Welcome spur to board renewal

THIS WEEK'S TOPIC: Do you agree with the nine-year rule for director independence? How will the term limit affect recruitment of directors and overall board quality and competencies?

John Bittleston Founder & Chair Terrific Mentors International Pte Ltd

Too many boards have had nodding heads when they should have been shaking heads. Directors should not stay on boards long enough to become so cosy that they ignore their fiduciary duties. In a small community there will always be a temptation to cronyism and any effort that can reduce the worst effects of that are to be welcomed. Nine years may be too long. I think that it might be five years with the right of the retiring director, if nominated by the board, to apply for re-election by a small committee of shareholders. This might weed out the failing (for whatever reason) while giving useful directors a chance to continue their good work.

Yeoh Oon Jin Executive Chairman PwC Singapore

The nine-year rule for director independence is certainly a step in the right direction. Whilst many may argue that director independence is "a state of mind" issue, it is difficult to ensure consistent application of a concept that is inherently quite subjective. I believe that the tenure limit encourages board renewal and its associated benefits. In terms of readiness, the 2012 Corporate Governance Code had already indicated that the tenure rule would be revisited at the next review of the Code.

In addition, the corporate governance council has given three years for transition of this new nine-year rule, which is very accommodating. It is noteworthy that many of the top SGX 100 companies have been practising this rule for some time with no proven detriment to board effectiveness. Independent directors affected by the rule can utilise the transition period to pass their accumulated knowledge to the new independent directors while continuing as non-independent non-executive directors.

Max Loh Asean and Singapore Managing Partner Ernst & Young LLP

The nine-year tenure rule can help in creating boardroom environments that foster diverse and independent viewpoints for robust decision-making, and by extension, better business performance. Yet, tenure is just one of many factors that determine independence - and overall board quality. Rules are only as good as effective implementation and companies must go beyond ticking the boxes. If the end goal is to achieve board effectiveness, then in determining board composition and renewal, companies should actively deliberate the value that a director brings in terms of expertise and contributions as it relates to the company's strategic imperatives vis-à-vis the principles of director independence. All this must be premised on doing the right thing and doing things right.

Richard Hayler Senior Managing Director, Economic and Financial Consulting FTI Consulting

The nine-year limit is a welcome addition. The delayed introduction to 2022 is disappointing but understandable given more than 40 per cent of listed companies will need to identify one or more new independent directors. I believe a more regular refreshing of boards will lead to greater diversity of thought, enhanced sustainable value creation and better investor protection. Such benefits however will require new talent and/or careful selection, rather than simply recycling independent directors who have exceeded nine years elsewhere. Interestingly, some are already questioning whether nine years is too long - whether in fact independence is generally lost after seven or even five years. Perhaps a matter for future consultations.

Victor Mills Chief Executive Singapore International Chamber of Commerce

Independent directors are a key element of good corporate governance. Without family ties to the owners, majority shareholders and management bring diversity of thinking and judgement to the board which benefit all shareholders. The nine-year tenure rule for independent directors is fair and reasonable. It facilitates board renewal which brings with it more fresh, independent thinking. I hope that the tenure limit will also facilitate the spread of expertise among more companies. I also hope the tenure limit will mean more women joining company boards. For an advanced economy, the number of women on listed company boards in Singapore remains embarrassingly low.

Stephen Keys President, Asia-Pacific, Middle East & Africa IFS

I am generally supportive of limitations to tenure. However, boards must get the balance right between meaningful independence and relevant industry knowledge. We must be careful that the pre-requisites for independence do not preclude candidates with special knowledge of the firm and the industry sector.

Many specialist firms need directors with relevant experience to properly monitor management effectively and to provide worthwhile strategic advice. Without such experience, they may lack the knowledge base and experience with the business and its environment to make the right decisions in the best interests of the shareholders they are supposed to represent.

Wong Kok Hoe Chairman Centurion Corporation Limited

While the nine-year rule helps enforce discipline on board rotation and renewal, a nine-year cap may not by itself adequately determine the independence and integrity of board members. This largely depends on the character and relationship of the individual members themselves.

We believe that a company should regularly and continually review and evaluate its board composition, based on the needs of the company and the merits of each board member's contribution.

