Companies finding ways to keep long-tenured IDs on their boards even as 9-year rule comes into effect

THE 9-year term limit for independent directors (IDs) of locally listed companies - which only came into effect on Jan 1 - is already at risk of becoming a joke in the market.

The rule is supposed to encourage board renewal and empower shareholders to assess the independence of long-tenured IDs.

Under Listing Rule 210(5)(d)(iii), the continued appointment of an ID who has served more than 9 years has to be put to a "two-tier" vote - that is, separate resolutions have to be voted on by (a) all shareholders; and (b) all shareholders, excluding the directors and the chief executive officer (CEO) and their associates.

An ID who fails to get past the two-tier vote can continue to serve on the board as a non-independent non-executive director (NINED).

Rather than put their long-tenured IDs through the discomfort of a two-tier vote, some leading listed companies are simply accepting that these IDs are no longer "independent" and redesignating them as NINEDs in order to keep them on.

Singapore Airlines (SIA) said on Dec 28 its IDs Hsieh Tsun-yan and Gautam Banerjee would be redesignated as NINEDs with effect from Jan 1 because of the 9-year term limit.

SIA said Hsieh and Banerjee have "gained valuable insights into the company and accumulated vast institutional knowledge" and that their continued appointment is especially critical for continuity as the company navigates its way through the pandemic.

City Developments said on Dec 28 that Philip Yeo Liat Kok would be redesignated as a NINED with effect from Jan 1 as he has served on the board for more than 9 years.

CDL suffered a significant turnover of directors in late 2020 over its investment in China-based Sincere Property Group. The company said Yeo will remain on the board to "maintain a balance of experienced and new IDs".

CDL also announced the appointment of lawyer Wong Ai Ai as new ID.

While CDL and SIA at least attempted to explain why their long-tenured directors are being kept on, some companies didn't bother.

Keppel Corp said on Dec 30 that its independent chairman Danny Teoh Leong Kay would be redesignated as non-executive and non-independent chairman, as he will not be considered independent under the listing rules from Jan 1.

ComfortDelGro Corporation said on Dec 30 that Dr Wang Kai Yuen, who has served on its board for 19 years, will be redesignated from an ID to a NINED with effect from Jan 1.

ComfortDelGro also announced the appointment of Philip Lee Jee Cheng to its board as an ID.

The Hour Glass said on Dec 30 that its lead ID Kuah Boon Wee would be redesignated as a NINED with effect from Jan 1.

Lock Wai Han, an existing ID on the board of The Hour Glass, has been appointed as the new lead ID.

Independence in practice

The reaction of these companies to the 9-year rule for IDs underscores the fundamental difficulty in ensuring that corporate boards are sufficiently independent.

Regulators set rules that preclude individuals with ties to a company's controlling shareholder or management from being appointed as IDs.

Indeed, the new 9-year rule was introduced to address the risk of long-tenured IDs developing overly close relationships with a company's management and controlling shareholders.

Individuals who were employed by the company in any of the past 3 financial years, or who have received payments in excess of S$50,000 in the current or immediate past financial year for anything other than their board service, are also deemed to be non-independent under the listing rules.

Yet, in practice, IDs are recruited by the controlling shareholders and management of a company. The IDs themselves usually have little incentive to rock the boat by questioning the company's business strategies or pushing for the monetisation of idle assets.

The fact that many Singapore-listed companies have controlling shareholders that are directly involved in management is a further challenge. IDs at such companies are unlikely to last long if they do not share the management's views on key issues.

Many investors will remember that CDL's troubles with Sincere Property Group came to light in October 2020 following the resignation of Kwek Leng Peck -- who was not in any way independent.

In fact, he was a NINED and had been on the board of CDL since 1987. He is also a cousin of CDL's executive chairman and an uncle of its CEO.

It was only after he quit the board that the IDs who had concerns about the management's handling of Sincere Property Group headed for the exit.

Obviously, Philip Yeo - whom CDL has just redesignated as an NINED - was not among them.

Perspective of investors

Despite the inclination for some leading Singapore-listed companies to hold on to IDs who are no longer independent, the 9-year rule will probably force some degree of board renewal - after all, listed companies still have to ensure that IDs account for at least one-third of their boards.

From the perspective of investors, however, it matters less that a company's IDs have no ties to its management than that its management is capable and honest. Getting top marks for corporate governance is meaningless if the company does not also deliver decent long-term returns to its shareholders.

It might help if the rules on board independence are further modified to focus the market's attention on how a company is run, and the role the IDs might - or might not - have played in its performance.

For instance, regulators should perhaps consider putting all IDs through a two-tier vote every year. Doing so would provide shareholders with a potent means of expressing their satisfaction or otherwise with the way their IDs dealt with specific matters that cropped up during the year.

It might also push IDs to be more proactive in addressing issues relevant to minority investors.

More generally, it could focus the market's attention more on how IDs can make a positive difference to investors and less on whether an ID's supposed independence might have been compromised by being associated with a company for more than 9 years.