

It thus follows that management must not make up the majority of the board. Even where management makes up a minority of the board, management must not be in a position to impede or thwart the board from discharging its duties let alone veto any board decision.

Ms Goh: SATS has established a Board Code of Conduct which indicates that independent directors should make up at least one-third of the board.

However, the current proportion of independent non-executive directors is much higher than that threshold, with 10 out of 11 being independent directors. We believe that the size and composition of the board are currently appropriate given the size and geographic spread of our operations.

Prof Neo: An adequate representation of independent, non-executive directors, who are able to engage in open and rigorous debate with management and exercise oversight, would enhance a board's ability to discharge its responsibilities effectively. At Keppel T&T, seven out of our eight board directors are non-executive directors, and five of whom are independent directors.

Ms Menon: We prefer that companies are given the room to determine their board composition based on the underlying intent of creating a balance of views.

At Micro-Mechanics, we have struck a good balance with three executive directors in a board totalling six members.

Question: Do you think the task of proposing non-executive directors' remuneration is best left to a shareholder-led nominating committee?

Mr Seah: The nominating committee must comprise directors who understand what skills, expertise, experiences and characteristics are required for the board. This will help ensure a board that can best guide the company and work in the best interest of shareholders.

Mr Ng: Non-executive directors' remuneration are put to shareholders for approval. There is a process in determining such remuneration and salient information such as comparative market data are disclosed in annual reports. So it is not necessary to change the prevailing practice.

Ms Goh: It is not necessary for the task of proposing non-executive directors' remuneration to be left to a shareholder-led nominating committee.

Our remuneration and human resource committee is mindful that non-executive directors should not be overcompensated, but recognises that competitive and equitable remuneration will attract, motivate and retain directors with the necessary experience, capabilities and desired attributes who can contribute to SATS' future development and growth.

Prof Neo: The pro-active involvement of major shareholders is but one of several ways to enhance stewardship and board performance.

The crux of the matter is to ensure that formal and transparent procedures for developing policies and determining the remuneration packages of individual directors are in place. It helps if board remuneration committees have access to expert advice where required. For instance in FY2016, Keppel T&T's remuneration committee sought views on market practice and trends from Aon Hewitt, an external remuneration consultant as part of its review process.

Ms Menon: No. Shareholders are not privy to discussions of the board and will not be able to fully appreciate the individual contributions made by each of the non-executive directors.

At AGMs, shareholders have the opportunity to question non-executive directors on their respective contributions before voting on the level of directors' remuneration.