YESTERDAY (Jan 19), Bursa Malaysia announced some enhancements in the Main and ACE Market Listing Requirements aimed at further strengthening board independence, quality and diversity.
To promote board quality and strengthen board independence, the enhanced Listing Requirements now limits the tenure of an independent director to not more than a cumulative tenure of 12 years in a listed issuer and its group of corporations.
All long serving independent directors impacted by this enhancement must resign or be re-designated as non-independent directors by June 1, 2023.
12-year term limit
Issues relating to re-appointment of long-serving independent directors has always been a concern among shareholders. We all know that the passage of time is inversely proportional to a directors’ independence – time erodes independence.
Over time, there is a whittling away at the independence as independent directors become more collegial and more familiar with both management and fellow directors.
Though different independent directors step away from the threshold of independence into the realms of dependence at different times, there was a need for a quantitative demarcation of this threshold. Twelve years has been chosen to be this threshold.
The limiting of the tenure of independent directors to 12 years should not come as a surprise as this has been forewarned by the Securities Commission (SC) at the time of release of the updated Malaysian Code on Corporate Governance (MCCG 2021) on April 28, 2021.
The SC had then categorically stated that Bursa Malaysia will introduce a 12-year tenure limit without further extension for independent directors in the Listing Requirements.
Over the years, the MCCG had advocated a principle-based approach to limiting the tenure of independent directors. Under this approach, companies were required to ‘apply or explain an alternative’ to the advocated practices in the MCCG.
Bursa Malaysia has now felt that the time was ripe to introduce a rule-based approach to ensure compliance as the principle based approach did not have the intended outcome.
As of end-March 2021, 434 independent directors had tenures of more than 12 years, out of which 49 independent directors have served on the same board for more than 20 years.
Since all independent directors impacted by this enhancement must resign or be designated as non-independent directors by June 1, 2023, one can expect a flurry of activity in the search for new independent directors.
The tenure limits for independent directors will encourage periodic refresh of board composition and further strengthen board independence, quality and diversity. This is a welcome rule-based change from the minority shareholders perspective.
One woman director
Gender diversity allows for different perspectives to be considered and deliberated at board level. This results in well-considered and well-debated decisions for the company.
The MCCG talks about diversity as a whole with gender diversity being an important subset. Again, having gender diversity as a principle-based practice under the MCCG did not have the desired traction.
Disclosures in relation to gender diversity were poor and vague along with generic and boilerplate statements. There was a plateauing of the percentages when it came to women on boards of PLCs and some PLCs did not have any woman on board.
Therefore, the Listing Requirement impetus to have at least one woman director will drive the gender diversity agenda sooner and further.
Devanesan Evanson is CEO of the Minority Shareholders Watch Group (MSWG).
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
