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SINGAPORE : The Monetary Authority of Singapore (MAS) has proposed measures to improve corporate governance at local banks and insurers.
The proposals stress the importance of the board's role and the need for directors to have the right skills.
MAS is calling for public feedback on its proposals by April 19.
The economic crisis has raised the need for stronger corporate governance.
Now, the MAS is proposing 12 measures to ensure more independence and expertise at the board level.
One proposal is to consider directors non-independent if they have served nine years continuously on the board.
Associate Professor Mak Yuen Teen from NUS Business School said this is a good move because "over time, once directors serve there for too long, they tend to become too close to management, to the company.
"And the other thing about serving too long is that after a while, you get 'stale', you look at the same thing over and over again...and therefore, I think renewal is extremely important, and it is something not only financial institutions, but all boards should be looking at."
Another proposal is for financial institutions (FIs) to have a dedicated Board Risk Management Committee.
MAS said this committee should have at least three directors and the majority, including the chairman, should be non-executive.
Yet another proposal is to raise the number of independent directors on the board, nominating committee, and remuneration committee from the current one-third to a majority.
Associate Professor Annie Koh, Associate Dean, Lee Kong Chian School of Business, Singapore Management University, said: "For most traditional companies, a lot of the time, the members of the board would like to invite fellow 'golf kakis' or their friends, or people who they feel will make life easier for them, in coming up with the decisions on the board.
"So the independent director majority would mean that these are people who are professionals, they have the interest of the majority shareholders in mind, they have the interest of the sustainability of the company in mind. So I really like that part.
"The challenge might be how to find so many qualified professionals who are independent directors. I think investors deserve a credible set of board to bring the trust back, going forward."
She added: "MAS looks like they have put their finger correctly on some of the key issues. But preparing people for the right competency is a must."
She also pointed out that MAS might "probably need to look at how to implement the change, if it is not forthcoming. I know they do not want to drive it with a hard hand and they currently say it is guidelines and they are giving enough time for the transitions.
"I would like to believe that down the road, if you do not follow those guidelines, it might lead to a licensing situation, that means you do not get your license or it might lead to punitive measures if you do not incorporate those standards."
Experts have welcomed the proposals as comprehensive and timely.
Associate Professor Mak said: "What I would really like to see is a lot more pressure on financial institutions to do proper search for independent directors. That means instead of relying on the same network, to actually broaden the search, that would take time. Go and get a head-hunter to find really good directors that really have that type of skills that you need to sit on the board.
"I am glad they are also looking at changes at the board level. At the end of the day, I think the board is the most critical and there needs to be a big culture change at the board level, and only then can other aspects of corporate governance really work properly."
Associate Professor Mak added: "The other thing I hope to see is remuneration also, not only of executives; I think how the independent directors are remunerated in financial institutions are important.
"For example, I think independent directors, when they get stock options, generally I do not think that is a good thing for companies in general, and especially for financial institutions. I do not think they are desirable for independent directors because they promote risk taking, and why would you want that kind of mindset in independent directors?
"Probably, we should say that independent directors of financial institutions should not get stock options; I would like to see that. And if they get stock options, perhaps they should not be considered independent and in fact that is what some countries have done."
In response, Citi and OCBC said they are committed to upholding the highest standards of corporate governance and will work with MAS on the measures, while DBS and UOB said they will study the suggestions.
UOB said that "as the consultation paper has just been issued, we will be studying the proposed amendments."
DBS said: "We will need some time to review the full consultation paper. At present, the majority of our board members are already independent as recommended by MAS. We will continue to uphold high standards of corporate governance."
Observers are glad that the MAS considered the lessons learned from the recent financial crisis and identified critical areas for improvement.
They said that the key now is to see how the proposals will be implemented, and how the processes at the financial institutions will eventually shape out.
The central bank is proposing that the changes take effect from the first annual general meeting of each FI from 1 Jan 2011, or 1 Jan 2012 for some amendments. - CNA/ms
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