First published in Business Times on 7 November, 2014

LETTER TO THE EDITOR

I refer to “Multiple directorship issue not as big a problem as perceived: study” (BT, Nov 5), on The Singapore Directorship Report 2014 published by the Singapore Institute of Directors (SID) and Institute of Singapore Chartered Accountants (ISCA).

According to the report, only 17.8 per cent of directors hold more than one directorship, and busy directors have better attendance records and are better educated. Based on these findings, SID vice-chairman Adrian Chan was quoted as saying that the issue of multiple directorships “doesn’t seem to be as major a problem as we perceive”.

Before we can conclude that busy-ness is not a problem, we need to carefully consider the evidence and possible alternative explanations.

The finding that only 17.8 per cent of all directors hold multiple directorships applies to all directors. One would expect many executive directors to have only one directorship in listed companies – in the company where they are an executive – and independent directors to be more likely to hold multiple directorships. This is borne out by the findings in the report that 9.9 per cent of executive directors and 28.4 per cent of independent directors have multiple directorships. Independent directors, who have particularly important governance responsibilities on boards, are more likely than executive directors to be busy directors.

As I have argued in my comments on this issue over the years, we also need to look at the number of issuers with at least one busy director – and not just the number or percentage of busy directors. Using the report’s data on number of directors who hold four or more directorships, we can see the following:

  • the 131 directors who have four or more directorships hold a total of 645 board seats;
  • the 68 directors who have five or more directorships hold a total of 393 board seats;
  • the 31 directors who have six or more directorships hold a total of 208 board seats.

Given that there are 717 listed issuers covered in the report, there is actually quite a high probability of a listed issuer having a busy director. For example, if we use six directorships as the definition of a busy director and assume that the 31 directors all sit on different boards, 29 per cent of issuers would have a busy director. The reality, of course, is that some issuers have multiple busy directors, so the percentage of companies with at least one busy director is likely to be lower, but then these issuers with multiple busy directors may have even more serious governance challenges.

There are various possible explanations for busy directors being more highly educated and having better attendance but here I will focus on the issue of better attendance. The study did not control for the number of board meetings when looking at the relationship between number of directorships and percentage of board meetings attended. It is possible that companies with busy directors have fewer meetings and therefore these directors have better attendance. Hypothetically, if a board has only two meetings a year, even a super-busy director can probably attend those two meetings and achieve 100 per cent attendance. Even if we use meetings and directors’ attendance at meetings as measures of whether busy directors can effectively discharge their responsibilities, there is also the issue of committee meetings and shareholders’ meetings and whether busy directors are more likely to attend only part of meetings (especially during peak reporting and AGM seasons) – not to mention whether they are physically attending one meeting and simultaneously teleconferencing on another meeting.

More fundamentally, there is much more to a director’s responsibilities than just attending meetings. A responsible director will be thoroughly prepared for meetings, be available to participate in discussions and decision-making between meetings, be available for major company events, undergo ongoing professional education, make site visits as required – just to name a few other typical responsibilities and expectations of directors.

Are busy directors able to do all these things as well as less busy directors, especially if they also want to achieve their goal of lowering their golf handicap? Further, given the frequency of directors resigning and citing other commitments and pursuing personal interests, sometimes when the company is in financial strife, there is also a need to study if busy directors tend to be “fair weather” directors.

To be fair, the report acknowledges that attendance is only one indicator of a director’s participation on boards. I also understand that Mr Chan did, at the seminar launching the report, urge caution in jumping to conclusions. Nevertheless, we should be extremely cautious about making busy directors role models by linking busy-ness with better attendance and qualifications. A more detailed study is needed of whether busy directors are cutting corners in other aspects of their responsibilities or whether they are indeed, as sometimes rumoured, supermen in suits.

Mak Yuen Teen