Singapore Exchange Regulation (SGX RegCo) has opened for public consultation its proposal for a nine-year limit on the tenure of independent board directors (IDs) on companies listed on the Singapore Exchange (SGX), announced the bourse on Oct 27.
The public consultation also moots the removal of the two-tier voting mechanism for long-serving IDs. According to the consultation paper, directors who wish to serve beyond the tenure limit must be re-designated as non-independent even if their appointment was approved previously via a two-tier vote.
In addition, SGX RegCo is seeking feedback on mandating the salary disclosures of board directors and the chief executive officers (CEO) of listed issuers. Specific to the dollar, the proposed disclosures will also name these directors and CEOs, along with breakdowns of their remuneration.
SGX RegCo says this will bring disclosure requirements on director and CEO remuneration in line with global standards.
Both proposals follow a review of companies’ disclosures based on the Code of Corporate Governance 2018 commissioned by SGX RegCo, as well as a study on long-serving IDs by the Nanyang Technological University.
The Corporate Governance Advisory Committee released its findings last month, suggesting a tenure limit for IDs and disclosure of the exact remuneration of each director and the CEO.
See also: SGX RegCo moots caps on independent director terms, salary declarations
“Current market practice suggests a concerning trend that long-serving IDs may become entrenched, despite the nine-year rule,” reads SGX RegCo’s consultation paper, released Oct 27.
KPMG’s review of companies found that only 52% of companies disclosed that they did not have directors serving beyond nine years.
According to another study conducted by Associate Professor Victor Yeo of Nanyang Business School, in 2021, 70% (273 out of 391) of long-serving ID seats that were due for re-election were put up for election through the two-tier vote.
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Equally concerning, says SGX RegCo, was the finding that 73% (125 out of 172) of the remaining long-serving ID seats were also put through the two-tier vote, despite not being due for re-election. Of these 398 long-serving IDs that were put through the two-tier vote, almost all (97%) were re-appointed. “At this rate, there is an increasing risk that companies’ boards will grow stale and their independence compromised.”
Supporters of the two-tier vote prefer its flexibility for companies to retain long-serving quality IDs, says SGX RegCo. “Indeed, long-serving directors may have accumulated valuable experience and institutional knowledge in relation to the company and its industry. However, with increased familiarity, there may also be reduced objectivity.”
SGX RegCo adds: “The imposition of term limits to safeguard independence is not unique to directorships. The listing rules currently also mandate rotation of the audit partner after a fixed term for similar reasons. In our view, if companies wish to retain their quality long-serving directors, an appropriate balance would be for these directors to serve in a non-independent capacity instead.”
SGX RegCo has suggested that companies be given a one-year transition period to find suitable ID candidates before the hard tenure limit becomes effective. The Monetary Authority of Singapore already imposes a hard nine-year tenure cap on IDs of Singapore-incorporated banks, insurers and managers of REITs.
Tan Boon Gin, CEO of SGX RegCo, says many companies have used the two-tier vote to retain long-serving directors instead of taking a longer-term view to enhance board independence. “Remuneration disclosures have also been disappointing. Shareholders deserve greater board accountability and transparency. With the proposed rules in place, board renewal will take place at a faster pace, and how remuneration compares with company performance will be better understood.”
Pushback
Some listed companies have voiced their displeasure with the proposals since they were first announced in September.
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Mainboard-listed Lian Beng Group, for one, has declined to disclose some employees’ remuneration, specifically family members of their directors and CEO.
SGX had asked the construction group and property developer for more information on the job scopes of five employees and their remuneration in bands of $100,000.
In response, Lian Beng said it would not disclose the remuneration of four employees: senior contracts manager Ong Sui Hui, purchasing director Ong Lee Yap, project director Ong Phang Hoo and plant and machinery director Ong Phang Hui.
In an SGX filing on Sept 20, Lian Beng cited poaching fears. "It may encourage inappropriate peer comparison and provide an opportunity for competitors to use the information to their advantage… The information is, therefore, treated as sensitive and confidential to ensure stability and business continuity.”
More recently, Mainboard-listed Sakae Holdings said disclosing the exact remuneration of its chairman Douglas Foo and its CEO Foo Lilian — two siblings — would “adversely impact” its business.
In an Oct 25 filing, Sakae Holdings said it “remunerates its key management personnel competitively”. This was in response to SGX queries after the group’s 2022 annual report featured salary bands instead of specific salary disclosures.
Douglas’ remuneration for the year was between $750,000 and under $1 million, while Lilian was paid from $500,000 to below $750,000.
Sakae reported net profit of $1.1 million for FY2022 ended June, down from a net profit of $2.3 million in FY2021.
