Birds of a feather
Most of these smaller boards tend to comprise professionals and trusted business advisors who typically fit into the lawyer, banker and accountant archetypes. That's well and good, especially when they are able to lend a perspective on regulatory issues required of a listed company. But certainly, there is merit in considering what other perspectives are needed in light of the business strategy that will ensure the longevity and future success of the company.
The tendency for many of these smaller boards is to default towards the use of personal networks when conducting a director search. To be clear, there is nothing wrong with tapping on personal contacts to source for directors; in fact, it would be negligent not to do so. But to solely rely on one’s acquaintances is clearly inadequate insofar as thoroughness is concerned. After all, “birds of a feather” does come to mind if we were to examine our own social circles.
Yet beyond personal contacts and nominations by controlling shareholders, the 2022 Singapore Board of Directors Survey revealed that often very little else is done. Only around a quarter of respondents made use of third-party services provided by the Singapore Institute of Directors or search firms for that matter. If this is indeed representative of the broader population, then one must wonder how rigorous a typical director search in Singapore must be.
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Embracing the new rule
Regardless, the fact remains that this hard limit is set to come online in about a year, and Boards with IDs who are past or reaching the nine-year mark will need to start thinking hard about how this will affect them. Clearly, for many, this will involve dusting off and scrutinizing their plans for director succession (assuming that there is already one to begin with).
While such an exercise may come across as tedious and even unnecessary to some, why not use this as an opportunity for the Board to raise governance standards and improve the quality of its succession planning? We can already see from the latest Russell Reynold Associates 2023 Global Corporate Governance Trends report that there is growing scepticism over the calibre of boards globally. It thus makes perfect sense for Nominating Committees to re-examine their pipeline of potential directors with the aim of augmenting their Board’s current composition with new skills, experience and knowledge that will put it in good stead for the foreseeable future.
See also: The trouble with being second
Conversations on what constitutes diversity to one’s Board should take place. Gender representation is no doubt important, but Boards would be remiss not to conduct discussions around other aspects of diversity. In so doing, the Board’s diversity policy can be further sharpened and clarified; which of course will help since this is also a required disclosure mandated by the Singapore Exchange.
Casting the net wider
There has been some concern over whether boards will be subjected to undue pressure following the introduction of this new rule; some respondents to an earlier consultation by SGX RegCo cited limited talent within Singapore as a potential challenge in finding suitable replacements. Such views are to be expected, given the current state of play.
As a nation we have been made acutely aware of Singapore’s need to attract and develop human capital early on; so to suggest a dearth of top talent for boards today sounds rather far-fetched. Light on experience perhaps, but then again even the most seasoned directors have to start from somewhere. All that is needed are the opportunities to present themselves. And for that to happen boards here will need to cast their nets wider and make their director searches that much more robust.
Alvin Chiang is a consultant at Russell Reynolds Associates. All views are his own.
