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Current Challenges facing Asian Independent Directors

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Presentation slides prepared by AsianDirectors for the 8th ABF Corporate Governance Asia Conference held in Singapore on the 21st-22nd June 2010

Presentation slides prepared by AsianDirectors for the 8th ABF Corporate Governance Asia Conference held in Singapore on the 21st-22nd June 2010

Published in Business , Economy & Finance
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  • Thanks mimimishishishi for the clarification/update. I am definitely eager to see if the new segment gets the approval from PSE.

    On another note, how do you think the market will react to the new segment, a premium placed on companies with good CG?
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  • The Maharlika Board is not an index but a new listing segment in the PSE.

    Not yet approved. It was approved a few months ago for public comments. It will undergo the approval stage this September.
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  • 1. By Firdaus Salim - Managing Director, AsianDirectors Pte Ltd AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 2. »  Utilising Technology to facilitate Corporate Governance Data Mining »  AsianDirectors LIVE platform enables NC to streamline candidate appointment process »  Over 7,000 candidates with as many as 15 data points per profile Human Driven »  PLCs, Private Equity, Corporate Secretarial Firms, IPO Listees, Investment Banks Talent Platform AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 3. Introduction • INED Definition to INEDs • INED Responsibilities • Shareholder Trends Trend • Regulator Trends Analysis • Board Trends Conclusion • Q & A AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 4. Definition of INED? »  Independent Non-Executive Director: Director who is free from management influence and acts as a supervisory principal to senior management Roles and Responsibilities? »  Key Areas of Contribution: Constructively challenge and help develop proposals on strategy & review the performance of management in meeting agreed goals and objectives and monitor the reporting of performance However, INEDs are required to play myriad roles in today’s volatile environment Risk Management Pay for Performance Succession Planning Stakeholder Engagement AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 5. Country Composition Independence? • Not employed by Co for past 3 years • Family member - Senior executive for past 3 years • Receiving compensation other than dir fees for Singapore o At least one-third past 1 year (incl: family member) (2005) • 5% or more stake in Co and/or Business dealings worth $200K (incl: family member) o At least one-third •  ot employed by Co for past 2 years N • Family member – no timeframe but more o Should include a number of prescriptive (spouse, parent, bro, sis, child) Malaysia directors which fairly reflects the • Not acting as nominee of exec and/or majority S/H (2007) investment in the company by • No business transactions past 2 years worth RM250K shareholders other than the • Not engaged as a professional advisor significant shareholder o No numerical indicator • Independent Commissioner = who are not o One of the Independent originated from an affiliated party • Affiliated Commissioners = having business and Commissioner shall have an Indonesia family relations with the controlling shareholders, accounting or finance background Board of Directors, Board of Commissioners, and with (2006) the company itself • Former affiliated members = shall for a certain period of time, be considered as affiliated AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 6. Shareholder Regulator Board Shareholder Regulatory Board Trend Trend Trend AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 7. Shareholder Regulator Board 1 One Share – One Vote: »  Poll Voting vs Show of Hands – Reinforcing transparency and accountability »  Institutional Investor’s Impact on Poll Voting – Reduces minority power »  Dual Class Share System – Seeking public capital & limiting dilution? 2 Privatisations and Delisting: »  Minority S/H Protection – Victim of majority vote? »  Exit Price – Fair valuation of the delisted company »  Legal Channels? – Companies Act vs Listing Rules AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 8. Shareholder Regulator Board 3 Disclosure of Information »  Quarterly Reporting – Room for improvement in most Asian markets »  Depth and Breadth of Disclosure – Detailed compensation info, Board processes ? »  “Action speaks louder than words”– Disclosure mismatches Example of usual remuneration disclosure practices in Singapore AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 9. Shareholder Regulator Board Case Study Singapore Exchange - Electronic Poll Voting o  Electronic Voting to steer voting towards a one-share, one vote system rather than a “show of hands” o  SGX shareholders were provided