Frankie Chia Managing Partner BDO LLP

I support the nine-year limit on the tenure of independent directors (IDs). To go further, we should impose a hard limit to promote director independence, instead of the two-tier voting process which could create further unhappiness among minority shareholders. It is crucial to have different perspectives in the boardroom and I have seen how new IDs have contributed to this effectively. Long-serving directors can continue to contribute as non-executive directors. There are enough qualified people to serve as IDs, and imposing a term limit will encourage refreshing boards and improve the talent pool for IDs.

Sidney Lim Managing Director Protiviti Pte Ltd

Nine years is definitely enough time for independent directors to learn the business operations, share their industry experience, see through specific initiatives and make a positive impact. However, while a term limit provides opportunities for board renewal, greater diversity and the introduction of new perspectives, it is not a gauge of director independence. What's important is the conduct of executive leadership in conveying the appropriate "tone from the top" and the development of a robust and sustainable organisational culture. These will always be the building blocks of sound corporate governance practices and the assurance of a strong company board.

Sheena Chin Country Director, Singapore Veritas Storage Singapore

To a large extent, the nine-year rule for director independence will help to promote board renewal and enhance board diversity. The nine-year tenure allows sufficient time for the board to undertake initiatives that will require a longer time to yield results. At the same time, the two-tier vote serves as a safety net, if any independent directors are required to stay beyond the term limit in view of their institutional knowledge or critical expertise. That said, it is worthwhile to keep in mind that legal norms by themselves cannot ensure independence. There could be other factors at play, such as groupthink or reluctance to disrupt the existing camaraderie. Hence, it is important for the board to remain vigilant at all times.

Philip Yuen Chief Executive Officer Deloitte Southeast Asia and Singapore

The nine-year rule for independent directors (IDs) should help promote more diversity and fresh perspectives in the boardrooms of Singapore. It encourages the board to be more deliberate in their corporate governance practices - having an appropriate balance and mix of skills, knowledge, experience, and other aspects of diversity including gender and age helps deliver sustainable commercial opportunities, avoid groupthink and foster constructive debate.

In practice, almost 30 per cent of IDs serve over nine years and we anticipate this percentage to gradually decrease over time as companies adopt thoughtful practices to comply with the new SGX Mainboard Rule. There will be a transition period for companies for this new rule to be effective but we do not expect any major impact on the recruitment of IDs.

Ong Pang Thye Managing Partner KPMG in Singapore

With shorter economic cycles and business-model disruptions being the new normal, these changes offer a great opportunity to recruit the best talent for company boards and raise overall board quality. Making it a mandatory requirement as a Listing Rule rather than a regime of "comply or explain" is likely to prompt company boards to be more proactive in considering board diversity, composition, succession planning and more importantly, renewal.

By itself, the nine-year rule for director independence is not new. The SGTI report shows that 42 per cent of companies have at least one independent director with a longer tenure, suggesting that many companies prefer to retain the status quo rather than re-balance their boards. What the change simply means is that many boards will either retire or add more independent directors .

Mark Billington Regional Director ICAEW South-East Asia

It is critical for the board of directors to have an appropriate mix of skills, experience and independence to enable its members to discharge their duties and responsibilities effectively. Stakeholders' expectations of, and reliance on, IDs continue to rise. Consequently, mechanisms such as the nine-year rule are necessary to ensure that the best possible mix of people are in the boardroom.

Meaningful director evaluations should complement the implementation of such rules, which will improve board quality and overall competency in the long run. It will also encourage companies to look at a more rigorous recruitment process of IDs. To build a strong foundation, each appointed director should bring his/her own fresh thinking into the boardroom, enhancing board diversity and spurring companies' innovation efforts.

Tan Chong Huat Managing Partner RHTLaw Taylor Wessing LLP

While the logic is sound, an arbitrary nine-year limit may not benefit an issuer. It takes time for a board to obtain the familiarity necessary for meaningful decision-making. While independent directors who hit the limit can be retained as non-executive directors, this may be costly given that issuers will still have to comply with the provisions on number of independent directors.

The alternative of going to a two-tier vote is also not ideal as it allows certain shareholders to vote twice on the same subject and gives rise to the risk that independent directors may pander to them. Also, the Code does not adequately deal with the situation in which independent directors are not re-appointed - in such event, an issuer will either run the risk of not having sufficient independent directors for a period, or appointing one for compliance's sake.

Chris Burton Country Managing Director Vistra

This revision to the Code is a progressive move in response to a number of recent scandals that have tarnished Singapore's reputation. We should be supportive of all reasonable initiatives that increase board independence and diversity.

