This is to ensure that boards have the right mix of directors to respond to challenges, and anticipate future risks and opportunities.
“This will be introduced in the listing requirements in 2022 on strategic board refreshment.
“We will be working closely with the Institutional Investors Council and the Minority Shareholders Watch Group,” the SC said in a technical briefing today.
“A change in the skills profile and composition of the board of directors is required to meet the growing demand for businesses to evolve beyond the traditional emphasis on shareholders and profit maximisation, towards greater consideration of broader stakeholders’ interests,” it added.
The Corporate Governance Strategic Priorities 2021-2023 (CG Strategic Priorities) released today revealed that as of Oct 31, 2021, 46% of listed companies have at least one long-serving independent director on the board (tenure of nine years or more), with 500 board positions held by the same independent director for more than 12 years, out of which, 89 positions are for more than 20 years.
“On some boards, the challenge is more acute as they have two or three independent directors with a tenure as long as 30 years,” the report said.
As to the relevance of the 12-year limit, the SC said it had received feedback from stakeholders that the duration was deemed appropriate as directors require time to become acquainted with the business, its operations and the challenges that the company faces before they can contribute to its growth.
“We received a question on the downsides of having an independent board sitting there for two decades.
“When you have been on the board for too long, you may be denying the board the opportunity to refresh its composition, to bring in new skills and new directors with a different experience to deploy.
“The longer an independent director serves on the board, the less likely the board will generate opposing views, which could lead to a more robust discussion.
“So, when there isn’t a diversity of viewpoints and everyone is pulling in the same direction, we believe the board’s decision making will not be as robust,” the SC stated, adding that it had considered the practices of some institutional investors, which had a very clear policy on the tenure of independent directors.
The SC said a 12-year tenure would be fair to both the board, shareholders and stakeholders.
The CG Strategic Priorities report focuses on supporting listed companies to respond to the rise of the stakeholder economy that calls for businesses to create value for a wider spectrum of stakeholders, and to have conscious consideration for their impact on the environment and vice versa.
The report looks at five thrusts and 11 strategic initiatives to, among others, strengthen board capacity in addressing sustainability and scale-up investor stewardship.