The Importance of Earnest Directors – introducing a series of interviews with Independent Board Directors

The importance of board directors for commercial or not-for-profit organizations is unquestioned.? However, the contribution of individual board directors has arguably been mixed or inconsistent – thereby adversely affecting the overall performance of boards.

Chairpersons play a key role but being human they are not infallible.? Some either tolerate board members who are merely ‘pretending’ or they are unable to take the decisions to improve board performance.

According to a 2022 PwC survey of 704 public company directors in America, 48% think one or more directors on their board should be replaced and 19% say that fellow board members are reluctant to challenge management.

In 2018, in Singapore, the Corporate Governance Council recommended changes to the Monetary Authority of Singapore (MAS) to “encourage thoughtful application and a shift away from a box-ticking mindset”.

Earlier this year, MAS amended the Code of Corporate Governance to reflect new listing rules to introduce a nine-year tenure limit for independent directors and mandatory remuneration disclosure for each individual director and the chief executive officer.

Shareholders in the US are also voting against board directors who are sitting on too many boards.? In the same PwC survey, 48% say that independent directors should serve no more than three boards.? Only 9% thought five or more boards were fine.

So, to avoid “over-boarding”, boards will have to search for new directors.? And compensation disclosure will mean greater investor scrutiny especially if transparency ends up causing director remuneration to rise.

At the same time, the corporate environment is now more treacherous.

The long list of challenges include:

• US-China tensions and de-coupling
• Reconfiguring of global supply chains
• Cost-of-living issues and impact on consumer demand
• Sustainability and energy transition issues, and impact on corporate image and costs
• Inflation hike and higher cost of capital, with greater uncertainty
• Workforce issues (diversity & inclusion, unrest, remote work, productivity, robotics, etc.)
• Technology issues (cyber-security, digital transformation, 5G, blockchain, generative AI, etc.)

It is up to boards to grapple with these challenges, come to grips with the uncertainties, risks and trade-offs, and to direct as well as monitor management.

To do that, boards need the right complement of directors and the right environment to ensure open and robust debates, adequate time for the key topics, and the ability to pivot in the face of new data or as things change.

Given the importance of board directors, Eric Salmon & Partners is embarking on a series of engagements with diverse independent board directors to elicit their perspectives.

The first one in our series of interviews is with TAN Yen Yen.? She has public board experience at companies based in Asia, Europe and the United States – as well as in not-for-profit organizations.? Yen Yen kindly spared the time to answer five questions and her edited answers can be found here: https://www.ericsalmon.com/five-questions-with-a-board-director-tan-yen-yen/.

We hope these interviews will add to the many contributions in the overall effort to improve board performance.

***