SC imposes 12-year mandatory tenure limit for independent directors

SC imposes 12-year mandatory tenure limit for independent directors

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 in emphasising on strategic board refreshment and we would work closely with the Institutional Investors Council and the 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,“ the SC said in a technical briefing today.

The Corporate Governance Strategic Priorities 2021-2023 (CG Strategic Priorities) released today revealed that as of Oct 31, 2021, 46 per cent 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, out 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, the SC stated it has received feedback from stakeholders and that the tenure was deemed appropriate because directors require time to become acquainted with the business, its operations and the challenges that the company faces before they can contribute to the company’s growth.

“We received a question on what’s 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 the 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 stated, adding that it has considered the scenario of some institutional investors’ policies, which have a very clear policy on independent director tenure.

The SC said the decision was made after considering some of the existing practices and that 12-year tenure would be fair to both the board and shareholders and stakeholders.

Meanwhile, the 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.

The CG Strategic Priorities implemented from 2021 to 2023 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