The NC ensures that new directors are aware of their duties and obligations. The NC also decides if a director is able to and has been adequately carrying out his or her duties as a director of the company. The company discloses in its annual report the listed company directorships and principal commitments15 of each director, and where a director holds a significant number of such directorships and commitments, it provides the NC’s and Board’s reasoned assessment of the ability of the director to diligently discharge his or her duties.
This Provision provides guidance on how to ensure a director is able to discharge his duties.
An effective director is one who understands his role and duties, and is able to adequately discharge them. The Provision states that the NC should ensure this happens.
No set professional qualifications are required to become a director. For this reason, the SGX prescribes training for first-time directors who have no prior experience as directors of issuers listed on the Exchange (MR 210(5)(a) and CR 406(3)(a); MR Practice Note 2.3 and CR Practice Note 4D).
Beyond being educated about their duties and obligations, directors must be in a position to discharge them. This requires that they have the capabilities (skills, knowledge and experience) as well as the commitment and time to do so.
A director’s time and commitment to a particular board will be affected by his other directorships and commitments.
Directors with a large number of directorships often receive attention from investors and the media. The concern usually lies with their time fragmentation and commitments. A director holding directorships in too many companies can be perceived to be ineffective because he may not be able to allocate sufficient time to properly govern any one company.
Some countries, through the regulators or professional associations, specify the maximum number of listed Board seats that a director may hold – typically between five and seven. Although the Code does not impose any limit, only 7.4 per cent of directors hold more than two directorships on Singapore-listed companies (based on the SID Singapore Directorship Report 2018).
That said, the number of directorships that a director can hold and still be effective is dependent on the individual director and nature of those other directorships. As examples, Practice Guidance 4 notes that full-time executives would have less capacity than retirees, and that the non-executive chairmanship of a listed company would require more time and commitment than other Non-Executive Directors (NEDs). There are also practical considerations in multiple directorships such as the difficulties of scheduling board and committee meetings with the same financial year ends and/or reporting timelines.
The NC should assess if a director has been and is able to continue to adequately carry out his duties after taking into account his other directorships and other principal commitments (such as full-time occupation, consultancy work, committee work, non-listed board representations and directorships, and nonprofit organisations’ involvement).
Each director is required to inform the Board as soon as practicable of any significant change in his principal commitments that may affect his time commitment to the company’s affairs.
B. Practice Guidance
C. Related Rules and Regulations
- MR 210(5)(a) and CR 406(3)(a): Directors and Management.
- MR 720(1) and CR 720(1): Directors and Management.
- MR Practice Note 2.3 and CR Practice Note 4D: Training for Directors with No Prior Experience.
D. CG Guides
- NC Guide 2.4: Conduct of Meeting [NC Agenda].
- NC Guide 3.6: Nomination Process [Nomination and Appointment Process].
- NC Guide Appendix 3B-1: Board Composition and Diversity [Nomination and Appointment Process].
- NC Guide Appendix 6D: Sample Board Committee Performance Evaluation Forms [Board and Director Evaluation].
E. Related Articles
- “Multiple directorships: how many is enough?” by Eugene Kang. (463KB)
- “The nominating committee and its role in identifying directors for renewal and new appointments’ by Kala Anandarajah. (112KB)
- “Singapore Board of Directors Survey” by Annabelle Yip. (137KB)