Independent directors may face reassessment after 9 years

Listed companies will have to justify the independence of long-serving independent directors under proposed new rules that could take effect later this year.

The Corporate Governance Council is proposing to enforce a "nine-year rule" that will reassess whether such directors qualify as independent after that long in the role.

The Singapore Exchange is seeking public feedback on whether it should be written into the Listing Rules as a hard limit, or if the director's term should be put to an annual two-tier vote.

That would mean a director would have to win a mandate from all investors as well as from the majority of all non-controlling shareholders. If not, he can serve only as a non-independent director.

Mr Kurt Wee, president of the Association of Small and Medium Enterprises, said: "My preference is for a two-tier vote. Although it is... a bit more tedious, it gives the company the option of another extension, and you have a process that satisfies the minorities."

The council has recommended a transition period of three years to be provided. Nearly 30 per cent of independent directors here have more than nine years of service under their belts. Some have served for more than 30 years.

The nine-year rule is just one of 12 other practices that the council wants to add to the SGX Listing Rules for mandatory compliance. Firms are only encouraged to observe these practices under a comply-or-explain regime.

The council is recommending moving the guideline for a third of any board to comprise independent directors to the SGX Listing Rules. Already, 96 per cent of listed firms have boards with at least one-third independent directors.

Another suggestion open for public consultation is to consider a more stringent definition of director independence.

A director can still count as independent if he owns less than 10 per cent of a firm's shares. Under the suggested change, he will no longer be considered independent once he crosses the 5 per cent threshold.

Other new elements were introduced into the Code of Corporate Governance with the aims of making remuneration more transparent and enhancing board diversity across gender, age, geographical knowledge and skills.

The United States, Britain and Australia have introduced laws to give shareholders a "say on pay" over the past few years, but the council said it would not recommend this regime for now.

Another change that will likely be welcomed concerns the code itself, with much of the verbiage cut out in a bid to make it more user friendly. Indeed, the word count was reduced by half.

Corporate Governance Council chairman Chew Choon Seng told an audit committee seminar yesterday: "The imperative is for companies to recognise that good corporate governance helps in accomplishing their business mission and objectives, and is therefore in their own best interests."

The public consultation on the revised code closes on March 15. The revised code will be launched in the second half of this year.

A version of this article appeared in the print edition of The Straits Times on January 17, 2018, with the headline 'Independent directors may face reassessment after 9 years'. Print Edition | Subscribe