By Mak Yuen Teen

Recently, I attended an AGM and heard that the company was considering appointing an academic who specialises in corporate governance and risk management as an independent director. I said (only half-jokingly) that I know some academics who claim to specialise in corporate governance but who do not practise it at all. In the course of my career as an academic, I have also come across academics who specialise in ethics who have been accused of plagiarism or appropriating work done by their students. There have been some academics who have been in the news for the wrong reasons and are poor role models so it should not surprise anyone if some academics do not really uphold high standards of conduct at all. Some academics move from area to area depending on what is in vogue and then label themselves as “experts” when they are really novices. It may be strategy today, corporate governance tomorrow, and sustainability the day after.

Source: Mak Yuen Teen and Chris Bennett, Guardians of the Capital Market

A few years ago, I was looking at the track records of “busy” directors here. There was one who joined boards of all sorts of companies, and the companies’ performance mostly got worse, with a number getting suspended, delisted or liquidated. In most cases, he did not stay long on those boards – I guess he knew when it was time to jump ship. In one of the annual reports, it was said that he did not go for training as a director because he was an adjunct professor teaching corporate governance and ethics in one of the local universities. So comforting…..

Another was an adjunct professor at a prestigious overseas university who was also a “quitter” – often leaving boards after serving less than a year, giving all sorts of questionable reasons. He also had a conviction against him although it had nothing to do with his directorship role.

Recently, someone mentioned to me about an academic who is on the boards of several companies in another Asian country, and those companies have a reputation for being rather unfriendly to minority shareholders. He would regularly be in the media in that country advocating for the controlling shareholders of those companies. A former Dean of a prestigious US university some years ago expressed concern to me that many of the doctoral students from his university had returned back to that country and become independent directors on multiple boards. His concern was whether they could be really independent given the fees they were paid as independent directors relative to the remuneration they were receiving (in that country, remuneration of professors at public universities is very low). When I recently spoke at a conference in another Asian country, someone expressed the same concerns to me – about relatively lowly-paid academics in his country taking on relatively highly-paid appointments as independent directors of listed companies.

Going some years back, a well-known shareholder activist in the US – often regarded as the “father” of shareholder activism –  told me that many of the business professors in one of the top Ivy League universities are serving on corporate boards as independent directors and are reluctant to criticise questionable business practices so that they continue to be welcome on corporate boards (and of course, there is also the matter of consulting and donations from corporations).

Dodgy companies may appoint academics to give the semblance of propriety, independence and objectivity. This is not to say that academics cannot add value to corporate boards or that they should never be appointed as directors of listed companies, but I do wish that some “professors” are more discerning in joining boards and that academic institutions are more aware of the potential reputational damage that can be caused by a badly-behaved academic on corporate boards or in other areas. I have received complaints from investors about some “professors” on boards here.

Of course, window dressing of boards can come in other forms. Recently, there was a S-chip which is in trouble here which announced that it had appointed a director of one of the Big 4 firms as an independent director – and this person is based in the UK when the S-chip has no connections whatsoever with the UK. One would wonder how much value he could really add to the company.  I am all for diversity but not insanity. Anyway, that did not last long as that director discovered that the conflict rules in his firm did not allow him to serve on any listed board in any country (I was surprised that he did not know that).

Then there are tales of certain Asian companies adding non-Asian directors to impress investors and analysts when they go on road shows. Companies may also window dress by having high-ranking government officials (including former ones) on their boards. Theranos – the US blood-testing company that bled investors dry and took many other professionals for a ride – had several former secretaries of state, generals and venture capitalists on its board. And the young CEO was said to have described the board as “just a placeholder”.

Investors should also watch out for questionable companies appointing senior lawyers, accountants or other well known corporate figures to embellish their boards. They should be especially wary when companies claim that these are corporate governance experts, as it seems everyone can claim to be one.

As always, investors should always watch what their company does, not whether the board has academics or other individuals with impressive-looking resumes.