Independent directors in Singapore: A corporate governance outlier?

• Main Authors: PUCHNIAK, Dan W., LAN, Luh Luh
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2017
• Subjects: Asian Studies; Business Organizations Law
• Online Access: https://ink.library.smu.edu.sg/sol_research/3954; https://search.library.smu.edu.sg/discovery/fulldisplay?docid=alma99577088602601&context=L&vid=65SMU_INST:SMU_NUI&lang=en&search_scope=Everything&adaptor=Local%20Search%20Engine&tab=Everything&query=any,contains,Independent%20directors%20in%20Asia:%20A%20historical,%20contextual%20and%20comparative%20approach&offset=0
• Institution: Singapore Management University

Introduction When Singapore needed to bolster its corporate governance in the wake of the 2001 Asian Financial Crisis, it looked to Anglo-America for solutions. Back then, the American independent director stood out as the most recognisable global symbol for good corporate governance. Independent directors were (and still largely are) credited with transforming American boardrooms from inept managerial clubs into effective managerial-monitors. In the UK, the London Stock Exchange was thriving as its dispersedly held American-style Berle-Means type companies embraced American-style independent monitoring boards. The UK’s implementation of American-style independent directors, through its market-driven ‘comply or explain’ Code of Corporate Governance, was the avant-garde of corporate governance reform. From this perspective, Singapore’s decision in 2001 to adopt American-style independent directors on a ‘comply or explain’ basis, appeared highly conventional. As history would have it, however, it turned out to be anything but. This chapter reveals that Singapore’s embrace of American-style independent directors made it a corporate governance outlier. As explained in section II below, the widely held belief that the American concept of the independent director has been transplanted around the world is a myth. The reality, which our review of the rules governing independent directors in 245 corporate governance codes from 87 jurisdictions reveals, is that only a handful of jurisdictions have ever adopted the American concept of the independent director (i.e., where directors who are independent from management only - but not substantial shareholders - are deemed to be independent). Most jurisdictions with controlling-block shareholders merely adopted the term ‘independent director’ from the US, while requiring directors to be independent from management and significant shareholders (i.e., the Un-American concept of the independent director). This alters the core function of the ‘independent director’ from being a corporate governance mechanism designed to monitor management on behalf of dispersed shareholders, to one designed to monitor controlling shareholders on behalf of minority shareholders. Against this backdrop, Singapore’s status as a corporate governance outlier becomes glaringly visible. The vast majority of listed companies in Singapore have highly concentrated block-shareholding structures. This raises the first puzzle: why would Singapore’s highly-skilled regulators deviate from the seemingly logical and well-trodden path of other controlling-shareholder-dominated jurisdictions by transplanting the American concept of the independent director into Singapore’s controlling-shareholder environment and maintaining it for over a decade?.