By Mak Yuen Teen

The saga at City Developments Limited (CDL) raises issues about family and corporate governance at the company. However, it also lays bare broader issues in our corporate governance ecosystem.

In this first of a series of articles, I focus on how the saga puts the Singapore Institute of Directors (SID) in a poor light and raises questions as to how it operates. I will share my own experience when I was on the council about 20 years ago and why I am not convinced that it has changed for the better.

The appointment of the two new IDs and best practices advocated by SID

The two independent directors (IDs) who joined the CDL board through what Mr Kwek Leng Beng (KLB) called a “board coup” were allegedly appointed without the involvement of the Nominating Committee (NC). The announcement template for their appointment simply stated the board had approved their appointment, their expertise, and how their appointment would enhance the board’s core competencies based on the board’s skills matrix and help fulfil the board’s diversity targets. There was no mention of the involvement of the NC.

Clearly, the manner of their appointment does not comply with the Code of Corporate Governance and the process set out in the NC Guide published by the Singapore Institute of Directors (SID).

These are some of the “best practices” in SID’s NC Guide:

“The Board should require the NC to review, at least once a year, the structure, size, and composition of the Board and the Board Committees. If a new director is required to be appointed subsequent to the review, the NC will initiate the director nomination process.”

“The nomination process requires the NC to take several steps:

  • Develop desired profiles of new directors for the Board.
  • Search for candidates.
  • Shortlist candidates.
  • Evaluate them.
  • Recommend to the Board.”

“To better understand the background and profiles of directors needed, the NC may also consult with the Board Chairman, other Board members, and key members of senior management.”

“The NC should meet with each shortlisted candidate to assess the candidate and address any questions or concerns on either side. Prior to recommending a candidate, due diligence should be conducted. This includes checks on past litigations (and their status), bankruptcy records, and independent reference checks.”

“The following should be submitted to the Board for discussion and approval:

  • A summary of the search and nominating process including the selection criteria used.
  • Resumes and background search results of the nominees (including a summary of the nominee’s existing directorships, principal commitments, interests, and any matter that may potentially affect his independence).
  • The list and evaluation of the successful nominees, as well as reasons for their selection.
  • The list of unsuccessful candidates and the reasons for not selecting them.”

To what extent has the appointment of the two new IDs followed any of these?

Interestingly, the CEO of SID has now “clarified” in public comments that whether the NC is involved in director appointments actually depends on the company’s constitution and policies. This is what was reported in a Business Times article: “However, Terence Quek, the chief executive officer of the Singapore Institute of Directors, pointed out that while NCs typically propose their director appointments to the board for approval, this practice may vary depending on the individual company’s constitution and policies.”

So much for the listing rules, Code and the NC Guide.

It so happens that one of the two new IDs appointed at CDL without the involvement of the NC is Ms Wong Su Yen (WSY), the immediate past Chairperson of SID. She is also a fellow of SID and a Senior Accredited Director. One would expect that someone in her position and with her credentials would ensure that her appointment is in accordance with good corporate governance and the recommendations in SID’s own NC Guide.

To be fair, there may be situations where strict compliance with “best practice” guidelines may not be possible. Therefore, she and the other newly-appointed ID should be given an opportunity at the company’s coming AGM, when they will have to stand for election, to explain the circumstances surrounding their appointment, including who approached them to join the board (since the NC chairman was not involved), why they accepted the appointment without being interviewed by the NC, and what value they see themselves adding to the CDL board. I hope the CDL Chairman will allow them to answer questions from shareholders.

Governance issues in SID

This brings me to what I see as governance issues within SID and whether it and its council members practise what the institute preaches.

I was on the governing council of SID from 2000 to 2005. I resigned for various reasons but several incidents during my tenure convinced me that I should not be associated with it. I will cite just four of them.

First, the council had unanimously agreed to appoint someone with experience in training to build up the institute’s training capacity. When I turned up at a subsequent council meeting, someone with no training experience was appointed. I questioned why but got no satisfactory response. I have no idea how this person was identified and selected. This held back its progress to uplift training standards for directors here.

