|The independence of any director who has served on the Board beyond nine years from the date of his first appointment should be subject to particularly rigorous review. In doing so, the Board should also take into account the need for progressive refreshing of the Board. The Board should also explain why any such director should be considered independent.|
This Guideline concerns the tenure of Independent Directors (IDs).
A director who has served the Board for a long period may have built up a close relationship with management. The concern is that an overfamiliarity with the business or management team may affect his ability to constructively challenge senior management and existing company policies and practices. The longer the period that a director serves on the Board, the greater the likelihood of his objectivity and independence diminishing. In time, the director may even be co-opted by management.
A nine-year period, which comprises three consecutive three-year terms, is deemed a sufficiently long period for independence to be at risk and potentially compromised. At the very least, this time frame warrants a compelling need for the Board to conduct a “particularly rigorous review” of the director’s independence. And if the Board still decides to deem the director independent, then this decision needs to be fully explained in its disclosures.
The Code does not provide any guidelines on what a “particularly rigorous review” entails, although this is taken to mean a diligent effort that is more than a cursory review, and that needs to be fully justified to shareholders. The NC Guide provides some examples of such rigour (subsection 4.5.3). However, the Guideline calls for “progressive refreshing” to be one of the key considerations in this review. Progressive refreshing refers to the regular and staged renewal of the Board, and would involve some degree of succession planning for directors.
This Guideline is less prescriptive than that of other rules and regulations in Singapore and other jurisdictions. For example, the MAS requires that any director of a bank whose term exceeds nine years is to be automatically deemed as non-independent. France has a mandatory requirement that a Non-Executive Director (NED) cannot be deemed independent after serving for a continuous period of 12 years. In Hong Kong, an ID is limited to a maximum tenure of nine years unless the shareholders specifically approve the re-appointment via a special resolution. The UK Code has a nine-year rule that is similar but more rigorous than the Singapore Code.
B. SGX Disclosure Guide
- Has any independent director served on the Board for more than nine years from the date of his first appointment? If so, please identify the director and set out the Board’s reasons for considering him independent.
C. Related Rules and Regulations
D. CG Guides
- Board Guide 2.10: Renewal [Board Agenda].
- NC Guide 3.9: Board Renewal and Continuity [Nomination and Appointment Process].
- NC Guide 4.5: Tenure of Independent Director [Director Independence].
- NC Guide Appendix 4B-2: The Nine-Year Rule for an ID [Director Independence].
E. Related Articles
- “The nine-year rule” by David Conner (445KB)
- “Proposed changes to the definition of ‘independence’” by Adrian Chan (69KB)
- “A calling for more independent directors” by Farhana Siddequi & Lam Shiao Ning (98KB)
- “In search of the truly independent director” by Willie Cheng (1.4MB)