Sitting on boards of listed firms’ overseas units worries directors
By Goh Eng Yeow 11 December 2009
Doubts have emerged over a controversial plan by the Singapore Exchange (SGX) aimed at tackling the rising tide of scandals hitting foreign firms listed here.
The bourse operator wants to introduce a requirement that Singapore-based independent directors (IDs) sit on the boards of the major overseas business units of an SGX-listed company.
In other words, if a mainland China company is listed here, at least one ID here would sit not only on the SGX-listed company board - but also on those of units back in China.
But some observers say while the idea is good in principle, it may be difficult to implement in practice.
IDs contacted by The Straits Times say they have no qualms about sitting on boards abroad in jurisdictions similar to Singapore’s, such as Malaysia and Australia.
But some of them have expressed reservations about taking up posts in countries such as China, where they might be exposed to a whole new spectrum of risks because the laws and regulations are completely different from Singapore’s.
The suggestion is just part of a proposed sweeping shake-up of the SGX rule book - comprising 36 proposals that include tighter guidelines on bosses pledging shares and more power and responsibilities for IDs.
The move comes in the wake of a string of corporate scandals which have dented investor confidence here.
China-based firms have been major culprits - including Sino-Environment, China Sun Bio-chem and Beauty China.
With more than 150 China-based firms listed on the SGX, these companies form the single largest group of foreign firms on the local bourse.
Reflecting the concerns of IDs, Singapore Institute of Directors president John Lim said: ‘SGX’s move looks good on paper, but there may be difficulties implementing it.’
He anticipated a spate of resignations by IDs who may feel unable to cope with added responsibilities that will come with having to sit on the boards of overseas firms as well.
‘When an ID sits on the board of a foreign subsidiary, he has to adhere to all the rules and regulations in that country. How many Singapore-based IDs understand foreign laws?’ Mr. Lim said.
He also observed that an ID will be taking on more operational responsibilities than the oversight role that he currently plays - as he will have to spend more time visiting the overseas operations, talking to the management there and forming an understanding of its business.
Accountant Lai Seng Kwoon, who sits on several boards, noted: ‘In China, the authorities do not differentiate between an executive director and an ID. To them, a director is a manager, and this will subject the ID to operational risks.’
The listed firms whose boards he sits on include troubled China companies - China Sun Bio-chem, Oriental Century and Celestial Nutrifoods - all of which have faced trading suspension.
Speaking from experience, Mr. Lai said that even by sitting on the China unit’s board, an ID will not necessarily gain any further insights than he already gets sitting on the listed company’s board.
Business responsibilities in China lie with the company’s ‘legal representative’, so a key factor is the integrity of the person holding that appointment.
For China firms, this role is usually handled by the company’s founder or major shareholder.
In addition, the compliance costs for a China-based listed firm will shoot up considerably if the proposal takes effect.
‘To do the job properly, I will insist on being properly advised by a China lawyer and I may become a stumbling block to the operations. On top of that, ID fees will have to go up considerably to take into account the added risks,’ he added.
But one corporate lawyer, who advises on new listings, felt that the SGX’s slew of proposals will send a strong signal that the bourse operator is serious about tackling the corporate governance issues confronting China plays.
‘Costs should not be an issue where protecting investors’ nest eggs are concerned. If companies want to raise money by listing here, we should also make sure that our investors do not get short-changed in the process,’ he said.
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Independent directors may get harder to hire
Sitting on boards of listed firms’ overseas units worries directors
By Goh Eng Yeow
11 December 2009
Doubts have emerged over a controversial plan by the Singapore Exchange (SGX) aimed at tackling the rising tide of scandals hitting foreign firms listed here.
The bourse operator wants to introduce a requirement that Singapore-based independent directors (IDs) sit on the boards of the major overseas business units of an SGX-listed company.
In other words, if a mainland China company is listed here, at least one ID here would sit not only on the SGX-listed company board - but also on those of units back in China.
But some observers say while the idea is good in principle, it may be difficult to implement in practice.
IDs contacted by The Straits Times say they have no qualms about sitting on boards abroad in jurisdictions similar to Singapore’s, such as Malaysia and Australia.
But some of them have expressed reservations about taking up posts in countries such as China, where they might be exposed to a whole new spectrum of risks because the laws and regulations are completely different from Singapore’s.
The suggestion is just part of a proposed sweeping shake-up of the SGX rule book - comprising 36 proposals that include tighter guidelines on bosses pledging shares and more power and responsibilities for IDs.
The move comes in the wake of a string of corporate scandals which have dented investor confidence here.
China-based firms have been major culprits - including Sino-Environment, China Sun Bio-chem and Beauty China.
With more than 150 China-based firms listed on the SGX, these companies form the single largest group of foreign firms on the local bourse.
Reflecting the concerns of IDs, Singapore Institute of Directors president John Lim said: ‘SGX’s move looks good on paper, but there may be difficulties implementing it.’
He anticipated a spate of resignations by IDs who may feel unable to cope with added responsibilities that will come with having to sit on the boards of overseas firms as well.
‘When an ID sits on the board of a foreign subsidiary, he has to adhere to all the rules and regulations in that country. How many Singapore-based IDs understand foreign laws?’ Mr. Lim said.
He also observed that an ID will be taking on more operational responsibilities than the oversight role that he currently plays - as he will have to spend more time visiting the overseas operations, talking to the management there and forming an understanding of its business.
Accountant Lai Seng Kwoon, who sits on several boards, noted: ‘In China, the authorities do not differentiate between an executive director and an ID. To them, a director is a manager, and this will subject the ID to operational risks.’
The listed firms whose boards he sits on include troubled China companies - China Sun Bio-chem, Oriental Century and Celestial Nutrifoods - all of which have faced trading suspension.
Speaking from experience, Mr. Lai said that even by sitting on the China unit’s board, an ID will not necessarily gain any further insights than he already gets sitting on the listed company’s board.
Business responsibilities in China lie with the company’s ‘legal representative’, so a key factor is the integrity of the person holding that appointment.
For China firms, this role is usually handled by the company’s founder or major shareholder.
In addition, the compliance costs for a China-based listed firm will shoot up considerably if the proposal takes effect.
‘To do the job properly, I will insist on being properly advised by a China lawyer and I may become a stumbling block to the operations. On top of that, ID fees will have to go up considerably to take into account the added risks,’ he added.
But one corporate lawyer, who advises on new listings, felt that the SGX’s slew of proposals will send a strong signal that the bourse operator is serious about tackling the corporate governance issues confronting China plays.
‘Costs should not be an issue where protecting investors’ nest eggs are concerned. If companies want to raise money by listing here, we should also make sure that our investors do not get short-changed in the process,’ he said.
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