Deciphering SingPost’s Corporate Governance Review Report

Published July 12, 2016

By Mak Yuen Teen

The long-awaited report on the corporate governance review of Singapore Post (SingPost) by the consulting firm Heidrick & Struggles was finally published on July 4.

A recent Straits Times report (July 5) quoted me as saying that “I think that implementing the recommendations… should go a long way towards addressing not only the disclosure lapses but also some other issues I had raised, such as the size, independence and competencies of the board.” The report did not mention what I thought about the report and my reservations about some of the findings and recommendations.

When I read the executive summary of the special audit report released in May, I wished that I was able to read the full report. When I read the 54-page executive summary of the corporate governance review report, my thought was “God help those who have to read the full report.”

The reader has to wade through a mass of consultant jargon to get to the findings and recommendations, which are what are of interest in this review.. On the jargon, my good friend who is an ex-senior consultant but who also has many years of corporate experience (and who had always displayed a healthy scepticism about the profession even when he was one of them) said:

“It’s a great example of how consultants string together random words in a way that has the superficial appearance of meaning something but that has absolutely no content…Someone should ask them what it means…I wonder at the intellect of those who accept it and pay for it!”

However, I do not blame the Corporate Governance Review Committee (CGRC) and the Board for unleashing such a report because they were under pressure to give the consultants a free hand in conducting an independent review and making recommendations, and probably do not want to be seen to be in any way “censoring” the report.

The following two paragraphs in the first main page of the report (page 5) give a taste of what the reader has to put up with:

The Heidrick & Struggles ‘Accelerating Board Performance Framework’ (the “Board Accelerator Framework”) has been applied to the SingPost context. This is a comprehensive framework designed to support the SingPost Board to take a holistic view of how it can enhance its effectiveness, governance and value-add as a strategic asset to support the future success of SingPost on its key strategic priorities. The framework incorporates the scope of work requested in the original TOR, as well as two additional areas, as agreed with the CGRC.

A comprehensive Board effectiveness methodology was adopted to triangulate the multiple data points set out in the methodology section of this report.

Pardon the pun, but I really did struggle rather comprehensively with statements like these that appear throughout the report.

When I met some institutional investors and we talked about the report, I said that I feel that the words “strategy” and “strategic” are often used to disguise a lack of substance or clear thinking and it appeared twice in one sentence in the report (and about 100 times in the entire report). One of the investors who had not read the report asked “And did the word ‘holistic’ appear too?” – to which I replied: “Yes, in that same sentence”. We all had a good laugh.

The objective of the corporate governance review is simple enough – to find out what went wrong and what could be done better to improve corporate governance and board effectiveness at SingPost, and make recommendations that the new Board can understand and implement.

Instead, the consultants imposed their “Accelerating Board Performance Framework” M.E.T.A. Framework which supposedly underpins their “Board Accelerator Framework”, 4 “As” and 5 “Ts” and then tried to fit the review within their paradigm – and failed in my opinion to communicate the findings and recommendations in a lucid and convincing manner.

To be fair, the long “Limitations and Disclaimers” section did state that the report is only intended for the SingPost Board and the CGRC, and not for shareholders or other mere mortals like us. Perhaps we are not meant to understand it, but I wonder if the SingPost Board and CGRC really do either.

So, after wading through all the “consultant speak”, what do I really think of the findings and recommendations?

Well, most of the findings and recommendations are what we would expect based on commentaries and media comments, both specific to SingPost and corporate governance of companies generally. Some have been overtaken by the code of business conduct and ethics, conflict of interest policy and board tenure and renewal policy recently introduced by the company – like the “nine-year deeming policy” whereby independent directors who have served more than nine years will be deemed non-independent – since SingPost has already decided to limit director tenure to no more than nine years. Reading the report on this issue, I got the sense that the consultants did not want to make a firm recommendation on a strict tenure limit, possibly because it was not sure if that would be acceptable to the Board. Therefore, it recommended both a strict tenure limit and a “nine-year deeming policy” and stated that the latter will be irrelevant if the former is adopted, in effect recommending a softer landing for the new Board if it was not prepared to bite the bullet. It turned out that the Board was prepared to go with the stricter option – and good on them.