The risk of long-serving IDs is that they become too close to executive management, develop vested interests, and lose objectivity. Nine years seems an appropriate period - long enough to have a sense of ownership, understand the business, take a strategic (not short term) view, yet not so long as to become institutionalised.

I would expect a more established, fluid market in IDs to emerge. Companies should benefit from new ideas, standards and perspectives injected by ID rotations.

Karl Hamann Chief Executive Officer QBE Insurance (Singapore) Pte Ltd

A director needs to have both impartiality and experience to provide effective governance of a company. A director's ability to be impartial but also bring experience to the role will of course depend on each director's personal traits and background.

It is therefore hard to have one rule which is meant to apply to all directors. However, from a regulatory perspective, certain standards need to be set to safeguard companies and these standards can only be set based on an average. On this basis, nine years represents a good balance between enabling most directors to obtain useful experience to do the role well and limiting the possibility that a director's independence will be compromised by becoming personally invested in the company.

Vipin Kalra Chief Executive Officer BankBazaar International

I believe there is merit in instating a nine-year rule for director independence. With the rapid pace of change in the business world, nine years is a long period of time. A periodic review will make way for fresh perspectives and allow companies to stay ahead of the curve.

This will involve some work, especially given the number of companies that currently have independent directors who have served for more than nine years. However, companies have a buffer until 2022 to put the necessary processes in place. Ultimately, companies will stand to benefit from greater diversity amongst the board of directors.

Lee Fook Chiew Chief Executive Officer Institute of Singapore Chartered Accountants (ISCA)

Independence is a state of mind which varies among individuals and may or may not be related to time. Nonetheless, some empirical studies on director tenures have shown that board directors start to lose their independence after nine years.

Hence, in the absence of more practicable and /or rigorous measures, ISCA supports the nine-year rule for director independence as it encourages board renewal and the injection of fresh perspectives from new directors. An independent director can still serve as a non-independent director on the board, if he/she is truly valued by the company or its shareholders.

Thus, the director's cumulative knowledge as well as valued talent and expertise are not lost.

Lim Soon Hock Managing Director PLAN-B ICAG Pte Ltd

The nine-year rule for director independence was expected. The grace period is more than sufficient for companies to adjust to it. If any reason was needed on why it should be supported, it's that boards will be refreshed, and not so much that long-serving directors will lose their independence.

That said, in-breeding or worst, incestuous thinking cannot be good for companies and ultimately shareholders, in today's VUCA world, where it is not only prudent to tap on the collective wisdom of the board, but there is a compelling need to tackle fast-changing challenges with fresh ideas and perspectives. In this regard, government boards with tenure limits, typically up to two to three terms, is the trail blazer.

Companies can learn from this practice, which has been in place long before the debate on this controversial issue started.

It is not true that there are not enough candidates with the requisite diversity of experience and knowledge to be appointed as non-executive and independent directors. If companies make a special effort to find them, including on-boarding more women and kickstarting this early as part of succession planning, there will be more than sufficient numbers to select from.

Ian Lee Regional Head, Asia Pacific The Adecco Group

A diverse boardroom - in terms of not just gender or age but also skillsets, experiences and perspectives - can be instrumental in driving management performance and spurring corporate growth and innovation. The new rules on boardroom composition and term limits for independent directors will go some way in ensuring boardroom diversity by limiting tenure and spurring regular renewal. But the term limit cannot and should not replace a robust director evaluation and an ongoing director succession process to maximise board effectiveness and achieve healthy board turnover.

Also, with the expected increase in number and rate of recruitment of directors as a consequence of the new rules, it will be equally important to have in place a rigorous director selection process to ensure board quality and competence.

Maren Schweizer Director Schweizer World Pte Ltd

The key isn't structural, it's social: Based on a virtuous cycle of respect, trust, and openness. Successful boards usually have chemistry that can't be quantified, where one good quality builds on another.

Map evolving business strategies: High performance boards go beyond fiduciary responsibilities to take an active role in challenging and providing input on a broader range of matters, like the "outside view" to strategy, technology, potential disruptors in the marketplace.

Bring your board into the digital age: Getting more involved in strategy will require a board to increase their digital literacy and cybersecurity.

Deepen directors' commitment: Greater responsibilities require increased commitments of time and energy.

Dora Hoan Group CEO Best World International Ltd

The nine-year rule definitely has its benefits to spur board renewal to bring in fresh ideas and enhance the board's perspectives. However, such hard-rule approaches also mean that boards will not be able to retain good performing directors without the risk of perceived reduced board independence.

