11/14/2022 0 Comments Boards and beyond videos downlaod“For companies to remain resilient and competitive, both through and beyond the pandemic, boards must continuously assess their composition to determine if they have the right skill-set to perform their functions effectively,” Syed Zaid said in his speech during the release of the Corporate Governance Strategic Priorities 2021-2023. Meanwhile, SC executive chairman Datuk Syed Zaid Albar said boards are under pressure from rising regulatory expectations and increasing shareholder activism. She said should a board feel that an independent director can still contribute expertise and knowledge beyond the tenure limit, the director can be retained as a non-independent director or company adviser. Lim said the mandatory tenure limit for independent directors is the right step to strengthening best practices on boards. “In particular, boards with 30%-50% independent directors showed higher return on equity and stronger revenue growth compared to boards with fewer independent directors,” she added. “The recent Malaysia Board Diversity Study showed that a diverse and independent board is in a better position of strength to achieve sustainable financial performance, indicating a correlation between board diversity and company’s financial performance,” Lim said. Institute of Corporate Directors Malaysia president and chief executive officer Michele Kythe Lim told StarBiz that over the long term, this move will improve a company’s competitiveness and financial performance. Currently, at least 50% of the board must comprise independent directors under the Malaysian Code on Corporate Governance,” he added. “This, however, may result in the size of the board increasing as the company strives to meet the ratio of independent directors to total board composition. The long-tenure independent directors can continue to serve on the board but cannot be classified as independent directors,” he said. “Independent directors become less and less independent over time and it is a timely move to put a cap on the tenure of independent directors. “On some boards, the challenge is more acute as they have two or three independent directors with tenure as long as 30 years,” it noted.Ĭommenting on this, the Minority Shareholders Watchdog Group chief executive officer Devanesan Evanson told StarBiz that the move to limit the tenure of independent directors is a good one. “After taking into consideration some of these practices out there, we felt that cutting off at 12 years will be fair to the board, shareholders and stakeholders.”Īccording to the regulator, as of Oct 31, 46% of listed companies have at least one long-serving independent director on the board with a tenure of nine years or more, while 500 board positions were held by the same independent director for more than 12 years, out of which 89 are for more than 20 years. “Some have a very clear policy where they will not vote for the extension of independent directors after nine years, while some said they won’t vote (for the term renewal) after 12 years. The SC official said the 12-year timeframe is also premised on many institutional investors’ good governance policy. We feel that if a director sits there for too long, they may develop group think and there is less opposing views that could (otherwise) generate a more robust discussion. “We want to avoid group think with this 12-year term limit. “They may also deny the board the opportunity to refresh their composition – to bring in new skills through new directors with different experience to the board,” the official said. “Independent directors who have been on the board for too long may impair the objectivity of the board. The SC official explained that 12 years is already at four terms of three years each. “The feedback that we have received from stakeholders are that we can’t cut off too soon like six years, as directors need time to be familiar with the business and understand the operations before they can really contribute,” an SC official said at a technical briefing recently. “We think this is the sweet spot because the directors are typically appointed on a three-year term. The Securities Commission (SC) said in its Corporate Governance Monitor 2021 that this would help facilitate a structured board refreshment among listed companies. KUALA LUMPUR: A mandatory tenure limit of 12 years for independent directors will be introduced in the Listing Requirements early next year.
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