Published November 20, 2008

It's a matter of integrity for directors

By LYNETTE KHOO

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THE new initiatives by the Singapore Institute of Directors (SID) are a welcome move.

Hopefully, with the SID initiatives, more directors will voluntarily take up courses and review their board commitments.

Of particular interest are its plans to enhance training for directors and provide a searchable directors register on its website so that companies can broaden the search for members on their boards.

This is certainly a step forward in addressing the issues raised on the independence and effectiveness of independent directors.

Several listed companies have recently run into corporate governance issues, and a spate of independent directors and chief financial officers have quit this year. Some directors have also been charged with failing to discharge their duties with reasonable diligence, as happened in the AirOcean and Chuan Soon Huat cases.

Amid the current market turmoil, the relevant question now is whether directors are adequately trained to deal with the new complexities of the economy and of corporate activities.

Independent directors sit on boards to safeguard corporate accountability, and their role is increasingly important in times of such crisis. They should, among other things, understand the terms of credit agreements and the transactions that companies enter into, raising the red flag if undue risk is taken.

But despite their onerous duties, directors place training rather low on their priority list. A recent survey by SID has found that only one in four directors attends training and out of those who do, only 25 per cent attended training not exceeding four hours a year.

For directors who serve on many boards, there is also the question of whether they can effectively discharge all their responsibilities, given the limited time and resources.

And when companies fall back on their 'old boys' network in their search for directors or when independent directors serve for a long time, market perception of directors' independence becomes even fuzzier.

SID's initiatives have recognised these issues. Directors can soon receive more training under SID on specific issues such as risk management, internal controls and roles of the various board committees, as well as technical courses on the standards of principle-based reporting. This would help directors keep up with changes in the industry and regulatory landscape.

With the online searchable register of directors, companies can also have a wider pool of directors to consider, away from their usual networks. Casting a wider net may also give them a higher chance of getting quality directors.

Such initiatives are certainly in order. But it is unclear how much change they will bring about. After all, directors could have sought out existing training programmes had they wanted to.

But it would be a shame if regulators needed to be called in to usher directors into training rooms or even set a limit on the number of boards they can sit on. Instead, the onus should fall on companies and directors themselves to do their own stock-take.

A quota on directorships, akin to the limit imposed by the Malaysian regulator, may not necessarily serve its purpose here, since different directors have varying degrees of commitment and board roles, as well as willingness to commit the hours.

'It all depends on the size of companies they are sitting on and their roles,' says NUS Associate Professor Lan Luh Luh, co-director of the Corporate Governance & Financial Reporting Centre. 'If they are chairmen for all the audit committees and nomination committees, then five boards would already be too much.'

She notes that there are also an increasing number of professional directors, who are retired accountants, auditors or lawyers, who have been advising companies on their boards for a long time and are now doing it full- time. For them, sitting on many boards would not be an issue, unlike directors who hold full-time jobs elsewhere.

So, it looks like there is no clear-cut approach to this. Self-assessment is thus the key. Directors sitting on many boards should always consider at any point in time if they are wearing too many hats. It is hence laudable that SID is coming up with an online evaluation service for companies and directors. This would provide some litmus to directors' effectiveness.

Hopefully, with the SID initiatives, more directors will take it upon themselves to take up courses and review their board commitments.

After all, by signing their names on the dotted line, directors must be prepared to be counted on to discharge their duties with due care.