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Creating an effective board
Euleen Goh, chairman, SATS
Ng Kee Choe, chairman, CapitaLand
Wee Ee Cheong, deputy chairman and group CEO, UOB
Wong Kok Hoe, chairman, Centurion Corporation
Takahashi Kenichi, executive chairman and CEO, Japan Foods Holdings
Moderator: Natalie Choy, The Business Times
Q: How many times a year does your board meet? Beyond these meetings, how actively is the board involved in the group's day-to-day operations?
Ms Goh: The board meets together with management at least five times a year with another two days dedicated for strategic reviews. While the board is not involved in the day-to-day operations of the company, members of the board are available at any time for consultation at the request of any management staff.
Mr Ng: The board meets at least once every quarter, and as required by business imperatives. In addition to the quarterly meetings, an annual offsite meeting is held with senior management to review and plan business strategies. In year 2017, we held a total of six board meetings. The board's primary role is to provide overall guidance and policy directions to management. The board works with management to achieve the company's objectives and management is accountable to the board. The board is also accessible to the management outside the formal environment of board meetings.
Mr Wee: The UOB board has four scheduled meetings in a year. Additional meetings are held when warranted by circumstances. Last year, the board met six times. The board is not involved in but oversees management's running of the operations, as each has its duties and responsibilities.
Mr Wong: The board meets as and when necessary, besides the quarterly meetings for the announcement of the group's results. For instance, the board met many times in FY2017 as it was a milestone year for the group with its dual primary listing in Hong Kong and its foray into the US student market and into investment management as part of its asset-light strategy.
To effectively discharge its duties, the three board committees - audit committee (AC), nominating committee (NC) and remuneration committee (RC) - have separate meetings during the year to discuss particular issues. In between meetings, directors are provided with adequate and timely information to keep up-to-date with the group's developments and strategic growth plans. The directors, including myself, also have independent and unrestricted access to the senior management and company secretaries.
Mr Kenichi: We meet regularly, both formally and informally. The agenda for the formal meetings is to review quarterly, half-yearly and yearly results. We also meet at the AGM and also for the committee meetings, such as RC, AC and NC, which would be at least once a year for each of the committees.
The board also works closely with me to formulate the company's strategy and direction. The day-to-day operations are handled by me. Whenever necessary, the expertise of each of the board members will be called upon to assist in making the best possible decisions for the group. Informally, I invite the board for food tastings whenever we launch a new brand or menu. Such informal meetings also allow us to brainstorm for new ideas for the group and foster better relationships among directors.
Q: What would you consider as defining features of a highly effective board, and what would you say is top priority for your board?
Ms Goh: The role of a board, these days, has expanded beyond governance to include insights on macro developments, strategy development, talent management and shareholder engagement. A highly effective board works cohesively with management to craft strategies that are delivered for long-term growth within a sustainable business model. A highly effective board must be independent with each member remaining constantly engaged and committed. There is mutual respect between the board and the president and CEO and his management team with shared values and a strong culture of service and capabilities development. The top priority of the board is to support the company's vision of Feeding and Connecting Asia, supporting our people in their Passion to Delight and building on the strengths of our partnerships with all our stakeholders.
Mr Ng: A major duty of the board is to provide clear strategic guidance, and to ensure that there is adequate resources, in particular human resource, to ensure the long-term sustainability and longevity of the enterprise.
Mr Wee: An effective board is one that is able to build upon the past to lead the organisation to the future, with a view towards the long-term success of a company. To achieve this, it is important for there to be an open environment for constructive debate and for directors to be informed of developments which may have an impact on the organisation.
Mr Wong: An effective board comprises a balanced team with complementary skill sets, expertise and experiences as well as a culture that allows them to openly share their views and opinions and work together for sound decision-making. For the Centurion board, our top priorities are to provide entrepreneurial leadership and to set and communicate the strategic direction for the company to secure the long-term future of the business.
Mr Kenichi: The top priorities of the board are to have good governance, open transparency, and sound strategy for a good sustainable profitable business model. The key to a successful working and effective board is when the board and management are open and transparent with each other, discussing and debating issues, but respectful of the final collective decisions.
Such openness is the crux of effective enterprise risk management. The board and management needs to be honest about all the risks that the group faces in order to effectively evaluate all threats to the business and develop plans to mitigate them.
