Published April 24, 2009

Cap directors' board seats

By OH BOON PING

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THE issue of directors holding many board seats has come into focus again. A survey by the National University of Singapore's Corporate Governance & Financial Reporting Centre has found that while most directors - 84 per cent - of listed companies here hold a single board seat - a number are holding at least six directorships, including several with over 10 board seats.

Then, at DBS Bank's recent annual general meeting, questions were asked about DBS independent director Christopher Cheng holding 152 directorships. To be fair to Mr Cheng, the bulk of his directorships are not at listed firms but relates to his family firm Wing Tai's extensive property interests in Hong Kong and China.

Still, it adds to the ongoing debate on whether there should be a cap on the number of directorships that a board member can hold. One online reader made this tongue- in-check observation about Mr Cheng: 'If he spends 15 minutes on an update per company for eight hours straight, he will complete 152 updates in 4.75 days; in a five-day week, he has 0.25 days for the 152 companies.'

But putting such humour aside, it's still fair to ask the question: is it physically possible for one person to wear so many hats, without compromising the quality of his work?

While it may be true that a very capable director should be able to take on more tasks and perform them equally well compared to, say, a less capable person, he still has to work within the constraints of a finite amount of time. So wearing too many corporate hats means board members may have less time than ideal for meetings and other company matters. The outcome? Board members could end up over-relying on what management says, and plans and proposals may not get the scrutiny they deserve, and board oversight is compromised in the end.

Plus, the issue of multiple directorships also reflects management attitude towards corporate governance. If a company engages a director who holds many directorships, it may indicate that the management could just be paying lip service to board effectiveness, since it should be aware that such a director may find it difficult to contribute meaningfully to the company.

Of course, the defenders of multiple directorships will point out that Singapore is a small country, and therefore corporations have to make do with a limited pool of talent for directors. But this ignores the influx of foreign talent to our shores each year, and more should be done to prod companies to look beyond the traditional sources to consider other sources for directors, including the pool of foreign talent, to enhance the quality of board leadership and corporate performance.

Indeed, setting a limit on the number of directorships is a debate worth reviving. This is already being done elsewhere. The Kuala Lumpur Stock Exchange, as part of its listing rules, limits the number of directorships that any individual can hold to no more than 10 in listed companies and no more than 15 in other companies.

In the US, the National Association of Corporate Directors (NACD) recommends that directors with full-time positions should not serve on more than three or four other boards.

Some have rightly pointed out that arbitrarily drawing a line on the maximum number of directorships is tough as a director's ability to perform effectively also depends on factors such as the size and complexity of the company's operations which could impact on the time required in travel or other activity needed to gain a proper understanding of the business.

But having a cap is still better than not having one. As corporate governance advocate Mak Yuen Teen pointed out, 'the problem is that a drunk will often think he can drink more'. He has suggested imposing a limit of four directorships for those with full-time jobs, and six for those without - a proposal which the Singapore Exchange should consider very seriously.

If the exchange is serious about promoting self-governance and board effectiveness here, then limiting the number of directorships is one critical step it may have to take sooner or later.