Are Singapore boards killing value?

A recent article, “Singapore boards are killing value”, by Andy Mukherjee in Bloomberg Gadfly, was critical of the Singapore Post saga, and along with it, some boardroom practices as well as the pay and worth of Singapore directors. SingPost is currently undergoing a corporate governance review while searching for replacements for its chairman and chief executive officer (CEO).

I felt that the sweeping generalisation of Singapore’s (large) listed boards based on the corporate governance woes of a single company, for which the outcome is still unclear, and the selective use of narrow statistics were not quite fair to Singapore-based directors in general. However, the article makes several relevant points. It also raises the need for those of us who are directors to take a good hard look at ourselves and our roles.

Let us examine some of the issues.

Directors’ pay

Mukherjee computes the annual remuneration of a director of a large-cap (above US$1 billion in market capitalisation) company in Singapore to be a handsome US$239,000 (S$324,400). That figure probably combines the remuneration of the executive directors (EDs) and non-executive directors (NEDs) on the boards.

Given the wide disparity in the roles and pay of EDs and NEDs, it would be more meaningful to view their remuneration separately. A combined average remuneration masks the relative make-up of management members on the board.

According to the Hay Group, the 2015 average remuneration for NEDs of large-cap companies in Singapore is US$110,000, and for EDs, US$1.9 million. Comparatively, the average remuneration of NEDs of large caps in Australia, the United Kingdom and the United States are US$144,000, US$131,000 and US$208,000, respectively, levels which are 19 per cent to 89 per cent higher than here.

The highest-paid ED on a board is often the CEO. The average pay for the CEO of large caps in Singapore last year was US$3.02 million while his counterparts in Australia, UK and US were paid 8 per cent to 165 per cent higher at US$3.26 million, US$4.19 million and US$8.01 million respectively.

Notwithstanding their lower compensation relative to their major overseas counterparts, the question is: Are the directors of Singapore boards, particularly the NEDs, still worth the money they are paid?

The answer should depend on how well the directors are fulfilling their governance role and responsibilities. According to the Code of Corporate Governance, the board’s role is to “lead and control the company”, and the board “is collectively responsible for the long-term success of the company”.

There are two facets to this governance responsibility:

  • Performance of the company
  • Conformance to good practices and regulations

Let us review each of these two dimensions.


Companies exist to create value. Traditionally, this has been viewed as shareholder value. However, increasingly with the “new capitalism”, there are calls to recognise the wider ecosystem of a company’s stakeholders, which includes the customers, employees, environment and community.

A common measure of value creation for shareholders is total shareholder returns (TSR) which comprises the dividends and share price appreciation over time.

An analysis of Bloomberg’s data shows that the TSR of Singapore’s large-cap companies is 12.5 per cent over the last seven calendar years. This is in line with the 11.6 per cent and 10.7 per cent TSR for large-cap companies in Australia and the UK, respectively. We are all, however, significantly below the US, where the returns are 21.7 per cent for Nasdaq’s large caps, and 22.3 per cent for the New York Stock Exchange’s large caps.

Interestingly, SingPost, the object of Mukerjee’s article, has an above-average TSR of 16.9 per cent over the last seven years. Thus, while the company’s current corporate governance issues may have adversely impacted its share price in the last few months, shareholder value measured over the medium to long term has been reasonably assured.

Good rankings

The field of corporate governance is filled with a wide array of recommended boardroom practices – too many, as many directors would attest. Some of the leading practices have found their way into regulations.

Good boards are bound to conform not only to those embedded in regulations, but also to those leading or best practices that are not (yet) regulated. In that sense, corporate governance in any company will always be a work in progress, as each board strives to adapt to changing circumstances and standards.

With the myriad of practices and regulations in force, it is not always easy to determine how well a board conforms to all of them; but it is easy to pick on a couple for which a particular board has not.

There are, however, studies in which governance practices are compared across companies and jurisdictions. These might provide a first objective assessment of how well Singapore companies conform to leading practices in general.

In a 2014 study by the Association of Chartered Certified Accountants and KPMG International of comparative corporate governance practices across 25 markets, Singapore ranked top in the Asia-Pacific and third in the world after the UK and US, which took the first and second places respectively.

