KUALA LUMPUR – The Securities Commission (SC) will impose a mandatory 12-year tenure limit for independent directors to ensure that boards have the right mix of directors to respond to present challenges and anticipate future risks, as well as opportunities.
“It will be introduced in the Listing Requirements in 2022 to emphasise strategic board refreshment, and we will work closely with the Institutional Investors Council and Minority Shareholders Watch Group.
“A change in the skills profile and composition of the board is required to meet the growing demand for businesses to evolve beyond the traditional emphasis on shareholders and profit maximisation towards greater consideration of broader stakeholders’ interest,” SC said in a technical briefing today.
The Corporate Governance Strategic Priorities 2021-2023 (CG Strategic Priorities) released today revealed that as of October 31 this year, 46% of listed companies have at least one long-serving independent director on the board (tenure of nine years or more) with 500 board positions held by the same independent director for more than 12 years, of which 89 positions are for more than 20 years.
“On some boards, the challenge is more acute as they have two or three independent directors with tenure as long as 30 years,” the report said.
In response to a question about the relevance of 12 years, SC said it received feedback from stakeholders and the tenure was deemed appropriate because directors require time to become acquainted with the business, its operations, and the challenges the company faces before they can contribute to its growth.
“We received a question on the downside of having an independent board sitting there for two decades. When you have been on the board for too long, you may be denying the board an opportunity to refresh its composition, to bring in new skills and new directors with a different experience to deploy.
“The longer an independent director serves on the board, the less likely it is that the board will generate opposing views, which could lead to a more robust discussion.
“So, when there isn’t a diversity of viewpoints and everyone is pulling in the same direction, I believe the board’s decision-making isn’t as robust,” the commission said, adding that it has taken into account institutional investors that have a very clear policy on independent director tenure.
SC said the decision was made after considering existing practices, and that a 12-year tenure would be fair to the board, shareholders, and stakeholders.
Meanwhile, CG Strategic Priorities focuses on supporting listed companies in responding to the rise of the stakeholder economy that calls for businesses to create value for a wider spectrum of stakeholders, including society, and to have conscious consideration for their impact on the environment and vice versa.
CG Strategic Priorities will focus on five thrusts and 11 strategic initiatives to, among others, strengthen board capacity in addressing sustainability, scale-up investor stewardship, enhance the availability of corporate governance data through the use of digital tools, and further develop the collaboration with universities to deepen engagement with youth on corporate governance. – Bernama, November 24, 2021
