Date: November 28, 2006
Recent events have once again brought the topic of the role of independent directors into light. SIAS would like to state its position on behalf of minority shareholders on some of the issues canvassed so far.
At the outset, SIAS is of the view that independence at the board is a crucial factor necessary to ensure good corporate governance which in turn protects the investment of shareholders. SIAS also feels that whilst all directors must act in the interest of the company and all its shareholders, independent directors need to pay special attention to the interests of the minority shareholders especially when their interests may be compromised by the majority shareholders.
Role of Independent Directors
Whilst minority shareholders have the same interest as major shareholders in the company’s good performance, it is only in certain areas where the interest of the majority and minority shareholders differ e.g. executive remuneration, interested party transactions, dividend policy, privatizations…etc. minority shareholders look to independent directors to act independently and voice concerns which minority shareholders would otherwise raise. It is the expectation of minority shareholders that in such situations, the independent directors exercise ‘independence’ and be bold enough to speak up on behalf of the minority shareholders. The fear of being dropped from the board should not be an obstacle to their expected independent performance. Independent directors should not take their appointments lightly but accept it for better or for worse. They are expected to perform their duties without fear or favour and always act independently in the interest of the company, its shareholders and in particular it’s minority shareholders. SIAS is of the view that often minority shareholders do not seek explanation from independent directors on their perceived failure to raise concerns of the minority shareholders’ interest. Minority shareholders should also perform their duty to seek accountability from independent directors at meetings. This failure on the part of minority shareholders, at times, may have also contributed to the current perception that independent directors are not acting independently.
Appointment of Independent Directors
It cannot be denied that there is a current perception that independent directors are in fact interdependent. SIAS therefore feels strongly that the appointment of independent directors should be a more transparent process and, to ensure independence, it is preferable that a third party independent body be used by the board to appoint independent directors. SIAS does not believe that there is a shortage of talent or well qualified directors to fill the independent director’s position. SIAS has met with several professionals such as lawyers and accountants including Mr. John Lim of Singapore Institute of Directors and has come to the definite view that boards can find independent directors without difficulty. It is only a question of whether boards want to resort to these sources or continue to appoint only those recommended by the majority shareholder, the chairman, or other members of the board. The lack of responsible independent director activism on the board can be attributable to the current appointment mechanism. The appointment of buddy-buddies is a major impediment to independence on the board and has not assisted in the progress of good corporate governance amongst some companies in Singapore.
Cap on Directorship
Taking into account the growing time commitment and the added responsibilities required of an independent director to perform its duties well, SIAS believes that a person holding a full-time employment should limit his or her appointments to the boards to ensure he or she could give the requisite attention to each one. SIAS has already taken the position that a person holding a full time employment should not be an independent director of more than four listed companies while a “professional” independent director should not hold more than six directorships in listed companies. The cap on directors has been our position for many years. In fact US National Association of Corporate Directors recommends that “part-time” directors have no more than three or four and the Council of Institutional Investors recommend not more than two. When an independent director is stretched and is unable to allocate the required time to be well-informed of the affairs of the company adequately, how could independent directors discharge their required duties responsibly and most importantly independently?
Mr David Gerald J.
President & CEO
Securities Investors Association (Singapore)