9-year term limit for independent directors hard-coded in ASEAN corporate governance scorecard


The Business Times, 23 January 2024


A HIGH-LEVEL grouping of ASEAN capital-market regulators has ruled that independent directors (IDs) who have served more than nine years will no longer be considered independent under its corporate governance assessment.
This is regardless whether they are deemed as such in their respective jurisdictions.
This yardstick will be used in the upcoming ASEAN Corporate Governance Scorecard assessment, which will go into the drawing up of a list of “ASEAN asset class” companies marketed as this region’s investible entities.
The scorecard is an initiative of the ASEAN Capital Markets Forum, in collaboration with the Asian Development Bank. It will be used to assess the 100 largest listed entities in each of six ASEAN countries – Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
The last assessment round was based on the companies’ 2021 disclosures. The next round of assessment, based on their disclosures for the 2023 financial year, will incorporate the stricter definition of IDs and several other changes.
Introducing the changes at the SGX auditorium on Tuesday (Jan 23), John Lim, the past chairman of the Singapore Institute of Directors (SID) and an honorary fellow there, described the ID aspect as one area that could trip Singapore companies up in the upcoming assessment.
“If you look at the board of director surveys in the last two years, you know that Singapore is always a bit reticent in disclosure. We talked about nine-year IDs, but we never quite moved there,” he said.
Last year, Singapore Exchange Regulation (SGX RegCo) announced that, from Dec 31, 2024, companies would be barred from using a two-tier voting system to retain IDs who had served more than nine years.
This change effectively overrode earlier listing rules that required long-term IDs who had served more than nine years to surrender their independent status – unless they were approved through two tiers of voting.
Lim said on Tuesday: “Some people may not agree with the new regulations. There are many who say this should not be hard-coded, but there is no reason why the Singapore listcos, especially the big listcos, cannot achieve a higher score.”
Since the two-tier voting mechanism can still be used till Dec 31, 2024, some might take it that there is still time yet. Lim, however, frowned upon this mindset and said: “If you want to use the transition period, maybe you won’t go. But I say that you should just comply... It’s only a few months, but people still want to do that.”
He added: “Our regulators have already gone ahead. There is no reason why Singapore should not do better.”
SID and the National University of Singapore Business School’s Centre for Governance and Sustainability (CGS) have served as Singapore’s domestic ranking body for the scorecard’s assessment since 2013.
The ASEAN corporate governance scorecard is made up of five components: rights of shareholders; equitable treatment of shareholders; role of stakeholders; disclosure and transparency; and board responsibilities.
The scores in these five areas add up to 100 points. Companies that display good market practices stand to earn a maximum of 30 bonus points; those with issues pointing to poor governance could be penalised with up to 67 demerit points.
The stricter ID definition will apply in a number of questions in the bonus or demerit points segment of the scorecard. Companies could earn bonus points, for instance, if their boards have at least one woman ID, or if independent non-executive directors make up more than half of the board in a company with an independent chairman.
Points will be deducted if at least one ID in the company has served (in the same capacity) for more than nine years or two terms of five years each, whichever is the higher.
Other changes to the scoring rubric include the addition of environmental sustainability considerations.
A company will, for instance, now earn points for disclosing:
How it manages climate-related risks and opportunities;
That its sustainability reporting is externally assured; or
That it has a unit that specifically manages sustainability matters.
Points are deducted if there is evidence that the company is engaged in greenwashing activities.
Despite these changes, Lim said he does not foresee any big variation in scores in this year’s assessment, going by the results of a beta test to find out how the new scorecard affected the scores of a sample of 10 Singapore companies.
“Where some companies lost some points was not because of the questionnaire, but because of changes in the actual situation,” he stressed, noting that this was so even with companies (including Temasek-linked ones) with IDs exceeding nine years in tenure.
Only companies that scored at least 75 per cent will be part of the “ASEAN asset class”.
In the last assessment, Singapore-listed companies made up just over a quarter of this list (26.5 per cent), which placed the Republic in second place in the region behind Thailand. Nearly a third of the companies (32.5 per cent) of companies making the list were Thai ones. The discipline of disclosure is “very high in Thailand”, noted Professor Lawrence Loh, director of CGS.