Some of the qualities I value deeply in my fellow directors (other than their intelligence and diligence) is their willingness to place company and shareholder interests before self, their ability to propose constructive suggestions for board consideration and to work well with fellow directors. Their departure, especially after accumulating a wealth of experience during their tenure, would be a big loss to the board.

My personal opinion is that, while board renewal is a must to spur fresh ideas, we should have safeguards in place to prevent the erosion of director independence, especially as independence is not solely affected by length of service. A director without integrity may abandon independence from day one. Renewing the board with a couple of new directors without replacing all the independent directors can also bring about fresh ideas and at the same time, maintain the stability of the board.

Rathakrishnan Govind CEO London School of Business and Finance

Bearing in mind the responsibilities and fiduciary duties of directors, it is of paramount importance that boards ensure high levels of transparency. Limiting the tenure of independent directors allows for new perspectives on business and the operating environment, and prevents unprofessional and unethical practices from being condoned. The question is - is nine years long or short enough? There are career directors who sit on multiple boards; and there are competent people who can't get access to boards. By limiting the tenure, it is hoped that more new and better ideas get to the board's tables.

Lynette Seah Founder and CEO Alpha7

With this new rule, board members will likely stay intensely focused during the time they serve and remain independent. A revolving door of new board members offers new perspectives, expertise and networks that keep up with innovative new ways of doing business. The regular evaluation of talent ensures a well-rounded board that keeps management compliant and ensures that the health of the company is paramount. This new term limit is a boon for companies.

Toby Koh Group Managing Director Ademco Security Group

The nine-year rule is a good change and is aligned in terms of bringing the corporate governance standards for listed companies to be more in tune with the major markets in the region. Hong Kong, Malaysia and Australia have somewhat similar rules. From the investors' standpoint, it is a good thing as the rule "forces" companies to relook at their board composition and independence of directors.

From the company's point of view, it may be viewed as a "hassle" as this will likely increase compliance costs. There may also be a challenge to bring in independent directors who have industry knowledge when the nine-year director retires.

David Leong Managing Director PeopleWorldwide Consulting Pte Ltd

Board bench strength and independence from management is critical for governance purposes. It is a purposefully built two-tier structure with the board and management to remain separate and distinct and necessarily to prevent herd behaviour. The nine-year tenure for an independent director is a good step forward because any mid-to-long-term planning usually spans three to five years. Nine years will allow the independent director to be fully involved for at least two cycles of long-term strategic planning with the company.

Board quality and competencies can be improved with infusion of new directors. Long-standing staid independent directors are like stale air in a confined environment which will not add vibrancy and life to the board.

Yvonne Butler Managing Director The Information Source

Director tenure is important to consider in determining the mix of skills, experience and personal qualities for a board, its independence and ability to think and act innovatively. It seems unfair to target all directors with long tenure, and it would be more appropriate to look to remedy entrenched boards.

There are two reasons for this. First, for some directors, their directorships have become the last source of any income outside of a superannuation or public pension. Second, but not necessarily mutually exclusive, the directorships may have become the last link the director has with their previous professional or business life.

Juliana Mamoni Sliwka Founder & CEO J Mamoni Lifestyle & Etiquette Institute of Singapore

Term limits may be inherently antidemocratic and shareholders inherently have the power to limit terms simply by voting incumbents out. However, "director independence" remains the linchpin of good corporate governance. I agree with term limits as they generally aim to ensure that directors have no conflicts of interest with respect to their service on the board, keeping shareholder groups and institutional investors happy.

Zaheer K Merchant Regional Director (Singapore & Europe) QI Group of Companies

The nine-year rule is not a hard and fast rule. It's a guideline for reviewing a director's independence, since a sufficiently long time on the board might (in fact or be seen to) put at risk the director's oversight function due to "natural development" of rapport.

To that extent, in theory, it is a welcome rule, although its practical effectiveness is doubtful.

The data shows that a good percentage of companies have at least one director who is still declared independent despite being over the nine-year limit.

And if overall board quality and competencies are the aspirations, then perhaps a stricter enforcement of the "comply or explain" approach might be more compelling and achieve greater effectiveness. There's also need to create better guidelines and definitions on directors' duties and responsibilities both in practice and under the Companies Act.

Magnus Grimeland Founder and CEO Antler

At Antler we strongly believe in diversity in boards and the importance of innovation and transformation for businesses to succeed in the long term. This seems like a very smart move.