The Key is Choosing and Training Directors

by Lynette Khoo, Apr 24 2009 Lynette Khoo looks at how the big cap winners this year pull it off.

Having a well-managed board begins with choosing and training directors who are independent from management and well-grounded enough in governance issues to be able to take management to task.

This principle has been encapsulated in the big cap winners of the Best Managed Board of this year's Singapore Corporate Awards. Take the gold and bronze winners - SMRT and Singapore Petroleum Co (SPC) respectively - for instance. Both companies undertake annual reviews to assess the directors' level of independence.

At SMRT, every director is required to complete a director's independence checklist to confirm his or her independence each year, which is then reviewed by the nominating committee. SMRT chairman Choo Chiau Beng tells BT that its directors attend conferences and seminars that are relevant to their role as directors. These include training programmes on audit and accountability conducted by the Singapore Exchange (SGX) and the audit firms.

At SPC, if a director assumes a new directorship in another company that could be perceived to raise issues of independence, the nominating and remuneration committee will review the circumstances with the director. 'SPC has the advantage of having experienced directors who voluntarily abstain from votes where they might be perceived as being in conflict,' says SPC chief executive Koh Ban Heng. The selection process is certainly not a slipshod affair. Painstaking efforts are taken to ensure that good directors are appointed to the board. Training has also been accorded much significance.

Singapore Airlines (SIA), the silver award winner in the big caps category, says new appointees to the SIA board will go through orientation sessions to help familiarise them with the airline's operations and governance issues, and expose them to the company's management team.

SMRT directors attend conferences and seminars which are relevant to their role as directors. These include training programmes on audit and accountability conducted by the SGX and the audit firms.

At SPC, Mr Koh says training is funded throughout the year to update the directors on all areas necessary for the board and board committee to function well. This is also practised for all SPC subsidiary board members who are executives of the company. Its directors are also invited to attend industry seminars to keep abreast of global developments. He notes that as the SPC business requires specialised knowledge in addition to business competencies in its board members, the requisite skills set and competencies are also key considerations in reappointment to the SPC board.

To ensure independence of directors, both SMRT and SPC say they practise a three-year step-down cycle for one-third of their boards. This means one-third of the directors are required to retire and are subject to re-election at every annual general meeting.

Stephen Forshaw, vice-president of public affairs at SIA, says the airline's guideline is for a maximum tenure of about six years, taking into consideration the needs of the board, the director's availability to serve and their contributions to the board. 'There is no cap on the maximum number of directorships for each director,' Mr Forshaw adds. Besides putting in place a strong Board, directors need to frequently engage management. Directors at the three award-winning companies meet on a quarterly basis and in other ad-hoc settings to keep tabs on what is happening at the companies.

SMRT adopts a no-holds barred approach when it comes to communication between directors and management. 'Directors have unrestricted access to management - they can call any member of management on his handphone or email him directly anytime,' Mr Choo says. SMRT management, in turn, keeps the board updated on the company's activities by providing the board with press releases and monthly financial and operating reports.

Mr Koh says that at SPC, Board meetings are open with the chairman actively encouraging debate and discussion among directors and management. Regular updates on the strategic business developments are given by the management to the board. The board is also advised on key issues affecting the oil and gas industry. 'Such information, working relationship and framework, aids the Board to engage management, exercise strong oversight and make informed, sound and appropriate decisions,' Mr Koh reckons. SPC has a framework for two sets of delegation of authority.

The executive delegation of authority sets out guidelines on matters requiring board approval. The internal delegation of authority has differing authority limits for management and staff. To strengthen risk management, SPC set up a board-level Risk Committee in January last year and a whistle-blower policy with defined channels, including a direct avenue to the audit committee chairman.

Nicely summarising the essence of board oversight, Mr Koh of SPC believes that the key ingredients are information and knowledge, regular communication, mutual respect and good rapport, a framework for delegation of authority, and ongoing reviews of processes and procedures.