Corporate governance code to be reviewed

Corporate governance code to be reviewed

Independence of directors at banks and insurers will also be scrutinised

By JAMIE LEE

(SINGAPORE) A council will be set up to review the Code of Corporate Governance, create guidelines for board committees and raise training opportunities for directors, Monetary Authority of Singapore (MAS) managing director Heng Swee Keat said yesterday.

To determine the independence of directors at locally incorporated banks and insurers, MAS may also require consideration of their directorship tenure as part of a separate review by the central bank.

This is because more stringent standards are demanded from these financial institutions compared to other listed companies, Mr Heng said.

The review of the code for listed companies - last done in 2005 - will be carried out by a new corporate governance council.

The council will comprise members from the private and public sectors, whose names will be revealed early next year.

Unlike the last council, which went through the code and set accounting standards as well as better disclosure practices, this council will focus on corporate governance matters.

‘Among the council’s roles will be the identification of opportunities for continuing professional development of directors and the development of practical guidance for board committees,’ Mr Heng said at the Asian investors’ corporate governance conference organised by the Securities Investors Association (Singapore), or SIAS.

The MAS review of corporate governance regulations for banks and insurers - which are mandatory in contrast to voluntary compliance with the code - will also look at how the ‘independence’ of a director is defined.

‘MAS will review the need to further tighten the definition of independence by requiring the nominating committee to consider the length of service on the board as an additional criterion in determining the independence of a director,’ Mr Heng said.

DBS Group has nine independent directors, including Peter Seah who has just been appointed and others who have served for as long as six years. United Overseas Bank has six independent directors who have been with the bank for between one year and nine years. And OCBC Bank has seven independent directors who have stayed for between one year and 11 years.

The review of the directors’ independence comes as MAS looks at the effectiveness of risk management at the board level of such financial institutions, as well as studying their remuneration policies.

‘We support the idea of aligning compensation with appropriate risk-taking,’ said Mr Heng, referring to principles published by the International Financial Stability Board, which called for sound compensation practices that will reduce incentives for excessive risk-taking.

Market watchers said yesterday the review is timely, with Mak Yuen Teen, co-director of the Corporate Governance and Financial Reporting Centre at NUS Business School, calling for a guideline on the maximum number of directorships that can be held.

Some who spoke about the review and during the panel discussions said the greater concern was to ensure companies followed such guidelines.

‘Asian markets seem to be very good at coming up with rules, but you need to enforce them,’ Christopher Leahy, managing director of Kroll Associates, said during a panel discussion.

‘(The code) cannot replace human failure,’ said SIAS president David Gerald, who urged companies to exercise their ‘corporate will’ and follow any new recommendations.

Others, such as former Singapore Institute of Directors chairman Chew Heng Ching, cautioned against having more rules, saying over-regulation may not be a solution.

Source : Business Times - 20 November 2009

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