Publications

  • Publications
  • Independent Directors in Singapore: Puzzling Compliance Requiring Explanation

Independent Directors in Singapore: Puzzling Compliance Requiring Explanation

Year of Publication: 2015
Month of Publication: 7
Author(s): Dan W. Puchniak and Lan Luh Luh
Research Area(s): Corporate Law
Name of Working Paper Series:

NUS Law Working Paper

WPS Paper Number: EWBCLB-WPS-1503
Abstract:

At first blush, the rise of independent directors in Singapore provides a straightforward example of a successful legal transplant from the West to Asia. In 2001, Singapore implemented a UK inspired Code of Corporate Governance, which required the adoption of American-style independent directors on a "comply or explain" basis. Shortly thereafter, an overwhelming 98 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 American-style independent directors are required for good corporate governance. Using hand-collected data based on 273 codes of corporate governance from 94 jurisdictions, this article reveals, however, that Singapore's supposedly conventional legal transplant of American-style independent directors was, in fact, highly unconventional. We demonstrate that the widely held belief that the American concept of the independent director has been transplanted around the world is a myth. We argue, however, that Singapore's highly unconventional and seemingly illogical decision to transplant American-style independent directors into its concentrated controlling-block-shareholder environment was the product of strategic regulatory design (not ignorance) and 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 state and family-owned controlling shareholder environment. We confirm our findings using quantitative, qualitative and hand-collected data which provides fresh insights into Singapore's intriguing institutional architecture and the unique role played by independent directors in Singapore's successful state owned enterprises and family controlled corporations. In addition, we suggest Singapore's successful, but highly unconventional, use of American-style independent directors provides a number of important insights into some critical areas of comparative corporate law theory. Moreover, as many countries, including China, have suggested that they intend to adopt the Singapore model of corporate governance, this article provides practical insights into how the independent director may evolve as a corporate governance mechanism in other critically important economies in Asia and around the world.