By Mak Yuen Teen

Recently, I was having dinner with Mr Tan Lye Huat, an experienced independent director, and some other friends. He shared that he had served more than nine years as an independent director (ID) at Japan Foods Holdings. Before its recent AGM, he discussed with the major shareholder and said that his continuation as an ID should be subject to a vote by the independent shareholders only. He suggested that the major shareholder voluntarily abstain from voting for his election. With that, Japan Foods has, to my knowledge, become the first company listed in Singapore to subject an independent director election to the vote of independent shareholders only.

Mr Tan received 99.87% support of independent shareholders for his re-election. He can truly say that he has received the mandate from them to continue as an independent director even though he has served more than nine years. What Japan Foods has done goes beyond the two-tier voting for independent directors who have served more than nine years, both the original form put up by the Corporate Governance Council for consultation and the final form that was adopted. Unfortunately, such enlightened independent directors and major shareholders are by far the exception.

Last night saw an announcement by another company regarding an independent director that was a total opposite in terms of observing the spirit of the guidelines on independent directors. I am referring to Asian Micro Holdings, which re-designated one of its non-independent non-executive director into an independent director. This is what the company disclosed in the announcement:

“The NC and the Board, having reviewed the independence of Mr Lee Teck Meng Stanley, are of the view that he is independent in character and judgement, for the purposes of Catalist Rule 704(7) and the Code of Corporate Governance, and there are no circumstances which would likely affect or appear to affect his judgement.”

“His familial relationship, as a nephew of Mr Lim Kee Liew @ Victor Lim (the Group s Executive Chairman, Chief Executive Officer and Managing Director) and his spouse, Ms. Leong Lai Heng (a Controlling Shareholder and a Director of the subsidiaries of the Company) is not deemed as an immediate family member for the purposes of the Code of Corporate Governance. His familial relationship does not interfere, or be reasonably perceived to interfere, with the exercise of his independent business judgement with a view to the best interests of the company.”

Seriously? While it is true that a nephew is not deemed as an “immediate family member” under Guideline 2.3 of the 2012 Code (or under the revised listing rules and 2018 Code announced by MAS on 6 August), it is surely a stretch to argue that such a familial relationship “does not interfere, or be reasonably perceived to interfere, with the exercise of his independent business judgement…”. If he is not close to his uncle and aunt, would he have been appointed as a director in the first place? Or did the nominating committee do a “global search” and found him to be the best candidate, not because of his familial relationship?

To me, this is a case of compliance with the letter but not the spirit of the guidelines on independence. I am disappointed if the continuing sponsor, RHT Capital, did not advise the company that compliance with the Code ought to be both in letter and spirit. I am also surprised that the announcement disclosed that Mr Lee had held an appointment with RHT Family Office Pte Ltd, and was also a director of RHT Strategic Advisory Pte Ltd from 2014 to 2016. Are such relationships between directors and continuing sponsors (or their affiliate firms) good for our capital market, given that SGX delegates and relies on such sponsors to monitor and advise Catalist companies on compliance?

Then we have the case of China Sunsine. On 29 June, SGX Regco reprimanded Oriental Group Ltd (OGL), its former and present directors, and its former group financial controller. One of the directors who was reprimanded was Mr Koh Choon Kong, a former independent director and audit committee member. SGX Regco said that SGX-listed companies are advised to consult SGX RegCo before they appoint any of these persons as a director or member of management. On 5 July, China Sunsine made an announcement which stated the following:

“The Company’s Nominating Committee, excluding Mr Koh (“Remaining NC”), has reviewed the SGX RegCo Announcement and carefully considered the matters giving rise to the regulatory action taken against the former board and former audit committee of OGL (including Mr Koh as a member thereof).

Notwithstanding the reprimand by the SGX RegCo, the Remaining NC and the Board (with Mr Koh abstaining from the deliberation process) (“Remaining Board”) are of the view that, based on Mr Koh’s past and present contributions to the Company (first as the Group Chief Financial Officer at the time of its initial public offering, and subsequently, the Company’s Non-executive Director (2009 – 2012), through to his appointment as Independent Director from December 2012), Mr Koh has demonstrated professionalism, integrity and diligence in the discharge of the duties of his various offices at all relevant times, and is a valuable member of the Board and its committees.

The Remaining NC also took into consideration the fact that the breaches of the relevant listing rules do not extend to the character and integrity of Mr Koh. As such, unless there are further actions taken by other authorities which may disqualify Mr Koh from acting as a director of the Company, the Remaining NC and Remaining Board are of the view that Mr Koh can and should continue to serve in the capacities that he currently acts in the Company.”

Putting aside the issue of whether additional rules need to be put in place to give more teeth to reprimands, what struck me in the announcement was how Mr Koh has seamlessly morphed from an executive position of CFO starting from the company’s IPO, to a non-executive director role for three years (presumably to comply with the “cooling off period” in the Code), and then to an independent director role from 2012. In fact, Mr Koh is now the Chairman of the audit committee.

China Sunsine proudly declares on its website that it “believes that strong business principles and high standards of corporate governance form the bedrock of successful companies. The company China Sunsine structure and processes in place to adhere to the Code of Corporate Governance 2012 by MAS and SGX.” Similar statements are made in its corporate governance report.

The examples I have cited on questionable practices are not mere outliers. It looks like the new Corporate Governance Advisory Committee will have its work cut out to truly raise corporate governance standards in Singapore.