One director wearing three committee hats
Lynette Khoo once again in her article “ Where One Director wears Three Committee Hats” which appeared in the Straits Times May 11th 2010 reviewed the pros and cons of directors sitting in more than one or three committees.
According to a study conducted by Singapore Management University, close to one quarter of Singapore listed companies have the same set of directors sitting on three board committees Of 500 companies ,442 have all 3 committees leaving 11.6 % firms who do not comply with the recommendation of Singapore Code of Corporate Governance requiring 3 board committees to focus on specific issues. The committees are the Audit Committee ( AC) Remuneration Committee ( RC) and Nominating Committee( NC)
The study shows that 442 companies have all three committees in place. However there are 105 companies or 23.8 per cent with the same set of directors for all three board committees. The majority of these firms fall on the lower bands of market cap, so that smaller companies are likely to rely on the exact same set of directors for AC, RC and NC duties.
Having the same set of directors sitting in all three recommended committees ‘appears to be against the spirit of corporate governance therefore defeating the advantages of having board committees’ ,a discovery made by authors Themin Suwardy and Leong Kwong Sin, who are associate professors at the SMU’s school of accountancy. One school of thought is that the three committees in these 105 companies are, in fact, just one committee.
The study showed that 47.5 per cent sit on all three committees and 25.3 per cent sit on two committees. With almost half of these directors sitting on all three committees, Dr Suwardy and Dr Leong questioned their ability to contribute diligently to all three committees also raised the issue of whether a conflict of interest could arise.
For instance, the author asked ‘How would the RC members decide on the appropriate fees for NC members, who in turn assess the performance of AC members, if they are all the same set of directors in the three committees?’.
An analogy was drawn by the authors that the same directors appear to play musical chairs by occasionally swapping chairmanships of the three committees,.
The study, brings to light that 45.2 per cent of the committee members chair one committee and 44.3 per cent do not chair any committee. Slightly over 10 per cent of these committee directors chair two or three committees. And, the ‘triple chairs’ – directors who chair all three board committees – can be found in 11 companies.
On the other hand, there are only eight companies that have three different directors chairing the three committees and the least number of directors in multiple committees.
One lawyer remarked that it could cause an inherent tension between the NC and RC if they have the same set of directors, likened to a case of ‘you scratch my back and I scratch your back” Stamford Law director Ng Joo Khin, states it would not be a problem for committees to have repeated members on different committees as long as they recognize the different roles and functions.
The bigger problem, he believes, arises when directors sits on multiple boards questioning whether they have adequate time to discharge their roles and responsibilities. ‘There is a risk of conflict of interest when directors sit on board of companies within the same industry.
David Smith, head of Asia corporate governance research at Risk Metrics Group, pointed out sitting on board committees would result in significantly greater workload for these directors.
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