Board Diversity and Corporate Governance

The Monetary Authority of Singapore released the latest version of the Code of Corporate Governance in August 2018, along with a Practice Guidance, which forms a voluntary guide to best practices. The 2018 Code applies to Annual Reports covering financial years commencing from 1 January 2019.

https://www.mas.gov.sg/regulation/codes/code-of-corporate-governance

Do you know what are the changes to the Code?

Some of the notable changes include:

• From January 1, 2022, independent directors will have a tenure limit of nine years. Where an independent director has served nine consecutive years of service, continuation on the board as an independent director will be subject to a two-tier vote shareholders’ vote.  
• From January 1, 2022, boards must be majority independent where the board chair is not independent, and the Code establishes that regardless of board chair, non-executive directors will need to comprise the majority of boards.
• The shareholding threshold for determination of a director’s independence is reduced to 5%.

Interestingly, the Code does not include a target or requirement on gender diversity, whereas some countries have set targets for themselves. Countries like India and Australia are also pushing for disclosure of a board skills matrix, while Singapore has kept that practice purely voluntary.

It has been 2 years since the 2018 Code was released and we are about a year plus away from when some of the new rulings will take effect. I took a cursory look at the 10 largest listed companies in Singapore by Market Cap and this is what I found:

• 7 have non-independent Chairmen (which means the boards need to be majority independent come 1 January, 2022). Of these 7, 3 currently DO NOT have a majority independent board and 3 others barely achieved the majority criterion.
• 2 have non-executive directors as the minority on their boards.
• 6 have 10% or fewer female directors on the boards with 2 of them having zero female representation.
• 1 has a clear majority of directors whose tenures exceed 9 years at the moment.
• Over-boarding does not seem to be an issue. Most of the directors sit on boards of 1 to 2 listed companies. A small handful are on 3 to 4 listed boards and this is generally accepted as reasonable.

It looks like there is still some work to be done with regard to board renewal for some of these boards and probably for a good number of the 700 or so listed companies in Singapore.

It is heartening to know that just last week, the Singapore Institute of Directors and Willis Towers Watson, with support from BoardAgender, launched the Singapore Board Diversity Index. This inaugural index analyses all SGX-listed companies across eight dimensions of diversity: gender, age, tenure, board independence, cultural ethnicity, international experience, domain expertise and industry knowledge, and highlights those companies that exemplify aspects of board diversity.

This is a great first step towards achieving board diversity and the Index has taken a broad view of diversity beyond just looking at gender diversity alone, which is usually the most obvious and measurable dimension. It is also very timely as Practice Guidance #4 states: “Boards are encouraged to go beyond their immediate circle of contacts, including using third party search firms and institutions, to identify a broader range of suitable candidates.” It is often easier to appoint a board director who is already known to or has worked with the existing board directors but it does not contribute to diversity, which would make the board more robust.

Let’s all make a conscious effort and play our little parts to push for more greater diversity on boards.

#corporategovernance #boardsofdirectors #boarddiversity #accountability