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Building well-managed and effective boards
- CapitaLand chairman, Ng Kee Choe;
- OCBC chairman, Ooi Sang Kuang;
- Banyan Tree Holdings executive chairman, Ho Kwon Ping;
- Frencken Group president, Dennis Au
Moderator: Lee Meixian, The Business Times
A SIGNIFICANT evolution in the regulatory landscape in recent years, coupled with growing mistrust among minority shareholders towards board directors - some feeling that their interests are not fully protected by independent directors (IDs) - have heightened the role a board plays in a listed company.
The Business Times conducted a roundtable with the leaders of four companies that won the Best Managed Board Award in this year's Singapore Corporate Awards to find out how they steer their boards to work effectively for the company and its shareholders.
Question: What is the role that a board plays for a company? What are the attributes that a well-managed and effective board should have?
Ooi Sang Kuang: The board's role is to oversee and direct the business of the company. It should enhance and sustain long-term shareholder value while taking into account the interests of other stakeholders.
An effective board approves a suitable business strategy and ensures the right culture, people, resource allocation, risk appetite parameters, organisation structure and operating model are in place to drive overall business direction and strategy. It should have the right mix of board members to pursue this agenda.
Dennis Au: At Frencken, the board sets the company's strategic direction and goals, as well as ensures proper implementation and governance of the organisation's policies.
A board should have good diversity of expertise, knowledge and talents.
Frencken's directors have a wide range of experience in accounting and finance, legal, technology industry knowledge, customer-based knowledge, strategic planning, business and management experience.
An effective board should also be collaborative and ensure regular, transparent and good communications with both internal and external stakeholders.
Ho Kwon Ping: For a traditional family controlled and managed business like Banyan Tree, the bar set on the attributes of the board will need to be higher compared to a non-family controlled businesses, in order for it to be more effective and better managed.
I believe this is especially important in Asia where such family controlled businesses are prevalent.
For instance, IDs should have no relationship with the company or founders of the company such as ex-employees or family friends.
According to the Corporate Governance Code, at least one third must be IDs. For Banyan Tree, more than half or 55 per cent of our board members are IDs.
This will help ensure every decision made by the board is closely aligned with interests of the company and the shareholders.
Q. How do IDs on your board align themselves with minority shareholders' interests?
Mr Ooi: In our board discussions, the IDs are always mindful of the interests of minority shareholders. Our IDs meet at least once a year without the presence of other directors. Discussions are frank and open.
Ng Kee Choe: Directors must faithfully discharge their fiduciary duties to look after the interest of all shareholders, and non-executive IDs must pay special attention to the interest of minority shareholders.
Mr Au: The IDs on Frencken's board hold themselves to a high standard of independence by ensuring their judgement is not clouded by personal relationships.
They are mindful of making decisions that are guided by professional ethics and the highest level of integrity and values.
Q. The revisions relating to the nine-year rule for IDs and requirement for IDs to comprise at least one-third of the board will take effect from 2022. What is the current composition of your board like? Do you agree that staying too long on the same board can mar an ID's neutrality?
Mr Ho: Currently, of our 11 directors, six, or 55 per cent, are IDs. Of the six IDs, two have served more than nine years. They are Chia Chee Ming Timothy and Fang Ai Lian.
The Nominating and Remuneration Committee (NRC) and the board have determined that Mr Chia and Mrs Fang are independent because they continue to demonstrate strong independence in conduct, character and judgement in the discharge of their responsibilities.
Both Mr Chia and Mrs Fang have abstained from discussions relating to their respective independence at the meetings of the NRC and the board. There have also been changes to the board since they were first appointed, allowing for progressive refreshing of the board.
Based on these factors, I do not agree that staying too long on the same board will mar an IDs' neutrality. Nevertheless, in order to comply with SGX listing rules, there will be plans for their retirement from the board prior to 2022.
Mr Ooi: Banking rules deem a director non-independent after nine years, and the board must have a majority of IDs. We comply with these in form, substance and spirit. We have 10 directors, of whom a good majority, seven, are IDs.
