Punk rock band The Clash probably summed up the dilemma of some independent directors (IDs) here when it sang: 'Should I stay or should I go now? If I go there will be trouble. And if I stay it will be double.' But to many market watchers, the answer is clear: 'Go' - if you're sitting on the board of a score of companies, or, if you have been sitting on the same board for a very long time.
Sharp criticisms of multiple directorships surfaced again at last week's NUS-BT roundtable discussion, with some industry players pushing for guidelines to state what is too many. The event, called 'Should I stay or should I go', was jointly organised by NUS' Corporate Governance & Financial Reporting Centre and The Business Times. This was the second roundtable discussion in the series.
'We should at least have a guideline,' said Thio Shen Yi, joint managing partner of TSMP Law Corporation, which sponsored the roundtable. The number of directorships should not be left 'to the conscience'. 'If we took a poll and we asked, 'what's the ideal number', all of us would have a different number. So you need someone to say that's the number. You need to be held accountable to that standard and you justify why you take more directorships.'
There should also be ways to differentiate those who have full-time employment and those who have not, with those with full-time employment not holding more than two board seats, said independent director CK Lee. 'More so if you are chairman of the audit committee, you can only devote that much time,' he said.
IDs who stay too long on the board may develop too cosy a relationship with the management or the majority shareholders. 'I find a lot of problems come with directors in their first three years and after their seventh year,' observed Keith Stephenson, partner at PricewaterhouseCoopers. 'Beyond seven (years), you actually become dependent on the board.'
While Hong Kong recommends that any independent directorship beyond nine years requires a special resolution, nine years spent with the company is already too long, said Mr Thio. 'If you want to stay on the board, you might be independent for the first, second, third year. Then, you start making friends. It's like the Stockholm syndrome, you become captive. You have dinner with them, you have meetings with them, and you don't want to be nasty to your friends.'
But there are some situations where IDs should stay. 'Looking at problematic companies, companies that are running into financially difficult straits, and we've seen quite a lot of these this past year, then I'm not sure it is the right thing for a director to resign,' said Lee Suet Fern, managing partner of Stamford Law Corporation.
'Generally, in such circumstances, the director has a duty to be much more hands-on, to stay the course to help the company through those financial difficulties, not run the moment the going gets tough because the company has problems with its business,' she said. However, there should be careful distinction between directors of 'problematic companies' and those who resigned or were removed in circumstances that give rise to concerns over governance, Ms Lee added.
Many IDs may not be aware of negative situations developing within their companies, pointed out Shasi Gangadharan, Chubb's speciality insurance manager for the Asia-Pacific. 'Do IDs have access to information so that they can make an informed decision well before things go wrong? I suspect that in most instances, the IDs were oblivious to the situation. It's only when things happen that they discover that things have gone wrong, so I'm not sure how much they can be ahead of the curve.'
Mr Stephenson noted that disagreements could have started during the good times, not at the point of resignation or when things turned sour. 'The decision whether to stay should be made a lot earlier than when the money runs out.'
One ID who quit over a fundamental difference was Rohan Kamis, managing partner of audit firm Rohan, Mah and Partners. The former member of parliament resigned as ID of Swissco International last year due to disagreements over bonuses that would be paid to the CEO and his father. 'I don't know if (many) independent directors are really independent,' said Mr Kamis. 'I thought this adage . . . was true: Big do, big mistakes; little do, little mistakes; no do, no mistakes.'
