Companies selective on governance revisions

[SINGAPORE] Many companies appear to be largely dismissive of the Code of Corporate Governance recommendations to limit multiple directorships on their boards, according to The Business Times analysis of 50 large Mainboard and Catalist companies.

Compliance with other key revisions to the Code was generally mixed, based on the annual reports for the 25 largest Mainboard and 25 largest Catalist companies whose financial years ended in November or December, and whose annual reports were available as of April 28.

Annual reports this year are the first to reflect the latest version of the guidelines, which were last changed in 2012.

Companies mostly met guidelines on the proportion of independent directors (IDs) in their boards, but tended to take a more lax attitude on the issues of multiple directorships, remuneration disclosure and assessing the independence of long-tenured directors.

On multiple directorships, just 12 out of 50 companies surveyed followed the recommendation to set and disclose a limit for all directors. Of the other 38 companies, 30 explicitly chose not to limit the number of boards a director may sit on.

Most of those companies said a blanket limit would not be as effective as individual assessments.

And some observers appeared to agree.

"There is essentially nothing stopping someone who, for example, holds more than 10 directorships, if he or she continues to be effective," said Irving Low, KPMG's local head of risk consulting.

But Associate Professor Mak Yuen Teen of the National University of Singapore (NUS) Business School believes limits are important in Singapore's context.

"In countries where directors face higher legal risk of being sued or charged, you find that directors generally don't serve on too many (boards)," he said. "Here, we seldom have directors taken to task, so there is not the same discipline."

Remuneration disclosure was another issue with significant non-compliance. Under the revised Code, remuneration of chief executives and directors should be disclosed by name to the nearest $1,000, instead of the old $250,000 bands.

About 64 per cent of the surveyed Mainboard companies and only 24 per cent of surveyed Catalist companies followed this disclosure recommendation. Those that did not comply mostly cited confidentiality and competition for talent.

But some commentators were sceptical.

"Those who want to poach your staff will have ways to find out how much they are paid. That's how headhunting works," Prof Mak noted.

Prof Mak ventured that some of the companies were actually avoiding having to justify their directors' paychecks. "(Perhaps) they do not have an objective and fair performance management system (and) so are worried that disclosures may lead to questions of unfairness in pay within the company," he said.

The tenure of IDs was an area where companies appeared to take whatever slack the Code afforded.

The guidelines recommend that boards rigorously review the independence of IDs tenured for longer than nine years, and to explain if the directors are still independent.

Excluding companies that have not been listed for more than nine years, more than three-quarters, or 13 out of 18, of Mainboard companies had IDs with tenures longer than nine years. Only one out of eight Catalist companies had IDs in such a situation. But all of those companies gave only brief, general explanations for why those IDs remained independent.

Difficulty in finding replacements may explain the long tenures,said Ng Siew Quan, PwC internal audit and corporate governance lead. "Whilst there are many competent potential directors and many potential willing directors, there is no abundance of competent and willing directors,"

Compared to the other key recommendations, the Code's call for at least a third of the board to be independent was an area where most companies were clearly in compliance.

Nearly all surveyed Catalist companies complied with this recommendation, while 70 per cent of surveyed Mainboard companies did the same. The one caveat to this result, however, is that independence is defined by the company.

Associate Professor Lawrence Loh of the NUS Business School reckoned that "the symbolism" of an explicit role can usefully shape how directors perceive their duties.

Singapore has adopted a "comply or explain" regime in its Code, and the mixed level of compliance raises questions about the Code's effectiveness and relevance.

Observers were split.

"The Code was meant to be aspirational in nature," said Adrian Chan, vice- chairman of the Singapore Institute of Directors.

But Ernst and Young advisory partner Neo Sing Hwee believes more can be done. "Unless the Code is made mandatory instead of a set of recommended guidelines, we will continue to see varying degrees of compliance and adoption of the Code," he said.