Good governance involves both conforming and performing: SID chairman
Boards need to move beyond concerns over adhering to regulations
By RAPHAEL LIM
The Business Times, 3 February 2021
WHEN thinking about good governance, company directors should be focused on more than just conforming to requirements. They must look equally towards performance, said Wong Su-Yen, chairman of the Singapore Institute of Directors (SID).
In an interview with The Business Times, Ms Wong said there is a widespread view that governance is about conformance and adherence to regulations. This is undoubtedly important, but she said companies are now facing a changing business environment.
"I think the critical challenge for companies now, pre-pandemic, but of course exacerbated by the pandemic, is the fact that business models are changing very rapidly, technological disruption is also upon us, not to mention international geopolitical dynamics," she said. "The biggest risk to a company is in fact its very sustainability and viability."
Hence, one of the objectives for Ms Wong, who took over as SID chairman from Tham Sai Choy last November, is to extend the discourse within boards to a broader definition of governance.
For a company to be in a good position to move ahead, Ms Wong said directors need to understand all the dynamics that are affecting their companies, and have a broad radar of the strategic business landscape. She added that board culture is also important to enable a healthy constructive dialogue for different views to be shared.
Shifting the discourse on governance would involve moving beyond prescriptive rules on board composition.
For instance, one suggestion that comes up every so often for improving governance is to limit the number of boards an individual sits on.
But Ms Wong said this would likely end up reinforcing the very prescriptive behaviour that she is hoping to put an end to.
The needs of companies are very different, depending on their size and stage in the life cycle, she said. It would therefore not be practical to use numerical yardsticks such as the number of boards a director sits on.
"It really comes down to a director's and the rest of the board's assessment of value and contribution," said Ms Wong, who serves on the boards of Yoma Strategic Holdings, First Resources and Nera Telecommunications.
Apart from time, how directors fit in and contribute to a company would also matter.
Another increasingly important factor to consider is board diversity. But again, Ms Wong said, it would be difficult to mandate diversity given that there are multiple dimensions to consider. Any rules on diversity would have to cover age, gender, nationality and ethnicity.
It would be better, instead, that directors engineer their boards for performance by taking diversity into consideration.
"My observation is that if you don't understand or buy into the value of diversity, even though there are legislative requirements, people will comply based on the letter of the law, not the spirit of the law, and that doesn't really solve anything."
Instead, it would be more important to ensure that the demand and supply aspects of diversity are met.
In terms of demand, Ms Wong said boards need to first appreciate the value diversity brings.
"We need to keep building the business case - it's not just that (diversity) is a good thing to do, but it's good for business," Ms Wong said, observing that businesses can benefit from looking at different perspectives, given the changing business environment.
On the supply front, Ms Wong said it would be important for SID to broaden its membership relevance and reach to ensure a pipeline of people with diverse backgrounds and with the skills to take on the role of directors.
Individuals could gain experience by serving on different types of boards - such as private companies and non-profit organisations - which would also benefit from good governance.
Apart from raising the discourse on the broad definition of governance, Ms Wong is also keen for SID to build more partnerships and engage the entire governance ecosystem to help companies perform better.
This would involve bringing together stakeholders such as company management, regulators, shareholders and professional services firms who can engage with directors.
"At the end of the day, I think everyone in the governance space wants a similar outcome, which is how do you build healthy vibrant business communities and companies that are well-governed, well-managed and are growing and thriving," she said. "Directors are a core part of it, but directors don't live in a world on their own, they are not isolated."
She also hopes to engage other institutes of directors in the region.
"It becomes important for directors to not only understand our local context, but also the context of the other markets in which we operate and there are many Singapore companies that operate around the world, not just the largest ones," she said.
In a few years, Ms Wong hopes that the notion of governance will become "more mainstream", with people understanding that it is simply about doing right by the company from a conformance standpoint, while making sure that companies are healthy, thriving and sustainable.
She said: "If I look out several years, governance shouldn't be seen as this ivory tower that this small group of people understand something about, but let's make it something that is accessible and understandable to the man in the street, while at the same time recognising that directors are there to safeguard that governance for companies.