Second, I was asked to chair a committee looking at enhancing standards, something which I advocated that SID does, and to respond to regulatory consultations. I took the role quite seriously – perhaps too seriously. One proposal from my committee was to recommend a limit on number of directorships that can be held by an executive director of a listed company. I believe the number was two. This was based on a standard adopted by the New Zealand Institute of Directors. When this proposal was floated to the council, one council member who was the CEO of a listed company here and who served on multiple external boards objected to it. The proposal was dropped. This told me that SID would not adopt standards that are good for corporate governance if they do not serve the interests of council members – especially those who are influential.

Third, SID was advocating for companies to cast the net wide when searching for IDs. One day, I picked up an IPO prospectus in Raffles Place on my way to a council meeting and found that one of the senior council members had been appointed as an ID of that company going public, and another senior council member was an executive director of that company. I could see no compelling reason why the former was selected as an ID. So much for casting the net wide – it appeared the net was only cast within the walls of the SID office. There was also the matter of board interlocks, something that I still see on the SID council today.

Fourth, I was working on the issue of busy directors at that time and realised that some of the busiest directors were on the council with me. It was quite awkward when Business Times named a number of busy directors, quoted negative comments I made about such directors, and then having to turn up at the next council meeting with several of them.  I do not know how these directors ended up with so many directorships because there was nothing particularly special about them in my view. It did not feel like meritocratic recruitment processes landed them these multiple directorships. I could therefore not expect SID to take a position on busy directors or to really push hard for meritocratic recruitment processes.

After I resigned from the council, I also resigned as a fellow of SID.  I subsequently turned down two invitations to rejoin as a fellow because I do not think that SID has improved and our values are aligned. Let me say that I do have a lot of respect for Willie Cheng, a past Chairman, but even he could not convince me to rejoin as a fellow.

Even today, I have noticed council or ex-council members of SID replacing each other as IDs on listed boards, becoming fellow directors on these boards, or becoming directors of organisations where these organisations’ directors or management are council or ex-council members of SID.  Perhaps all the appointments are based on merit and made through proper search processes, and possible conflicts are addressed. But SID members and stakeholders deserve more transparency regarding how these appointments happen, especially as SID advocates that companies should not appoint directors using the “old boys’ network”.

SID now offers a director search service for companies and other organisations. My view is that if any company or organisation reaches out to SID for potential director candidates, SID council members should exclude themselves from consideration and give the opportunity to their members. This can help remove perceptions of conflict. But it may also reduce the number of individuals willing to join the council.

Director accreditation

SID has touted its accreditation programme for directors and there are now many Accredited Directors (ADs) and Senior Accredited Directors (SRADs) (obviously, SAD would not work well as an acronym). Just go on LinkedIn and see how many mention they are a SRAD and look at their experience as directors.

Based on my checks using SID’s verification link for accredited directors, it appears that there are two SRADs on the side of the majority directors of CDL (including the former SID chairperson) and an AD on the minority directors’ side.

Among the 19 current council members of SID, 16 are SRADs (none are ADs). So is the CEO of SID. SID should provide more transparency as to how its accreditation programme works and what differentiates an AD from a SRAD.  How did the 16 council members attain their SRAD qualification? How were they assessed? Was it by the CEO or using some “round robin” method like assessment of independence of directors? Did they pass tests?

There are some tainted directors who are ADs and SRADs. An accredited director does not mean that he or she is fit and proper. In my view, the rushed accreditation programme, whereby many were accredited without any proper assessment, is a missed opportunity to have a truly robust professional director accreditation in Singapore that includes a detailed assessment of experience and whether a director is fit and proper.

Time for a reset 

It is critical for Singapore’s corporate governance ecosystem that we have a well-respected directors institute which promotes high corporate governance standards and practises what it preaches. Perhaps SID needs its own “board coup” to overhaul its council – or members can push for more significant changes in the council and governance.

But maybe we need to start all over again. About 20 years ago, I was approached by some directors to form an alternative director body. I decided that SID should be given an opportunity to improve. This topic has come up again from time to time.

There are other countries with more than one director body. In fact, I am a member of the advisory council of the Vietnam Independent Directors Association, which is one of two director bodies in Vietnam. Hong Kong also has a separate independent director association. The Institute of Corporate Directors Malaysia is Malaysia’s second attempt to get a director body right.

After more than 25 years with a single director body that has struggled for credibility, it may be time for Singapore to have a new or alternative professional director body

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The author is a corporate governance advocate who has been involved in developments in corporate governance in Singapore and the region for more than 25 years. The views in this article are his personal views.