Our IDs generally step down after nine years to allow the board to refresh itself. As a general rule, staying on too long can mar an ID's neutrality. But there are exceptions. Some directors by character have strong independent views regardless of the passing of time.
Mr Ng: CapitaLand continues to have a significant majority of IDs. The provision to have a majority of IDs is written into the board's charter. Additionally, where the chairman is not independent, the charter requires the appointment of a lead ID.
There is a rigorous process to evaluate the independence of every director. This is done by the Nomination Committee on an annual basis, which then submits its views and recommendations to the board for decision.
Tenureship, in and by itself, does not determine the independence of a director. Indeed, tenureship diversity adds experience and brings value to board deliberations and the decision-making process.
Mr Au: We believe it is essential that a director makes relevant contributions to the organisation and that he or she remains neutral and independent.
The directors with longer tenure have a deeper understanding of the company and our business. Together with the directors who have shorter tenure, this mix allows our board to benefit from a good balance of perspective and fresh ideas.
Frencken currently has four IDs, who comprise 67 per cent of our board. We believe having long board tenure does not necessarily make a director less independent as there are other factors that determine independence.
Ultimately, it depends on the director's sense of professionalism and ethics to ensure that his or her decisions are reached independently and aligned to the long-term interests of shareholders.
Q. How is diversity ensured in the selection process of directors? What challenges do you face in attracting the required talent for your board?
Mr Ooi: The board has established a diversity policy which embraces the diversity of skills, knowledge, experience, age, gender, length of service as well as merit and independence. All these are taken into account when selecting a new director.
The Nominating Committee, when choosing a director, has to make reference to this policy. The challenge is the small pool of talent available in this region; the person must also be the right cultural fit for the organisation.
Mr Ng: There is an institutionalised process for determining board composition and for selecting directors, in line with good corporate governance practices.
We subscribe to diversity, where diversity goes beyond gender diversity to include, amongst others, diversity in expertise, experience and tenureship.
The talent pool in Singapore is limited and it is necessary to look beyond Singapore when attracting talent, including for board membership.
Mr Au: Our main aim when filling vacant positions, whether it is on the board or anywhere else within Frencken, is to ensure that the company benefits from smart people who have wide experience and diverse knowledge and can communicate and work well together. For directors and management staff in particular, we seek people who collectively are willing to challenge the assumptions, validate the strategy and drive accountability towards meeting and exceeding our strategy's objective and outcomes.
Mr Ho: In the last two years, there have been changes in the dynamics of the group's business due to strategic alliances with two large partners, Accor and Vanke.
As a result, the board dynamics have also changed with the addition of three non-executive and non-IDs, with one each from Accor and Vanke and one from Qatar Investment Authority who is our second largest shareholder.
In view of this, the number of independent board members was increased to make up a higher proportion of IDs compared to non-IDs to ensure that each decision made by the board is closely aligned with the decision of the company and shareholders.
The selection of new IDs rests on the NRC whose selection process for candidates to be proposed to the board takes into account factors including their wealth of experience and competencies in various areas of business, as well as how these would augment the board and its existing directors.
Apart from diversity in skills, the NRC will also ensure gender diversity in the selection process.
Q. How often does your board meet and what is the usual agenda of these meetings? Beyond these meetings, how actively is the board involved in the group's day-to-day operations?
Mr Ooi: In 2018, the board held five meetings. The six board committees held another 22 meetings.
The bank has internal guidelines for matters that require board approval, eg material acquisitions, share issuances, dividends, et cetera. The board generally leaves the day-to-day operations to management, who are full time on the job and closer to the business and customers.
Mr Ng: The board meets six times a year, including a meeting to discuss board strategy. This does not include meetings which may be called from time to time as the situation requires. For example, the board and the relevant board committees had additional meetings last year to deliberate on CEO succession and on the Ascendas-Singbridge transaction.
Besides the board and board committee meetings in which management participates, there is active interaction between board members and management during and outside board committee meetings.
