By Mak Yuen Teen

In the Business Times report on 7 October 2021 titled “SGX will look at the possibility of online voting at its future meetings”, the SGX Chairman was quoted as saying that SGX “had debated on having online voting, but an issue was around integrity of votes”.

In response to a shareholder question sent before the AGM regarding when SGX is going to mandate listed companies’ AGMs to allow live virtual Q&A by shareholders, SGX said that it had been “carefully considering the feasibility of requiring live Q&A and live electronic voting during AGMs”. It went on to say: “Together with the stakeholders concerned, we still have to address many areas not covered in the emergency [Covid-19 measures] legislation before such arrangements can be mandated for all of our listed companies, such as new operational processes to allow for electronic voting, contingency measures in the event that the voting system is unavailable and security measures to protect voting integrity. We will also need to calibrate the requirements so that the costs of execution do not discriminate smaller companies against larger ones”.

Voting integrity and cost

The reason of “voting integrity” has been cited by company secretaries and third party service providers for not implementing online or live voting. However, four SGX-listed issuers – Azeus Systems, China Everbright, iFast Corporation and Willas Array – have already implemented live voting during their AGMs. Azeus and iFast held hybrid AGMs this year while China Everbright and Willas Array held fully virtual AGMs. These issuers have market capitalisation of $55 million, $184 million, $958 million and $2.6 billion and therefore include small companies.

Why is “voting integrity” not an issue for these listed issuers but an issue for other issuers? Many condominium MCSTs and professional associations have also held AGMs with live voting and live Q&A.

We need to be careful that “voting integrity” is not used as an excuse by service providers that have not invested in the necessary technology to support live Q&A and live voting for their clients.

I understand there are two service providers in Singapore which are offering live Q&A and live voting for its clients, whereby Singpass and 2FA can be used to allow secure participation. One service provider has shared with me that a package with full end to end support, including digital proxy, live textual Q&A and live voting for up to 100 pax, costs just $5,000, with increments of $1,000 for every extra 100 pax. If extremely real time is not required, such as 10-second latency, the cost is lower. There is an additional charge for live video Q&A. Nevertheless, the cost is just a fraction of the typical annual fee for a single non-executive director of a small company and therefore should not be an excuse.

Digitally ready but not ready for better shareholder engagement?

In “The Singapore Report on Shareholder Meetings; The Rise of Virtual Meetings” published in March this year, I reported that in Asia, online voting is mandatory in China, India and Taiwan prior to and/or during the AGM. It is also common in a number of Western markets.

The Cisco Global Digital Readiness Ranking puts Singapore at number 1 and the IMD World Digital Competitive Ranking has Singapore at number 2. We can do all sorts of transactions securely online, including banking, trading securities, filing police reports and applying for identity cards and passports. Can it be that we cannot provide secure online voting for shareholders of less than 700 listed issuers because we cannot ensure “voting integrity” at reasonable cost, while other countries ranked lower on digital readiness and competitiveness and with many more listed issuers have no problems doing so?

Given its role as a market regulator, SGX should have seized the opportunity to set an example by implementing live video Q&A (rather than just live textual Q&A) and live voting for its own AGM held on 7 October.

Board composition

There is another area that may also raise questions as to whether SGX is setting the right tone and that is with regards to recent changes in its board composition. In its annual report, SGX explained that its Board and Nominating & Governance Committee (NGC) have decided to adopt a hard nine-year rule for its own independent directors, without the option of a two-tier vote as would apply to most other SGX-listed issuers. This is commendable.

On 1 July 2021, it announced that its Chairman, Mr Kwa Chong Seng, and another independent director, Mr Kevin Kwok – who was the Audit Committee (AC) Chairman – would be re-designated as non-independent with effect from 20 September 2021 after serving nine consecutive years on the SGX board. That same day, it also announced the appointment of a new independent director, Mr Yeoh Oon Jin. Following the re-designations, SGX reshuffled its board composition and board committees.

Mr Beh Swan Gin was appointed as lead independent director with effect from 20 September 2021, the day Mr Kwa was re-designated as non-independent. This allows SGX to comply with the Singapore Code of Corporate Governance 2018 which recommends that a lead independent director be appointed where the Board Chairman is not independent.

Board Chairman

SGX has had three Chairmen since it was corporatised in November 1999. Its first Chairman, Mr JY Pillay, served as a director and its inaugural Chairman from 18 November 1999 until 31 December 2010 – or for 11 years. He was succeeded by Mr Chew Choon Seng, who joined SGX as an independent director on 1 December 2004 and assumed the Chairmanship on 1 January 2011. Mr Chew had served nearly 12 years as a director and nearly six years as Chairman, when he retired from the SGX board on 22 September 2016.

