Corp governance code update a timely impetus to spur board renewal

THE recommended revisions to the Code of Corporate Governance and SGX (Singapore Exchange) Listing Rules announced on Monday seek to enhance board quality by strengthening board independence and diversity while encouraging better engagement between companies and their shareholders as well as other stakeholders.

One key area involves the proposals to boost director independence, in particular the recommendation to limit independent directors' tenure to nine years. This change has been a long time coming, with BT having advocated tougher rules for several years.

It has been argued that directors are not necessarily less independent just because they have spent a lengthy period on the board. Yet research on the Singapore Governance and Transparency Index (SGTI) has found evidence to the contrary. When director tenure increases, it seems that the proportion of independent directors decreases. The findings also indicated that where companies do not explicitly define "independence", the directors tend to stay longer. On average, when independence definition is made, director tenure is 7.7 years compared to an increased 8.8 years when no such definition is made.