In the section “Disclosures and SGX Announcements” (page 35), the report states: “Based on our scope of review and the documents sighted with respect to the same, we did not encounter any evidence of non-compliance with the SGX-ST Listing Rules in the course of the CGR.” The company had already admitted to an “administrative oversight” for one of the Famous Holdings acquisitions (which occurred during the period covered by the review, which is March 2013 to March 2016). Readers should bear in mind that the terms of reference for this corporate governance review specifically excluded the Famous Holdings acquisitions covered in the special audit, and should not mistakenly conclude from this report that the “administrative oversight” was not a listing rule breach.

The report recommends that the Board should appoint “a legal expert, preferably someone with deep expertise in M&A”. It is logical that the Board needs someone with deep expertise in M&A given that the Board should review its past acquisitions and needs to oversee future acquisitions, but the report does not explain why this person should be a legal expert. Why not an ex-CEO or senior executive with deep experience in this area, for instance? How did this recommendation emerge from the consultants’ “Board Accelerator Framework”? Was this recommendation a reaction to past compliance issues in the company? Do the consultants recommend that other boards also add legal experts to the board, even if they have highly competent legal advisers and company secretaries? Do boards of well-governed companies globally usually have legal experts?

Having a lawyer on the board is not a panacea for avoiding disclosure and compliance lapses, as the two well-known cases of Airocean and Chuan Soon Huat Industrial Group in Singapore illustrate. The board would need to guard against over-reliance on the lawyer-director on disclosure and compliance issues, and avoid taking actions based on just what is legal rather than what is right. Further, the Singapore Code of Corporate Governance, used as a benchmark in this review, does not specifically mention legal background as one of the core competencies that boards and board committees should have, although I accept that the core competencies mentioned are not meant to be exhaustive and it is common for Singapore-listed companies to have lawyers on their boards. Nevertheless, more explanation for this recommendation would have been useful.

In terms of board size, the report recommends that the Board should aim for about 10 directors – a maximum number I had also suggested to some investors when they asked me, if SingPost continues to have two nominee directors on its Board. It recommends that as a transitional measure, the Board may need to continue with the number of directors it had before the recent resignations and coming retirements – 12 directors.

The justification for the recommended board size is to satisfy independence guidelines and to accommodate the fact that SingPost have seven directors with full-time employment and these directors have limited “bandwidth” to be able to contribute to SingPost. The seven directors presumably refer to the new CEO when he joins the company and Board, the two nominee directors, the single non-independent non-executive director, and three of the independent directors. This is based on the profiles of the directors who currently remain on the board. Perhaps SingPost should now prioritise sourcing for new directors with the required competencies who do not have full-time employment, and “accelerate” the retirements of some of those who have full-time jobs. The consultants recommend a balance between active executives and retired individuals –SingPost may wish to consider having more of the latter, especially recently retired ones, who are still actively engaged with current practices and developments. I do not think the Board should be large just to be able to include sufficient active executives who have limited “bandwidth” to contribute.

If search consultants are to be used to source for new directors, it is important that the company does not rely exclusively on Heidrick & Struggles, given that they should not be seen to be have mapped out the desired competencies of new directors and then propose their own candidates who fit the desired profiles.

I am still positive about the steps that the new Board is taking to improve the corporate governance of SingPost. However, in addition to the recommendations in the special audit report and the corporate governance review report, I have one recommendation of my own given the company’s extensive use of consultants – use consultants judiciously, ensure that they provide value-for-money and practical advice, and make sure they write reports that can be understood.

The writer is an associate professor in the NUS Business School where he teaches corporate governance and ethics. He is a shareholder of Singapore Post and has spent several years holding head of research positions in accounting and consulting firms.

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