Independent directors: A safeguard on dual roles of CEO-cum-executive chairman - Opinion

I refer to the Hock Lock Siew commentary “Companies should do away with having an executive chairman” (BT, Jan 8).

While one person occupying both positions of chief executive officer and executive chairman can reduce the overall effectiveness of the organisation, and accountability and conflicts of interests may arise, there are safeguards.

The Code of Corporate Governance provides under Provision 3.3 that the board should have a lead independent director to provide leadership in situations where the chairman is conflicted, and especially when the chairman is not independent.

The lead independent director is available to shareholders when and where they have concerns, and for which contact through the normal channels of communication with the chairman or management is inappropriate or inadequate.

Practice Guidance 2 of the Code also provides more guidance to listed issuers on the role of the lead independent director.

A lead independent director can resign from the board if he or she faces resistance from the CEO-cum-executive chairman on reports of weak corporate governance.

Usually, the resignation and the reason are publicised, with possible investigation by the relevant authorities. For instance, back in 2015, two Lian Beng independent directors resigned over differences with the board.

Independent directors are important because they provide an objective perspective on the company and help improve strategy and governance.

More importantly, they serve as liaisons between shareholders and management, and prevent conflicts of interests and insider control.

Francis Cheng

Companies should do away with having an executive chairman: Opinion

AMID an uncertain economic backdrop, many companies are looking to pare costs. Perhaps, cost savings can be found at the board level, say by cutting director fees or doing away with paying fees for attending meetings.

Could listed companies which are led by an executive chairman trim costs by making the role non-executive? A non-executive chairman is typically paid much less than an executive one, which would benefit the company and its shareholders.

Several leading local-listed companies are led by a non-executive chairman. These include DBS : D05 -2.09%, OCBC : O39 -2.06%, UOB : U11 -2.13%, Singtel : Z74 -0.97%, Singapore Airlines : C6L -1.25%, Keppel : BN4 -1.87%, ST Engineering : S63 -1.71% and Singapore Exchange : S68 -1.76%.

Yet, several listed property-linked groups have an executive chairman, such as Bonvests Holdings : B28 0%, City Developments Ltd : C09 -0.2%, GSH Corporation : BDX 0% and Ho Bee Land : H13 0%.

The executive chairman of OUE : LJ3 +0.99% is also its group chief executive officer, while the chairman of Wing Tai : W05 +1.61% also serves as its managing director.  

For example, Ho Bee Land might reap substantial cost savings by not having one.

It recorded a net loss attributable to shareholders of about S$259.8 million for the financial year ended Dec 31, 2023. In H1 2024, the group achieved a profit attributable to shareholders of S$8.8 million.

The group’s executive chairman, Chua Thian Poh, who is a major shareholder, received a remuneration of S$2.1 million for FY2023. 

In contrast, larger property developer peer UOL Group : U14 -0.2% paid its non-executive chairman S$150,000 for that financial year.

At Frasers Property : TQ5 0%, non-executive chairman Charoen Sirivadhanabhakdi, who holds a large deemed interest in the group, waived his director’s fees for the financial year ended Sep 30, 2024.

Roles of chairman and CEO

Typically, a company’s board of directors reviews and approves strategic plans, evaluates the company’s performance and supervises executive management to achieve optimal shareholders’ value.

Also, it helps to ensure that the company has strong frameworks for risk management and sustainability, as well as robust internal controls. 

The chairman’s role is to lead the board. Having the same person lead both the board and the management may undermine the board’s effectiveness in overseeing management.

Fortunately, many companies have separate persons holding the chairman and CEO roles.

However, numerous large listed companies are led by a non-executive chairman, which begs the question: Are there good reasons for some groups to have an executive chairman?  

Surely, the groups led by executive chairmen do not have businesses that are way more complex than those led by non-executive ones. Indeed, executive chairmen may hinder chief executives in performing their work, and thus undermine productivity.  

Generally, the CEO is responsible for implementing a group’s overall strategies and policies set by the board, plus day-to-day management.

An executive chairman might get too involved in a group’s operations. And staff could be torn between potentially competing centres of power – namely the executive chairman and the chief executive. Also, which role should lead in setting the corporate culture? 

In addition, an executive chairman who is deeply entwined in the management’s activities could be less effective in leading the board to review management decisions or ensuring the business has strong internal controls.

Handling transition

Back to the example of Ho Bee. Chua, who is in his mid-70s, is its founder and former CEO. He is widely lauded for his business leadership and philanthropic impact. Arguably, he can offer much value to any property business, given his deep experience, insights and networks.

Investors, employees and counterparties appreciate seeing individuals that have been key in building a business contribute to their respective groups for as long as they can.

A company should consider keeping an older corporate leader, such as a former CEO, in an executive capacity. It can do this by appointing this individual as an executive senior adviser who reports to the chief executive.

In this way, there is no room for confusion as to the CEO being a company’s top executive and the person at whom the buck stops when accounting for the executive management’s performance.

In Singapore politics, prime ministers who have stepped down from their roles have stayed on to serve in their successors’ Cabinets. Long-serving former prime minister Lee Hsien Loong is now a senior minister in his successor Lawrence Wong’s Cabinet.

Having older top corporate leaders assume more supportive roles while younger leaders take the helm sends a positive signal to older workers in the wider labour force. It tells them that they too should be open to take on more junior roles while remaining productively employed.

With an ageing population, many businesses need younger managers who can manage older staff. The efficient functioning of teams comprising workers of diverse age groups is vital to raising the productivity of businesses here.

A CEO’s job can be exhausting. With many businesses being international, they may need to travel overseas extensively. They have to answer to numerous stakeholders, pore over loads of data, manage multiple relationships, as well as handle big external challenges. Often, speedy decision-making is needed.

Generally, chief executives should not be in their roles for too long. They should hand over the helm in a timely manner to younger blood, who have energy and fresh thinking.

In turn, older corporate leaders who hand over leadership can continue contributing to a company by staying on to share their wisdom, but possibly not in the role of an executive chairman. After all, any risks of an older corporate leader obstructing rather than helping a new CEO must be avoided.

Ultimately, from governance and productivity perspectives, all listed companies could benefit by having the chairman and the CEO being separate persons, and the chairman being non-executive. It is time for various property groups to rethink the need for a chairman who is executive.

The writer owns shares in Ho Bee

Source: Business Times © SPH Media Limited. Permission required for reproduction.

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