SGX should impose a limit of, say, 4 posts for those with full-time jobs, and 6 for those without full-time employment
By MAK YUEN TEEN 8 April 2009
Just over five years ago, I wrote an article on whether there should be limits on the number of directorships held by one individual. I argued that there were three levels of safeguards against directors taking on too many directorships: basic director duties (especially duty of care, skill and diligence); disclosure of directorships and shareholder monitoring of such disclosures; and the nominating committee’s responsibilities for ensuring that directors are able to commit the time to discharge their responsibilities. Therefore, I felt that there was no need to impose specific limits on the number of directorships.
On most other issues, I have not changed my position. However, on this issue, I now see the point of view of those who feel that there should be limits. This is not a knee-jerk reaction on my part; it has taken me more than five years to arrive at this conclusion.
The reason I have changed my view is that the safeguards mentioned above have failed miserably. There are serious limitations in our ability to legally enforce director duties, even though there have been some instances of more vigorous enforcement in a very small number of recent cases.
Only about 25 per cent of companies are disclosing all current and past directorships in listed companies in their annual reports, as recommended by the Code of Corporate Governance. While such disclosures are made through announcements at the time of appointment of directors to boards, shareholder monitoring is lacking.
Even time for golf
And, let’s face it: even if minority shareholders express unhappiness about an over-busy director, a controlling shareholder who may actually want a very busy director will vote him in.
Finally, many nominating committees are sleeping on the job, holding the perfunctory one meeting per year and ticking the boxes in the Code about what they are supposed to do. How else can you explain companies with apparently superhuman independent directors who hold full-time jobs and many directorships, being able to cope with audit committee and board meetings often clustered around the same time - while still having time for golf?
There is a potentially more damaging element to independent directors holding too many directorships. They may become too reluctant to challenge management or controlling shareholders because the market for independent directors at the moment in Singapore is largely a segmented one, the segments consisting of the good, the bad and the ugly.
The demand for bad and ugly may be greater than for good, and some independent directors are quite content being bad or ugly. They may resist efforts to improve governance, and take the side of management or controlling shareholders who want to force out more serious-minded independent directors.
I recommend that the Singapore Exchange (SGX) consider imposing a limit of, say, four for those with full- time jobs, and six for those without. Some may consider even these limits too high, but I am happy to live with these figures for now.
However, undoubtedly, some people are much more capable than others and can do more - although the problem is that a drunk will often think he can drink more.
SGX could require any director who will exceed the limit to give a written undertaking to the company and the Exchange that he will be able to commit the time. SGX could review the director’s past actions on other companies - for example, is he a quitter who becomes too busy or ill when the company most needs him?
I see no difference between SGX requiring directors wanting to exceed the limit to seek clearance from the Exchange and stock exchanges in some countries requiring independent directors who do not meet independence criteria in listing rules to seek permission from the exchange there to be considered as an independent director.
There will be resistance, especially from those who currently sit on many boards. But we do not impose alcohol limits for driving based on how many pints an alcoholic says he can drink, do we?
One argument I have heard against imposing limits is that if you don’t tell a doctor how many patients he can see, why should you tell a director how many boards he should sit on? For one thing, directorship is not a profession, bound by professional rules and overseen by a professional body with teeth. A doctor who sees too many patients and neglects them will likely find himself facing professional sanctions, in addition to possible legal liability.
If you know the ‘right’ people, it may be easier to be a director than, say, a cleaner, because one usually has to apply for a job as a cleaner. If you don’t know the ‘right’ people, then it may be harder to become a director than, say, a brain surgeon.
Recently, we had the ridiculous situation of a company appointing several directors facing petitions or judgments in another country; from the minority shareholders’ standpoint, the odds may be better for the cleaner doing brain surgery.
It is actually quite possible that the better a job a person can do as an independent director, the less likely he will be asked to become one. Some ‘independent directors’ have apparently advised other independent directors that they should not ‘rock the boat’ because it may affect their ability to get directorships.
Thankfully, brain surgeons do not face the same kind of market.
The other possible argument that may be raised is that we do not have enough qualified directors, and therefore limits on directorships will create practical difficulties for companies.
If ‘qualified directors’ refers to those who may be better than some of those who are currently sitting on boards, then there cannot be any shortage because there are no specific qualifications required.
Of course, we want very good people, who have integrity, are competent and who can commit time. There are plenty of them out there, and we must seriously put in more effort to properly ‘professionalise’ such people to become good directors.
But we must first drive out the bad and the ugly, or at least reduce their influence - otherwise they will drive out the good.
