Where Board Independence is taken seriously

by Emilyn Yap, Apr 24 2009 Crises reveal weaknesses in companies but they also showcase strengths in others. In Chemoil Energy's case, its ability to ride out the upsets of 2008 has highlighted its resilience which in part, reflects the quality of its board of directors.

'Although quite young, the board was able to act decisively at some of the most critical times of Chemoil's history because of the members' experience, teamwork and advanced preparation,' said the company's chairman and chief executive Clyde Michael Bandy.

Listed on the Singapore Exchange in 2006, Chemoil had to deal with the sudden demise of its founder and former head Robert Chandran in a helicopter crash in January last year.

A week after the accident the board appointed Mr Bandy - the company's lead independent director since 2006 and a veteran in the energy industry with 35 years of experience - to take over. In the months thereafter, there were the volatile oil prices which made business tricky for the marine fuels supplier, but the company's 'risk management policies held firm', Mr Bandy said. For the fourth quarter ended Dec 31, 2008, Chemoil's net profit slid 15 per cent from a year ago to US$12.3 million as a result of lower selling prices. But for the full year, the company still managed to increase net profit by 55 per cent year-on-year to US$47.1 million.

Mr Bandy believes that the board's actions in those trying times helped Chemoil win the 'Best Managed Board' accolade at this year's Singapore Corporate Awards. Chemoil took home the silver award in the category for companies with a market capitalisation of $300 million to less than $1 billion.

A plus point
Apart from its recent contributions, the board's independent directors make up another plus point, Mr Bandy noted. 'Of the nine board members, three are independent. And 'because we currently have the position of chief executive and chairman occupied by the same person, we have a lead independent director', he explained. Former PricewaterhouseCoopers Singapore executive chairman Michael Lim currently holds that position, and he chairs the board's audit committee.

Besides Chemoil, WBL Corporation also takes board independence seriously. In fact, there is an equal number of independent and non-independent directors on its 10-member board. Independent directors chair the audit, nominating and remuneration committees on the board.

Non-executive directors also make up the majority of WBL's board. Considering the company's varied global businesses, the 'board should have a majority of non-executive directors who have a broader view of the company', WBL said.

The company, which is involved in technology, automotive distribution, property and engineering and distribution activities, bagged the gold 'Best Managed Board' award in the same category as Chemoil. The age and tenure of directors also matter on WBL's board. There has been a 'transformation of the board due to the nominating committee instituting two measures at the recommendation of the current chairman (Wong Nang Jang)', the company said. First, directors have to retire from the board when they are 70 years old. Second, they can only stay on the board for a maximum of two terms, each lasting three years. Because of these initiatives, the average age of the board has dropped from 69 in 2004-05 to 59, WBL noted.

Improving governance
The economic downturn may be raging but both companies still have plans to enhance their boards. Chemoil's Mr Bandy said: 'Corporate governance is something that must always be reviewed and improved to meet new challenges.'

One thing on Chemoil's to-do list is the separation of roles between the chief executive and the chairman 'to ensure an appropriate balance of power, better accountability and also a greater capacity of the board for independent decision making', he said.

Of course, maintaining or improving corporate governance has its challenges. 'WBL has a very diversified business portfolio and with operations across many countries, identifying suitable candidates for directorship means a very thorough search for the right match,' the company said. 'There is also board policy to have two candidates for each incumbent position.'

But the company remains committed to its plans for improvement. 'The economic downturn should not affect the initiatives for the continued drive toward board excellence.'