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Independent directors in Singapore: puzzling compliance requiring explanation

15 January 2015, 6:00 pm–7:00 pm

Directors

Event Information

Open to

All

Organiser

UCL Centre for Commercial Law

Location

UCL Faculty of Laws, Bentham House, Endsleigh Gardens, London WC1H 0EG

Speaker: Associate Professor Dr Dan W. Puchniak (National University of Singapore)
Chair: Dr Arad Reisberg (UCL)
Accreditation: 1 CPD hour by the SRA and BSB

Organised by the UCL Centre for Commercial Law

Background

At first blush, the rise of independent directors in Singapore provides a straightforward example of an extraordinarily successful legal transplant from the West to Asia. In 2001, Singapore implemented a UK inspired Code of Corporate Governance (Code), which required the adoption of independent directors on a comply or explain basis. Shortly thereafter, an overwhelming 96 percent of Singapore listed companies reported full compliance. This, combined with Singapore’s world leading economic success, ostensibly confirmed the Anglo-American-cum-global conventional wisdom that independent directors are required for good corporate governance.

This talk reveals, however, that Singapore’s supposedly conventional legal transplant was, in fact, unconventional. The original Code defined independence as requiring no independence from controlling shareholders at all—a seemingly illogical aberration from the definition used in most other controlling shareholder jurisdictions.

Historical evidence suggests that Singapore’s unconventional approach, however, was the product of strategic regulatory design (not ignorance) and, we argue, was surprisingly effective. It all but guaranteed exceptionally high compliance rates, which sent a critical signal of ‘good’ corporate governance to international markets in the wake of the Asian financial crisis; while, at the same time, allowing Singapore to functionally maintain its efficient (quasi-state and family-owned) controlling shareholder environment.

We suggest that Singapore’s successful use of what we coin ‘halo signalling’ was possible primarily because it possessed unique functional substitutes for limiting private benefits of control, which would otherwise have been the primary function of ‘properly defined’ independent directors. In addition, Singapore’s effective, albeit unconventional, use of ‘halo signalling’ and its somewhat surprising recent move away from this seemingly successful approach will be explored in this article.

About the speaker

Dr Dan W. Puchniak is an Associate Professor in the Faculty of Law at the National University of Singapore. He specialises in company law with an emphasis on comparative corporate law in Asia.

Dan has published widely on comparative, Asian, Japanese and Singapore corporate law and governance and is regularly invited to present his scholarship and lecture at leading law schools around the world. Dan has received numerous domestic and international awards for his academic research and teaching.

Most recently, his article on derivative actions in Asia was awarded the Best Paper Prize at the annual Corporate Law Teachers Association Conference. He was also recently placed on the National University of Singapore Annual Teaching Excellence Award Honour Roll as recognition for receiving the university wide NUS Annual Teaching Excellence Award three times.

He was also recently selected by the Open Society Foundations to be a Fellow and Visiting Professor in the Department of Law at the University of Yangon. Dan is currently the ASEAN Convener for the Australian Network for Japanese Law and a member of the Editorial Board for the Max Planck Institute’s Journal of Japanese Law.

Prior to entering academia, Dan worked as a corporate commercial litigator at one of Canada’s leading law firms.