Q: How critical do you think it is to have a diverse board, both in terms of gender and skill sets, and what challenges do you face attracting the required talent for your board?
Ms Goh: Globalisation, disruptive use of technology and the shifting dynamics of the world's demographics have increased the challenges of operating in a complex environment. We need people with a diversity of background to help the company stay nimble to change. Diversity will also avoid the risk of groupthink and blind spots.
The search for board directors is a constant on our agenda as we look to build on the complementary strengths of board members who are able to contribute time and engage fully with the management team.
Mr Wong: Board diversity is an essential component for effective decision-making as it reduces groupthink and allows for fresh perspectives. Diversity is more than just gender and skill sets. Our diversity policy states that diversity considerations should include age, cultural and educational background, professional qualifications, knowledge, industry and regional experiences, etc.
What is important to each board will depend on its own unique needs. For example, what industry is it in, what products or services it offers, is it global or a local business? For example, boards are beginning to consider additional factors such as digital or technology expertise. Board renewal should be an on-going process to ensure good corporate governance. The nominating committee regularly reviews the structure, size, composition and diversity of the board and makes recommendations to the board for adjustments, if necessary. The nominating committee has in place a robust process for selection and appointment of new directors.
Mr Kenichi: It is absolutely critical to have a diverse board not only in gender and skill sets but also in nationality and age segments. For example, it is important that we have someone with broad and deep industry knowledge such as what we have in one of our directors. As a board serves its stakeholders, including minority shareholders, who are from diverse backgrounds, having more diversity will enable boards to perform their jobs more effectively.
Small-cap listed firms like us face unique challenges in attracting talent to our board mostly because we have less resources as compared to large-caps. The key areas of comparison include quantum of director fees paid, risks involved since small firms have less resources to hire professional assistance or reluctant to do so when required, and finally, people relations issues, meaning the independent directors and non-executive director need to get along with each other and especially with the founder. Japan Foods counts itself fortunate to have such a dedicated board of directors and this award is a testament of how well we have worked together over the years in spite of the challenges.
Q: Should gender diversity be mandated?
Ms Goh: Women want to earn their rights to be recognised for their positive contributions. Mandating gender diversity overshadows the contributions that female members bring to the board. There is sufficient market data for boards to appreciate the value and to assess the fit and wider perspectives that gender diversity do provide to boardroom deliberations.
Mr Ng: With growing adoption of diversity (including gender diversity), there is no need to specifically mandate gender diversity. Diversity is a source of strength. It generates discussions and contributes to better decision-making.
At CapitaLand, we embrace diversity including gender diversity, and practise open and robust discussions in all deliberations.
Mr Wee: Diversity among board members takes on many forms. As each company is different, it would be better to allow each company to have the flexibility to determine what key attributes its board needs to be effective. The UOB board is supportive of diversity, but not in terms of any one particular attribute. Our board appointments are based on the merits of the candidates and the experience, skills and knowledge which the board requires to work effectively, in line with UOB's strategic directions. It is an ongoing priority to ensure we bring on board candidates who are an appropriate fit and broaden and deepen the collective expertise and experience of the board.
Mr Wong: Gender diversity on boards has been a focus in recent years and several studies have proven that increased representation of women contributes to better-informed decision-making and all-round performance.
We are very pleased to welcome Tan Poh Hong, our first female member on Centurion's Board. With her valuable experience in the planning, development and management of Singapore's public housing at the Housing and Development Board, she possesses the relevant skills and expertise needed to help drive the expansion of Centurion's accommodation business.
However, I would avoid recommending a prescriptive approach. Gender diversity is but one form of diversity and there is a limit to the effective size of a board. In view of the unique and multi-faceted needs of each business, we believe that there should be some flexibility for a company to determine its board composition. I would leave it to the respective boards to assess for themselves what is most needed for their own board and businesses.
Mr Kenichi: Yes, gender diversity should be mandated. Today, in Japan Foods, we have achieved gender diversity of 25 per cent of our board size, which is above the national average. This has been useful, as our customers and employees are both male and female and having both genders represented on our board has ensured that the decisions we make cater to both genders.
Q: There is a proposal to enforce a term limit for independent directors to ensure greater neutrality and to bring fresh skills to the board. What are your thoughts on the matter?
