Independent directors (IDs) on the boards of listed companies here may soon face hard caps on their tenure, as the Singapore Exchange’s regulatory arm doubles down on long-serving directors.
SGX RegCo also wants liscos to disclose their directors’ and CEO’s remuneration. In a media briefing, SGX RegCo CEO Tan Boon Gin warned of these two concerning trends following a review on such disclosures by KPMG in Singapore, adding that he is “quite disappointed” with companies here.
Since January, listed companies have had to implement two-tier voting to retain IDs beyond nine years. After seeking approval from all shareholders, the second vote excludes shareholders who also serve as director or CEO of the company, along with their associates.
According to Tan, SGX RegCo had expected companies to use the two-tier vote “sparingly” to retain quality independent directors beyond nine years. “What we saw was a rush to use the two-tier vote to retain long-serving directors despite us cautioning against this.”
Citing a study by the Nanyang Business School, Tan says 70% of 391 long-serving IDs seats up for re-election were put to the two-tier vote. Even for the 172 long-serving ID seats not due for re-election, 73% were put up for re-election via the two-tier vote. “If this is allowed to continue, we may not be able to achieve the renewal and diversity outcomes that we seek. It is therefore timely for SGX RegCo to consult on hard-coding the nine-year limit for independent directors.”
In addition, remuneration disclosures among liscos remain poor, says Tan. “Companies argue that for competitive reasons, remuneration details should be kept vague. But the information is important for understanding the link between business performance and financial rewards.”
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In a Sept 13 press release, SGX RegCo says it believes remuneration details of directors and the CEOs should be transparent as they have a fiduciary duty. “The question of competition is less of a concern. We will therefore be consulting on requiring the actual remuneration of directors and CEOs to be disclosed.”
Tan says the proposed disclosure level will be an exact dollar value, a stark contrast to the typical, deliberately vague disclosures in bands of $250,000 each. “As for the directors’ feedback, we are open to hearing from the market. In terms of what was the tipping point for us, it’s the liberal use of competitive reasons for explaining non-disclosure for both directors as well as key executives. Competitive reasons, we feel, is a much less compelling argument when it comes to directors.”
SGX RegCo’s announcement comes weeks after the Monetary Authority of Singapore (MAS) fined Noble Group $12.6 million for misleading financial statements, ending a 45-month probe into the collapse of the Hong Kong-based, Singapore-listed commodity trader.
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Up till 2015, Noble was a fast-growing commodities player poised to join the likes of Glencore in the big leagues. By the time Noble caved and defaulted, its share price had collapsed by 99%. In 2018, it was delisted from the SGX. Noble tried to restructure its remaining assets into another entity and list the new entity elsewhere but the move was blocked by SGX and MAS.
“The purpose of this significant civil penalty amount is to send a clear signal to listed issuers to ensure the accuracy of the information they release to the public,” said MAS on Aug 24.
The fine of $12.6 million, while the largest civil penalty mete out by MAS to date, is but a tiny fraction of the decimation in Noble’s market value. Two directors of Noble’s Singapore subsidiary, Neil Timothy Dhar and Timothy Martin Eyre, were given “stern warnings”.
Asked if the new recommendations are a direct result of Noble’s demise, Tan says he would “rather focus on the forward”. “What we're doing today, the changes that we are proposing, will enhance board independence. It will also increase transparency and improve corporate governance as a whole. So, I think all these measures are the steps that we're taking will make listed companies much harder targets for corporate malfeasance in the future.”
Disclosures lagging the UK, Malaysia
In the disclosure review, KPMG evaluated annual reports and company websites of 585 listed companies whose financial years ended between July 1, 2020 and June 30, 2021, based on the 2018 Code of Corporate Governance.
About half the companies disclosed that they had IDs serving beyond nine years, and 24% of directors surveyed believe a hard limit of nine years should apply to IDs.
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In addition, most companies continued to report remuneration of directors, CEOs and key management personnel in bands. Only 35% and 18% of companies disclosed director and CEO remuneration in dollar value respectively.
The results of this disclosure review are not fully comparable with the previous one done in 2016 based on the 2012 version of the CG Code. This is because the 2018 CG Code was streamlined from the 2012 version.
Nevertheless, overall scores increased in the latest survey. A third of each score was awarded with the relevant disclosure, while the quality of the disclosure determined the rest of the score. For that section, 474 responses were received in a survey of directors by SGX RegCo.
Based on the findings, the Corporate Governance Advisory Committee (CGAC) recommends that SGX amend its listing rules to introduce a hard tenure limit on IDs and mandatory remuneration disclosures of each individual director and the CEO.
Established by MAS in February 2019, the CGAC serves as an advocate for good corporate governance practices.
The CGAC recommends that IDs who serve more than nine years should no longer be considered independent. “This does not preclude a director from continuing to serve on the board after nine years, albeit as a non-independent director. The CGAC further notes that tenure restrictions on IDs have been imposed in other jurisdictions such as the UK, France, India and Malaysia.”
On director and CEO remuneration, the CGAC believes shareholders deserve clearer visibility on companies’ remuneration structure and practices. “The CGAC notes that such disclosures are required under the law or the listing rules in other jurisdictions such as the UK, Australia, Hong Kong and Malaysia.”