with handsets and smart cards at registration, linking voting rights to their shareholdings based on the size and class of their holdings. o  Votes for each resolution were recorded instantly - and the results were displayed immediately on a screen for all shareholders. AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 10. Shareholder Regulator Board Case Study Disclosure Discrepancies – Englotech Bhd What was said “The board believes that the investing public and shareholders should be kept informed of all material business matters, which may influence and affect the group. Timely release of information on the group’s performance and major developments via appropriate channels of communication provides the shareholders and investors with an overview of the group’s operation.”  – Annual Report 2008 What has happened Although it had been delisted in February 2010, Englotechs was publicly reprimanded by Bursa Malaysia for several breaches of the exchange’s listing requirements, one of which was its failure to make an immediate announcement of the defaults in payment of credit facilities by the two subsidiaries. Three of the company’s directors were fined RM113,050. AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 11. Shareholder Regulator Board 1 Regulatory Change vis-à-vis CG codes: »  Code of Governance – Tightened up post financial crisis. »  Redefinition of Independence Regulations - Higher % of INEDs on Corp Board 2 IPO Listings »  Listing Rules – Listing rules tweaked to ensure easier access for quality foreign IPO listings »  Secondary Listings – Exchanges are providing secondary listing access to companies AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 12. Shareholder Regulator Board 3 Securities Law »  Minority S/H and Company Delisting Regulatory change to provide increased power to minority shareholders in events of delisting and privatisation »  Insider Trading – Preventive measures stepped up 4 Regulatory Philosophy Moving Forward Country
 Approach
 Response
 Hong Kong
 Enforcement
 Fines
 Singapore
 Stricter Code + Market Awareness
 Review of code + Public Disclosure
 Malaysia
 Stricter Code + Enforcement
 Review of Code + Fines
 Philippines
 Incentives
 Public Awareness of good firms
 AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 13. Shareholder Regulator Board Case Study Maharlika Board- CG Incentives in Philippines o  Philippine Stock Exchange (PSE) has approved the draft listing rules for a new index, aimed to distinguish public companies which voluntarily adhere to higher corporate governance standards o  The proposed criteria for listing in this segment include a minimum float of 30 percent and an increased number of independent directors to three, as compared with the minimum of two independent directors as provided in the existing law AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 14. Shareholder Regulator Board 1 Board Composition »  INED Recruitment Process – Process of recruitment is just as important as quality of candidates, reduces inherent reputational risk of INEDs should company face trouble »  Time Commitment – A cap on multiple directorships? + Committee Diversity 2 Liquidity and Cash Flow Issues »  Tremors from Financial Crisis – liquidity a critical issue for many organizations to manage and has quickly elevated issues of cash flow and liquidity to the agendas of many corporate boards »  The Audit Committee’s new responsibilities – Cash flow, short-term obligations, contingent liabilities and the health of formerly reliable suppliers AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 15. Shareholder Regulator Board 3 Risk Management »  Setting the tone at the top – Define organisation risk appetite appropriately and to manage the risk effectively »  Risk Committee – Prevalent in Bluechips, board to be cognizant of principal risks 4 Compensation Matters »  Pay for Performance + Pay for Prudence ? – Trends point towards compensation being aligned with prudent risk-taking »  Say on Pay – Effective supervisory oversight and engagement with stakeholders AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 16. Shareholder Regulator Board Case Study How INED appointment process matters – NEL Holdings o  SGX publicly reprimanded NEL and its directors for dragging their feet on releasing a special auditors' report to shareholders - and asked all listed companies to consult the Exchange before engaging any of NEL's Directors o  The two independent directors based in Singapore were appointed only after E&Y had been appointed NEL's special auditor to investigate possible ‘round-tripping’ deals o  They have received no form of monetary or non-monetary compensation, direct or indirect, for the work they have been doing o  Presence of INED appointment process will add more credence to their case AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference
  • 17. Full Research Paper can be downloaded from www.asiandirectors.com •  Q&A AsianDirectors Presentation: 2010 ABF Corporate Governance Asia Conference