The current Chairman, Mr Kwa, was appointed to the SGX board on 20 September 2012 and as Chairman on 22 September 2016. His current tenure as a director and Chairman is shorter than his predecessors. His continuation as Chairman following his re-designation to a non-independent director after nine years in compliance with SGX’s policy may be justifiable, based on precedent.

Since Mr Kwa is no longer independent, he had to step down as Chairman of both the NGC and the Remuneration & Staff Development Committee (RSDC), but he remains as a member of both committees. There is a school of thought that the Board Chairman, even if independent, should not chair other board committees. This is to better ensure that the board committees’ deliberations are not overly influenced by the Board Chairman, who would have the opportunity to provide his or her inputs at the board level. In fact, the Malaysian Code on Corporate Governance 2021 goes even further, by recommending that the Board Chairman should not serve on any board committees. Bank Negara Malaysia regulations for regulated financial institutions state that the Board Chairman should not chair board committees. Some investors may welcome the changes in the leadership of board committees.

Redesignate or retire?

Meanwhile, Mr Yeoh was appointed as an AC member on the date of his appointment to the Board, and took over as AC Chairman on 1 September 2021, replacing Mr Kwok, who remains as an AC member. The re-designation of Mr Kwok and his continuation as a non-independent director is harder to understand. Mr Yeoh has an accounting background which is very similar to Mr Kwok. It also has a third director, Ms Lim Sok Hui, who is a non-independent non-executive director, also with an accounting background. Ms Lim is CFO of DBS Bank and chairs SGX’s Risk Management Committee but does not serve on any other board committees.

While SGX should be applauded for taking a strong stance on the nine-year rule for independent directors, simply re-designating independent directors to non-independent directors after nine years may undermine the intent of its hard nine-year rule. Other than saying that Mr Kwa and Mr Kwok were re-designated having served nine years as independent directors, SGX did not provide any further explanation as to why they were retained as non-independent directors and whether the re-designations are transitional measures. Is there any succession plan for these two re-designated directors or would they remain on the board indefinitely forthwith as non-independent directors?

Other issuers may follow SGX’s lead and re-designate rather than replace long-serving independent directors if they do not want to put such directors to a two-tier vote. They may have to enlarge the board, reshuffle board committees and introduce other safeguards such as appointing a lead independent director to accommodate these directors. Such measures may lead to a deterioration in corporate governance, not an improvement.

Simply re-designating directors would also not achieve the objective of board renewal. In SGX’s case, it now has two directors, including one of the re-designated directors, with very similar accounting backgrounds, when it could perhaps have taken the opportunity to enhance the diversity of experience of directors on its board.

Loss of relevant competencies

Another independent director, Ms Jane Diplock, retired at the recent AGM after serving more than 10 years. Ms Diplock also served on the board of SGX’s regulatory subsidiary, SGX Regulation Pte Ltd.

Her experience includes 10 years as Chairman of the New Zealand Securities Commission and seven years as Chairman of the Executive Committee of the International Organisation of Securities Commissions (IOSCO), with other current major appointments of Chairman of the Abu Dhabi Global Market Regulatory Committee and Member of the Public Interest Oversight Board. She is also a member of the International Integrated Reporting Council and Chairman of its Governance and Nominations Committee. Ms Diplock therefore has extensive experience in regulatory and policy-making bodies. Her departure may leave a gap in competencies and loss in diversity in more ways than one on the SGX board.

As a frontline regulator of our capital markets with a duty to protect the public interest, I think it is critical for the SGX board to have individuals with significant regulatory experience and who can ensure that SGX’s strategies and decisions consider the broader public interest. In my view, a stronger case can be made for re-designating and retaining Ms Diplock than Mr Kwok, given their respective competencies and the existing competencies on SGX board. In any case, I think it is important for the SGX board to consider whether its composition is still appropriate.

Cross-directorships

The SGX board now also has three directors who are serving together on the ST Engineering board – Mr Kwa, who is ST Engineering Chairman, Mr Kwok who was appointed as an independent director on 1 October 2021, and Mr Lim Chin Hu, who was appointed in July 2018. While the Singapore Code does not flag such cross-directorships as a criterion in determining independence, the UK Corporate Governance Code states that circumstances which are likely to impair, or could appear to impair, a non-executive director’s independence include where a director “holds cross-directorships or has significant links with other directors through involvement in other companies or bodies”.  Extensive cross-directorships may also raise broader questions about the search and nomination processes and whether the competencies of the directors are aligned with the needs of the company. Cross-directorships is not something that we should encourage for boards, even if the Singapore Code is silent on it.

SGX needs to be sensitive to its role as a market regulator and strive to set the right tone for other issuers when it comes to corporate governance and transparency. It has done so in areas such as disclosures relating to remuneration – where it is in my view the best among all listed issuers – and in providing a notice period for its AGM which is well above the regulatory requirements. However, on the issues I have highlighted in this article, I think it can do better.

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Note: The author is not a shareholder of SGX or any of the companies mentioned in this article.