The writer is a co-director of the Corporate Governance and Financial Reporting Centre
1 comment:
High time for cap on directorships
SGX should impose a limit of, say, 4 posts for those with full-time jobs, and 6 for those without full-time employment
By MAK YUEN TEEN
8 April 2009
Just over five years ago, I wrote an article on whether there should be limits on the number of directorships held by one individual. I argued that there were three levels of safeguards against directors taking on too many directorships: basic director duties (especially duty of care, skill and diligence); disclosure of directorships and shareholder monitoring of such disclosures; and the nominating committee’s responsibilities for ensuring that directors are able to commit the time to discharge their responsibilities. Therefore, I felt that there was no need to impose specific limits on the number of directorships.
On most other issues, I have not changed my position. However, on this issue, I now see the point of view of those who feel that there should be limits. This is not a knee-jerk reaction on my part; it has taken me more than five years to arrive at this conclusion.
The reason I have changed my view is that the safeguards mentioned above have failed miserably. There are serious limitations in our ability to legally enforce director duties, even though there have been some instances of more vigorous enforcement in a very small number of recent cases.
Only about 25 per cent of companies are disclosing all current and past directorships in listed companies in their annual reports, as recommended by the Code of Corporate Governance. While such disclosures are made through announcements at the time of appointment of directors to boards, shareholder monitoring is lacking.
Even time for golf
And, let’s face it: even if minority shareholders express unhappiness about an over-busy director, a controlling shareholder who may actually want a very busy director will vote him in.
Finally, many nominating committees are sleeping on the job, holding the perfunctory one meeting per year and ticking the boxes in the Code about what they are supposed to do. How else can you explain companies with apparently superhuman independent directors who hold full-time jobs and many directorships, being able to cope with audit committee and board meetings often clustered around the same time - while still having time for golf?
There is a potentially more damaging element to independent directors holding too many directorships. They may become too reluctant to challenge management or controlling shareholders because the market for independent directors at the moment in Singapore is largely a segmented one, the segments consisting of the good, the bad and the ugly.
The demand for bad and ugly may be greater than for good, and some independent directors are quite content being bad or ugly. They may resist efforts to improve governance, and take the side of management or controlling shareholders who want to force out more serious-minded independent directors.
I recommend that the Singapore Exchange (SGX) consider imposing a limit of, say, four for those with full- time jobs, and six for those without. Some may consider even these limits too high, but I am happy to live with these figures for now.
However, undoubtedly, some people are much more capable than others and can do more - although the problem is that a drunk will often think he can drink more.
SGX could require any director who will exceed the limit to give a written undertaking to the company and the Exchange that he will be able to commit the time. SGX could review the director’s past actions on other companies - for example, is he a quitter who becomes too busy or ill when the company most needs him?
I see no difference between SGX requiring directors wanting to exceed the limit to seek clearance from the Exchange and stock exchanges in some countries requiring independent directors who do not meet independence criteria in listing rules to seek permission from the exchange there to be considered as an independent director.
There will be resistance, especially from those who currently sit on many boards. But we do not impose alcohol limits for driving based on how many pints an alcoholic says he can drink, do we?
One argument I have heard against imposing limits is that if you don’t tell a doctor how many patients he can see, why should you tell a director how many boards he should sit on? For one thing, directorship is not a profession, bound by professional rules and overseen by a professional body with teeth. A doctor who sees too many patients and neglects them will likely find himself facing professional sanctions, in addition to possible legal liability.
If you know the ‘right’ people, it may be easier to be a director than, say, a cleaner, because one usually has to apply for a job as a cleaner. If you don’t know the ‘right’ people, then it may be harder to become a director than, say, a brain surgeon.
Recently, we had the ridiculous situation of a company appointing several directors facing petitions or judgments in another country; from the minority shareholders’ standpoint, the odds may be better for the cleaner doing brain surgery.
It is actually quite possible that the better a job a person can do as an independent director, the less likely he will be asked to become one. Some ‘independent directors’ have apparently advised other independent directors that they should not ‘rock the boat’ because it may affect their ability to get directorships.
Thankfully, brain surgeons do not face the same kind of market.
The other possible argument that may be raised is that we do not have enough qualified directors, and therefore limits on directorships will create practical difficulties for companies.
If ‘qualified directors’ refers to those who may be better than some of those who are currently sitting on boards, then there cannot be any shortage because there are no specific qualifications required.
Of course, we want very good people, who have integrity, are competent and who can commit time. There are plenty of them out there, and we must seriously put in more effort to properly ‘professionalise’ such people to become good directors.
But we must first drive out the bad and the ugly, or at least reduce their influence - otherwise they will drive out the good.
The writer is a co-director of the Corporate Governance and Financial Reporting Centre
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