9-year term limit does not mean independent directors get a 9-year free ride: SGX RegCo


    The Business Times, 2 August 2023


    DIRECTORS on the boards of companies should not rest on their laurels after they are appointed.

    Nominating committees should continue to evaluate their performance every year to make sure they still bring benefit to companies, said Tan Boon Gin, chief executive officer of Singapore Exchange Regulation (SGX RegCo) on Wednesday (Aug 2).

    This is one way to ensure that directors earn their seats and continue to add value to their companies.

    “The nine-year rule imposes a nine-year limit for independent directors. It does not guarantee them a nine-year term,” said Tan at an event where the latest corporate governance rankings of Singapore listed companies were unveiled.

    Tan, who heads the regulatory arm of SGX, was referring to the amended rule limiting the service of independent directors.

    Earlier listing rules required those serving more than nine years to surrender their independent status unless they were approved through two tiers of voting.

    But given that some companies here have used that mechanism to retain long-time independent directors who had served more than nine years, SGX RegCo announced earlier this year – after a public consultation – that the two-tier voting system would be removed from Dec 31, 2024.

    Tan also suggested that the team behind the corporate governance scorecard could look at incorporating the recently launched accreditation framework in its evaluation criteria to score listed companies. The framework looks at competencies in governance, financial skill sets, risk management and sustainability fundamentals, among other things.

    Members who apply for such an accreditation – launched by the Singapore Institute of Directors – will be able to add “accredited director” or “senior accredited director” to their credentials, if successful.

    Incorporating this into the corporate governance scorecard could help companies and directors who are making the effort to upskill themselves receive the appropriate recognition, said Tan.

    The corporate governance scorecard, known as the Singapore Governance and Transparency Index, ranks SGX-listed companies on their corporate government practices as well as the timeliness, accessibility and transparency of their financial disclosures. 

    The 2023 rankings, which were released on Wednesday, showed that companies here improved significantly in their corporate governance practices. Those in the general category scored an average of 74.8 points, from 70.6 points last year. The index for real estate investment trusts (Reits) rose to 89.3 points from 85.3 points over the same period.

    Sustainability reporting challenges

    During a separate panel discussion at the same event, Esther An, chief sustainability officer of property developer CDL, said that the sustainability disclosure landscape is like a “maze” with several environmental, social and governance (ESG) standards and frameworks.

    Although the International Sustainability Standards Board had recently released its standards as a global baseline, An said that there is still a need to streamline it further.

    OCBC Bank’s chief sustainability officer Mike Ng said that banks, as users of companies’ ESG disclosures, often still find it a challenge to adequately compare between companies due to the lack of consistency in sustainability reports.

    While companies disclosed the physical or transition risks associated with climate change, they rarely declared the extent or impact of these risks.

    Bill Chua, an independent director of renewable energy company Sunseap, said that quality reporting is not easy for companies to undertake, even for large companies that have more resources.

    “So we’re looking at regulators to say, ‘thou shall’. And most times when they say ‘thou shall’, it gets done,” he said.