By Mak Yuen Teen
On October 3, CWX Global Limited, a company listed on the Catalist board of SGX announced that it had re-designated its director, Mr Lee Chye Cheng Adrian, from non-executive director to independent director. The company’s announcement can be accessed from here: https://links.sgx.com/1.0.0/corporate-announcements/1FBY26TADT0XULNJ/fd5837af4e6aa5dc16c00d1fd2393d2687173c50659c0bebb4eb9c7f7c91e4d1
The announcement said that the contents of the announcement have been reviewed by the company’s sponsor ZICO Capital Pte. Ltd. It also said that the board of directors has considered the assessment and accepted the recommendation of the Nominating Committee for the re-designation, after reviewing Mr Lee’s confirmation of independence in accordance with the Singapore Code of Corporate Governance and the Catalist Rules.
39-year old Mr Lee was first appointed to the board on 11 January 2011. He was formerly the Managing Director of the company and was re-designated to Non-Executive Director on 10 May 2016. He is a member of the Audit Committee and Remuneration Committee.
Under new SGX Rules that will become effective in January 2022, an independent director who has served more than 9 years can only continue to be designated as an independent director if confirmed by a two-tier vote by shareholders. It is interesting that in this case, Mr Lee was re-designated to independent director on his 9th year on the board. Perhaps the company can re-designate him to super-independent director after a few more years.
This is just the latest case of a company taking a rule-based approach to determining independence of a director. The NC is probably basing the re-designation on the fact that one of the criteria for independence, which now resides in the listing rules, states that a director who is “being employed by the company or any of its related corporations for the current or any of the past three financial years” cannot be considered independent. The NC probably reasoned that since the three-year “cooling off” period is over, Mr Lee can now be considered independent. And the sponsor has happily gone along with this rule-based approach to determining independence.
In my view, the spirit of the above rule on the cooling off period is to allow for the rare situations where a former employee has left the company for some time, with no ongoing relationship with the company. The company may, after considering other possible candidates as an independent director, decide that his knowledge of the business is still invaluable and, after a thorough assessment of his independence (such as considering whether he has vested interests in the current strategies pursued by the company or has strong links to the current management), decide that he is the best candidate to be appointed as an independent director. It should not be intended for companies to have a former employee convert first to non-executive director, and then after the “cooling off” period, re-designate to independent director. I believe that most observers will not perceive Mr Lee to be independent at all.
SGX should query the NC, board and the sponsor about the process that was followed in re-designating Mr Lee from non-independent to independent. All should be able to provide evidence to support the process they followed. If SGX is not satisfied with the process, it should not accept the re-designation, especially since the criteria for independence relating to those with employment relationships with the company are now in the listing rules. And it should consider whether the sponsor has adequately discharged its role in ensuring that the company complies with the spirit of the rules.