The Asian Corporate Governance Association and CLSA placed Singapore and Hong Kong equally in the top spot of their biennial corporate governance survey, CG Watch, last published in 2014. The survey ranked countries based on their corporate governance rules and practices, enforcement, political and regulatory environment, and accounting and auditing.

In the ASEAN Corporate Governance Scorecard, which assesses the corporate governance practices of the top 100 listed companies in six ASEAN countries based on the OECD Principles of Corporate Governance, Singapore’s top listed companies generally come out well. They score highly on shareholder rights, board responsibilities, and disclosures, but do poorly in stakeholders’ rights in relation to their ASEAN peers. More worrying is the fact that the results show that, over the years, the gap between Singapore’s top companies and their ASEANS peers is narrowing.

Room for improvement

To be sure, there are many areas where board practices can be improved.

Board diversity is one important issue. Gender diversity gets most play because the proportion of women on boards (9.5 per cent) is far below those in senior management positions. Of course, diversity is, and should be, about more than gender. It includes skills, age, ethnicity, geography, and even tenure and experience in emerging areas such as digital.

Another important board practice is remuneration disclosure. The 2014 SID-ISCA Singapore Directorship Report shows that only a third of listed companies comply with the code’s requirement to disclose the precise remuneration of their EDs and NEDs on a named basis. With the increased scrutiny and concerns in almost every jurisdiction about excessive pay levels and the basis of such pay, boards need to respond proactively. Otherwise, they may see the implementation of measures such as “say on pay” (where shareholders’ approval is required for pay matters).

Board tenure is another prickly area. The code encourages “progressive renewal” of the board, and draws a line in the sand at the nine-year mark on director independence. However, unlike other jurisdictions, the nine-year rule in Singapore is not a hard line – the Directorship Report notes that 26.4 per cent of independent directors have tenures that exceed nine years.

Surprisingly, multiple directorships is much less of an issue than expected. Over 82 per cent of directors sit on only one board, while a mere 3.1 per cent of independent directors sit on more than four. Equally surprising is that the Directorship Report found that directors with multiple board seats tend to have better board attendance records and better educational qualifications than single-seat directors. That should lend some comfort to those concerned that multiple directorships necessarily means less time is given to an individual company.

Which brings us to a glaring lapse in our corporate governance practices: the lack of emphasis on stakeholders beyond the shareholders. The Singapore Exchange issued a Guide to Sustainability Reporting for Listed Companies in 2011. Only a handful of companies have since issued sustainability reports. To rectify this, SGX is making sustainability reporting mandatory on a comply-or-explain basis for all SGX primary-listed companies with effect from financial year ending on or after 31 December 2017.

Given these and other issues, it may be timely for a holistic review of existing rules and regulations. They need to be made more relevant to contemporary issues, and they can be streamlined to encourage boards to be equally focused on their performance role.

Holding boards to account

In summary, it is fair to say that Singapore boards have not killed value. The data shows that our companies have generally performed well, and that our corporate governance and board practices are among the leaders. Of course, there will be companies that fall by the wayside, and there are many areas, such as those described above, that can be improved.

What is important is that we recognise that corporate governance is a journey, one that requires us to stay diligent, stay relevant, and make up for our shortcomings.

We should also recognise that it is a journey best undertaken in unison by all the players in the corporate governance ecosystem, especially in this period of declining initial public offerings and a lacklustre market.

Boards and management have the primary responsibility to ensure that they respectively govern and manage the company for the long-term interests of their stakeholders.

Regulators need to lay down relevant and necessary rules, facilitate compliance, and be clear in their enforcement.

Meanwhile, investors have to hold boards to account for the performance of companies in a responsible manner. Here, we are, unfortunately, behind the likes of the UK, Japan and Hong Kong, each of which has a stewardship code for investors that emphasises and facilitates their role in ensuring and supporting good corporate governance.

And yes, we must also not forget the media, which can encourage us along the way, highlighting the good and bad companies, and occasionally, giving us a good wake-up call.


This article was published in The Straits Times on 19 April 2016, in response to an article, “Singapore boards are killing value” by Andy Mukherjee in Bloomberg Gadfly (the “fast-commentary” section of Bloomberg) on 8 April 2016.