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Friends and Colleagues
1. As you are all aware, in 2022 we introduced rules mandating disclosure of board diversity plans and targets. We’ve been clear that we want this to result in greater diversity and renewal. As I have explained on other occasions, those rule changes should be read together with our recent hard-coding of the 9-year cap on director independence which means hundreds of companies will have to appoint new IDs in the coming 1-2 years. Both sets of rules are designed to work in tandem to encourage companies to renew and refresh their boards to ensure that they have the necessary “skills, talents, experience and diversity”.
2. That diversity is valued, not for its own sake. We want diversity to enhance good decision-making by the boards through the inclusion of additional perspectives that might not otherwise have been considered. I’ve just returned from India, and I’m reminded of the parable of the blind men and the elephant. I’m sure you’re all familiar with it, but just a brief recap. In this story, a group of blind men heard that an elephant was visiting their neighbourhood. None of them had encountered one before. Out of curiosity, they sought it out to touch it to try to understand what an elephant was. The first, whose hand landed on the trunk, said, "This being is like a thick snake". Another touched its ear and concluded that it was like a kind of fan. The one who felt the leg thought the elephant is like a tree-trunk. The man who placed his hand upon its side said the elephant is a wall. Another who felt its tail, described it as a rope. The last felt its tusk and proclaimed the elephant is like a spear. The point of this story is that each of these persons has an accurate, albeit incomplete understanding of what an elephant is. But they are still better off than if they had spent all their time touching the same part of the elephant.
3. Besides the regulatory action which I’ve outlined above, another catalyst for greater diversity is shareholder preferences. Academic research has found that “diverse” directors tend to attract higher levels of shareholder support. SGX’s own experience bears this out. Our three most recently appointed Board Directors come from fairly uncommon backgrounds; one is a lawyer with extensive working experience with startups, another is a venture capital investor who used to work in private equity, and the third is a former politician. And at our most recent AGM, they received the highest positive votes of any director put up for re-election. I don’t want to overstate the point, since all our directors received overwhelming shareholder support, and the differences are on the order of 1-2%. But their relative outperformance does support the general finding of greater shareholder support for more “diverse” candidates.
4. The third catalyst for change is structural necessity, forced upon us by our operating environment. I’m sure you’re all aware of the term “VUCA” or “volatile, uncertain, complex, and ambiguous” which describes the world. More recently, we have a new term: “BANI” or “brittle, anxious, non-linear, and incomprehensible” to emphasise how much the world has changed. To navigate this new environment, we need more of the different, not more of the same. Now with this in mind, consider a board recruited only from the Old Boys’ Network. I think most if not all shareholders and indeed stakeholders, will find that this just won’t do, especially since we all come with our own limitations and biases that affect our understanding of the world, and our decision-making. The literature suggests that these biases persist even when we are aware of them, and the best way to combat their effects is to surround ourselves with trusted, but alternative perspectives, that can help us check our thinking.
5. Having said that, I do acknowledge that the process of achieving greater diversity won’t be straightforward. There are some challenges. First, there’s the challenge of finding the appropriate candidates, and here I want to emphasise that companies shouldn’t be adopting a cookie-cutter approach but should be looking for candidates that meet their unique needs. Putting on my SID Governing Council hat, I want to note that SID can assist, through their search tools such as Board Match and Board Listing. Second, new entrants are likely to result in the introduction of diverse views and can upend established group dynamics. The board will have to consciously encourage healthy board dynamics while integrating those new entrants, to enable respectful debate on issues in a collegiate manner, while still making decisions in a timely fashion. I have spoken previously of the 4CT tool developed by the Centre for Creative Leadership, which builds board collaboration, candour, challenge, commitment and trust, as one example of the myriad tools that exist out there. The SID Listed Entity Director Programme for first time directors supported by SGX has an entire module devoted to board dynamics. And for those who are interested in upskilling and preparing themselves for future roles, SID has launched Accreditation and Board Readiness Programmes.
6. Let me conclude. We’ve implemented regulatory reforms, to try to achieve real change, real renewal, and real succession planning. And we want to see such renewal and change across the entirety of our directorship landscape. We don’t want to see a game of musical chairs that won’t help the companies in their decision-making, won’t benefit the shareholders in delivering value, and won’t uplift the quality of our market. So I hope for everyone’s cooperation on this. To help drive this, we are also prepared to promote good examples and call out areas for improvement. This brings me to the final challenge: how do we measure progress? Later this week, we together with the Council for Board Diversity will jointly launch a report looking at the state of board diversity disclosures. We will examine both the state of disclosures as a whole and the quality of disclosures. The review also allows us to identify laggards and to explore ways to improve the overall and individual company performance. I think it will be useful reading, and a helpful guide, and I commend it to your attention.
7. Thank you for your time. I wish you all the best, for the rest of your discussions today.
