Positive steps for corporate governance

Issues relating to the tenure of independent directors (IDs) on corporate boards, as well as remuneration paid to directors and top management of companies, have long been contentious. In response to broad market support for key changes in these areas and subsequent recommendations from the Corporate Governance Advisory Committee, the Monetary Authority of Singapore (MAS) on Jan 11 amended Singapore’s corporate governance code. Under new listing rules, SGX RegCo, the Singapore Exchange’s regulatory arm, will introduce a nine-year tenure limit for IDs and require mandatory remuneration disclosure for each individual director and chief executive officer. These are positive steps.

Before the amendment on tenure, listed companies could continue to appoint IDs beyond nine years, subject to a two-tier vote, first by all shareholders and then by those excluding shareholders who also serve as the directors or the CEO of a company, and their associates. This mechanism was widely used by companies to retain hundreds of long-serving IDs, some of whom have served for more than 20 years. Many corporate governance experts have pointed out that this practice has inhibited board renewal as well as diversity on company boards. Both are important – renewal because with changes in the economy and the corporate landscape, companies need new skill sets and knowledge to guide them; and diversity because it injects different perspectives and prevents “groupthink” within corporate boards.