Ms Goh: Each board needs to balance the benefit of industry expertise and deep understanding of the company against the need to refresh and re-invigorate. A hard-line limit is overly rigid and the more important consideration should be the conduct, judgement and character of the director and his/her on-going contribution to the board and the company.
Mr Ng: Board renewal is an essential and continual process. However, the focus should not be on a director's tenure. One should not assume that a director's independence comes into question after he has served for nine years or more. Independence is a state of mind which is not necessarily affected by tenure. What matters more is whether the board has the right people, whether it has diversity - that is, the right mix of skills, experience and expertise. The board and the nominating committee, who have first-hand and intimate experience with working with its directors, are in the best position to exercise the discretion in determining director's independence.
Long-tenured directors can be beneficial because of their deep knowledge of the company acquired through service, the continuity, stability and their grasp of the historical perspectives that can inform current company strategy. It also allows management to benefit from collaboration among board members as a result of the strong working relationships that have developed over the course of their tenures. These factors balance heavily against any strict rule on board tenure. Effective succession planning should factor in tenure diversity which allows a range of different perspectives while ensuring continuity.
Mr Wee: A term limit would help in ensuring the discipline of continual board renewal. Many regional jurisdictions are starting to impose term limits, whether formally or informally. For example, MAS (Monetary Authority of Singapore) already has a rule that an independent director who has served nine years in a financial institution would no longer be considered to be independent.
Mr Wong: As part of the job of the nominating committee, regular reviews of the independence of each director should be done to ensure effectiveness. It is also the duty of each board member to proactively assess their own independence and act in the interest of shareholders. Having said that, we do not believe that just by having served beyond a prescribed term, it would necessarily imply that an independent director is less neutral or is able to contribute less. It really depends on the circumstances and character of each independent director. There is some value in continuity and having directors who have been with the company for a sustained period and who know and understand the business and challenges deeply.
Mr Kenichi: This is tricky, as independence is both an objective and subjective measure. An independent director who has less than nine years on the board, may not be truly independent in views, depending on how rigorous was the selection. owever, as a general rule, we support that there should be a term limit for independent directors. But, it need not be mandatory. For example, one of our independent directors takes it upon himself to put himself up for yearly re-election at the AGMs. He had sought the board's assessment of his independence upon passing the nine-year mark a couple of years ago. The group has reaped tremendous benefits from his experience and contribution and he still has so much to give. I feel it will be a shame to end the relationship just because of a term limit. Instead, it is better to put in place checks and balances in order to assess continued neutrality in directors.
Q: Rigorous debate should be a part of board meetings but conflict can impede progress. How can conflict in the boardroom be resolved?
Ms Goh: Constructive and rigorous debates enable well-considered decisions and the chairman's role is to draw on the all the views and diverse opinions in the boardroom.
In order to do so, a cohesive board working with the president and the CEO and the management team facilitates meaningful discussions towards shared goals.
Mr Ng: Rigorous debate is part and parcel of any dynamic board and contributes to the effectiveness of the board. Directors have fiduciary duties to the company and should engage with fellow directors in an open and constructive manner. The CapitaLand Board conducts itself in alignment with CapitaLand's overall purpose and shared core values. The board has a culture that allows for open and effective discussions, debates and deliberations, assisted by management providing the board with relevant information on a timely basis.
Mr Wee: Open and rigorous debate surfaces different perspectives for board consideration. I wouldn't call that conflict. By taking into consideration different viewpoints, a board can have a fuller and more considered evaluation and come to an agreed stance on the way forward.
Mr Wong: As the chairman of the board, I will set the agenda for and moderate board meetings. I personally believe in the value of promoting a culture of openness at board discussions and actively welcome rigorous and constructive debate within the board and between the board and management.
Our board, comprising highly experienced and senior members, understand and appreciate that members will have differing views. This is, in fact, a strength. They are able to productively work through varied opinions and viewpoints for an efficient and effective discussion.
Mr Kenichi: Rigorous debates are part and parcel of good decision-making process. But as a social construct, good team dynamics is key to ensure the board functions effectively. Thus, it is important that the board chairman and in our case, also vice chairman, play an important role to ensure that all board members' views are taken and conflicts if any, handled well. The key to ensure that conflicts are resolved is open communication, and our Japanese culture of consensus decision-making has worked well in keeping our debates healthy and constructive.