However, there is a clear separation between the role of the board and management. The latter is responsible for executing the strategy approved by the board on a day-to-day basis.
Mr Ho: The board conducts regular scheduled meetings on a quarterly basis.
Some of the usual business conducted during such meetings include obtaining updates from senior management on the development of key business activities, as well as from the NRC chairman and Audit and Risk Committee (ARC) chairman following their regular scheduled committee meetings with the management, external auditors and external consultants, and to review and approve quarterly and annual results for announcement to shareholders, as well as to review the company's cash flow and proposed dividends.
Beyond these meetings, ad-hoc meetings are also convened to review and approve critical special projects.
The board also participates in annual off-site strategy meetings which are usually held at one of the group's resorts.
During such annual meetings, the board and management carry out open and in-depth discussions on the strategic overview of the group's operations, covering financials, updates of key projects and new initiatives to be rolled out.
In addition, the board also interacts with senior management responsible for key operations. Such interactions assist the board in their deliberations on succession planning.
Q. How do boards strike a balance between rigorous debate and efficiency, given that conflicts and opposing views can impede progress?
Mr Ooi: This is where the chairman of the board or the board committee plays an important role. Selecting the right chairman is crucial.
Also, choosing the right director from the start is important.
This is so that the directors respect each other's views and are professional about disagreements.
Mr Au: We encourage rigorous debate at the board level, especially for major corporate decisions. To make the decision-making process more efficient, we always ensure that complete information is provided to board members in advance.
Board members will then be given sufficient time to explain their positions to achieve common understanding and awareness, prior to an open discussion on the potential issues and solutions to determine the direction going forward.
If required, we would request for third-party expert opinions to address questions raised by the board.
For major corporate decisions, the board members need to reach a consensus beyond just a simple voting majority.
With a process and parameters set in place, we believe we can strike a good balance between healthy debate and decision-efficiency at the board level.
Mr Ho: For listed companies in Asia, the board is usually less confrontational and IDs tend to ask less penetrating questions.
Notwithstanding this, to avoid rigorous debate at the board level, I recuse myself from committees such as the NRC and the Audit and Risk Committee so that IDs can freely discuss matters and resolve them at the committee level. In addition, I will try to reduce interested person transactions and avoid conflicting situations which may put IDs in difficult situations.
If IDs have to face many conflicting situations, the company may have difficulty retaining them or attracting reputable IDs to join the board.
So far, we have not faced major issues or conflicts that require rigorous debate at the board level.
Q. Tighter regulations as spelled out in the revised Code of Corporate Governance inevitably impose additional costs on listed companies, especially SMEs. How do such compliance costs weigh against the benefits, and how can companies manage?
Mr Ooi: Regulatory compliance has always been a part of the operating landscape. In recent years, the regulatory landscape has evolved significantly and, with the ever-changing environment, will continue to do so for years to come.
Companies have no choice but face such additional costs in today's operating environment. Smaller companies will experience this more keenly than the larger ones.
Right from the start, companies must take into account compliance costs before entering into any new business. While the cost of compliance can be a burden, we view this as a good investment for sustainability. In particular, it builds trust in us.
Mr Ng: It is generally recognised that practice of good corporate governance is rewarded by the market and that goes towards enhancing the value of the enterprise.
Listed companies, at a minimum, must comply with the listing rules, which is part of the regulatory regime.
International institutional investors, for example, require listed companies in their investment portfolios to go beyond the rules, such as adhering to policies and practices, with regard to the environment and sustainability in general.
Mr Ho: The increase in compliance cost is inevitable in order to strengthen the corporate governance, especially for SMEs due to recent events that have taken place at Hyflux, Singapore Post, Datapulse Technology, YuuZoo, et cetera.
I believe each company needs to assess the benefits of being listed - for example, whether they tap the market for funds frequently, the liquidity of their shares, the reputation of being listed and so on, and weigh this against the compliance cost.
Companies will have to treat compliance cost as part of the overall operational cost in doing business and manage it accordingly.