Board Independence at A Glance

Board independence in Asia has continued to improve over the past few years, as several markets such as Australia, India, Korea, and Singapore have passed the average majority independence level threshold.

Country Average Director Tenure Average Board Independence Required/Recommended Board independence
China 4.2 42% 33%
Hong Kong 6.9 39% 33%
South Korea 5.0 53% 50.01%[1]
Singapore 8.2 54% 33%[2]
India 7.3 51% 33%[3]
Malaysia 7.7 46% 50.01%
Philippines 11.6 29% 20%
Thailand 9.1 41% 33%
Australia 5.6 53% 50.01%

Figure 1 Asia (ex. Japan) AGM Season Distribution

Based on sample of large and widely-held companies. Based on ISS definition of independence

Across Asia, regulation serves as the key driver of level of board independence. While there are some companies in each market that try to embrace the spirit of the regulation, and therefore go above and beyond what is required, for the most part, compliance rather than exceeding regulatory requirements remains the norm.

For example, in China, Hong Kong, and Thailand, the average board independence level in these markets hovers around the 40% vs. regulatory mandate of 33%. The higher average board independence level in Singapore and India, where the threshold is also 33%, can be explained by additional regulatory requirement of a majority independent board for companies where the chairman is not independent. Meanwhile in the Philippines, companies are required to have at least 2 independent directors or a 20% independent board, explaining why only 36% of the companies have an independence level at par with the regional norm of 33%.

Additionally, these statistics do not take into account the chronic issues of long tenures for directors, further impacting board performance and independence. Although long-tenured directors arguably bring expertise and commitment to the board, their independence and objective judgment may be in doubt as a result of their long association with the company.

[1] Per Commercial Act, small companies (asset size greater than KRW 100 billion and below KRW 2 trillion) are required to have at least 25 percent independence and ultra-small companies (asset size below KRW 100 billion) are not required to have an outside director.

[2] Independent directors should make up at least half of the board where the chairman and CEO is the same person, the chairman and the CEO are immediate family members, the chairman is part of the management team, or the chairman is not an independent director.

[3] At least half of the board should be independent when the chairman is an executive director or a promoter director.

The 2016 Proxy Season So Far

As we have approached mid-2016, most Asia markets except for India and Australia have concluded their annual general meeting (AGM) season. ISS Corporate Solutions (ICS) would like to share with you the observations and insights we have drawn from the data collected from this past proxy season, to give you a more comprehensive view of the corporate governance landscape in the region.

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