Who are our CEOs? - February 21, MAK YUEN TEEN and XAVIER TONG provide some insights into key demographic characteristics of these CEOs

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1 Page 1 of 5 Singapore Corporate Awards Published February 21, 2008 Who are our CEOs? MAK YUEN TEEN and XAVIER TONG provide some insights into key demographic characteristics of these CEOs u s WHILE corporate governance is the primary responsibility of the board of directors, it is difficult for a company to achieve a high standard of corporate governance without a competent chief executive officer (CEO) who embraces good corporate governance. this article Print article Feedback The board of directors is heavily reliant on management, led by the CEO, for high-quality information for decision-making and for effective implementation of good corporate governance practices. It is therefore appropriate that the Singapore Corporate Awards - a set of awards aimed at promoting high standards of corporate governance among listed companies - includes an award recognising CEOs. This article describes the profile of the CEOs of 660 companies which have a primary listing on the Singapore Exchange (SGX). It provides some insights into key demographic characteristics of these CEOs, their experience with the company, and the extent to which they hold external directorships. The information on CEOs is based on a director database created in late 2006, using the latest available annual reports at that time. Who is the CEO? Before we can describe the profile of Singapore CEOs, we need to first determine who the CEO is in a company. Some Singapore companies have an executive chairman and a managing director or CEO. In this situation, the executive chairman is arguably the de facto CEO in most

2 Page 2 of 5 cases. In many cases, the executive chairman is also a founder and/or major shareholder of the company. In this article, if there is an executive chairman and also a CEO (or managing director), we assume that the executive chairman is the CEO unless it is clear to us that the named CEO is really the one running the company on a day- to-day basis. Titles used A variety of titles is used to describe the CEO position, the three most common being executive chairman, CEO and managing director. In some cases, two titles are used, for example, executive chairman and CEO, or CEO and managing director. In such cases, the order of priority used in our classification is executive chairman, followed by CEO and then managing director. In other words, where a company uses executive chairman and CEO, we record it as executive chairman. Figure 1 shows the percentage breakdown of title used. As we can see, the title 'executive chairman' is a common title used for the most senior management position. Nevertheless, for the rest of this article, we will be using the more universally accepted term of 'CEO'. It is common for the CEO or equivalent to also be the chairman of the company. Out of the 56 per cent who do not have 'executive chairman' as a formal title, around a third actually hold the chairman position in addition to the CEO position. In effect, 63 per cent of the 660 CEOs are chairmen of their companies. Demographic characteristics Of the 660 CEOs, 24 (3.6 per cent) are females. The age of the CEOs is disclosed by only 183 of the companies. The age ranges from 35 to 83 years, with an average (mean and median) age of 55. Table 1 shows the age distribution of these 183 CEOs. In terms of educational background, 462 companies disclosed the highest level of education and 442 disclosed the specialisation. Figure 2 shows the

3 Page 3 of 5 While it is common to see high concentrations of directors in the various industry sectors with a business/commerce specialisation, one noteworthy observation is that in the properties sector, there is a higher concentration of directors with a civil engineering specialisation. Tenure We now look at the tenure of the CEOs. Annual reports often do not disclose the actual tenure of the CEO. However, often - although not always - they disclose the date a director was first appointed to the board. We use the length of time a CEO has been a director as an estimate of CEO tenure. This information was disclosed by 517 companies. Note that this estimate is likely to have an upward bias - in other words, we are likely to over-estimate the CEO tenure using this measure. The reason is that a senior executive, such as a CFO, may have been appointed to the board before he became CEO. In rarer cases, a nonexecutive director may take over as CEO after the departure of a CEO. It is less likely that a CEO is first appointed as a CEO and is then later appointed to the board, as both appointments as a CEO and as a director are likely to occur almost concurrently. Strictly speaking, it is more accurate to think of our measure as a measure of the length of time that a CEO has been a director of the company. Bearing this limitation in mind, Figure 4 shows the distribution of tenure of the CEOs. The tenure of CEO ranges from zero to 47 years, with a mean of 9.6 years and a median of six years. Other directorships Finally, we look at the extent to which these CEOs hold non-executive directorships in other SGX-listed companies. Note that the analysis that follows does not take into account non-executive directorships in unlisted companies or in companies listed on other exchanges. Therefore, the numbers reported are conservative estimates. Of the 660 CEOs, 113 (17 per cent) of the CEOs hold non-executive directorships in other SGX-listed companies. The maximum number of other non-executive directorships held is eight. Figure 5 shows the distribution of number of other non-executive directorships in SGX-listed companies. It can be seen that slightly less than one in five CEOs sit on other boards of SGX-listed companies and only 6 per cent sit on more than one other board. We need to distinguish between sitting on boards of related companies and boards of unrelated companies. While there are potential conflict of interest issues in both cases, for example, because of related party transactions, sitting on boards of related companies may enable a CEO to better discharge his management responsibilities over the group of companies. Some of the CEOs who sit on a large number of other boards are, in fact, sitting on boards of related companies. The more debatable situation is where a CEO sits on boards of unrelated companies. Here, there are two schools of thought. One school argues that it may be beneficial to have a CEO sit on other boards as a nonexecutive director (NED) to allow him to better understand the role of an

4 Page 4 of 5 NED. This understanding can help improve the way he works as a CEO with his own board. There may well be some potential benefit, but clearly, there comes a point when one may question whether the CEO is spending enough time running his own company. It is because of such concerns that the UK Combined Code recommends that the board should not allow an executive director to serve as an NED for more than one FTSE100 company. The Spencer Stuart Board Index 2007 reports that more than half of S&P 500 companies in the US have imposed limits on the number of boards their directors can sit on. Among these companies, about one in five has also imposed different limits for directors who are fully employed or who are executives of the company, with two being the most common cap. This article discusses the profile of CEOs currently sitting on SGX-listed boards. Generally, our CEOs appear to be well-qualified and experienced and there is no evidence that they are not spending enough time managing their companies, based on the generally small number of other listed boards they sit on. The pool of female CEOs remains small. Of course, competence and commitment, while important, are not the only or arguably even the most important traits that make a good CEO. According to well-known investor Warren Buffett, the three most important traits for managers are integrity, intelligence and energy, with integrity being by far the most important. Integrity is an essential hallmark of a good CEO. The winner of the CEO of the Year Award must possess this trait above all. Mak Yuen Teen is director of the Asia Research and Innovation Centre at Watson Wyatt Worldwide and co-director of the Corporate Governance and Financial Reporting Centre at the National University of Singapore. Xavier Tong is a final-year accountancy undergraduate at Nanyang Technological University and an intern of Watson Wyatt Other Singapore Corporate Awards Headlines Recognising the exemplary in corporate governance Excellence across the board Take a leaf out of the Best Managed Board winners' books A blend of leadership and managerial skills Taking the watch trade a step further Having real independence Good governance and ethics: two sides of the same coin CEOS of subsidiaries should also be considered He wants StarHub to shine Big ambitions for Micro-Mechanics Not quite Tom Cruise The devil's in the details An important supporting role SGX reaches out to retail investors Positioning SGX as an Asian gateway Tuning to the voice of investors IR practices have improved Winners' walk to the podium involves many steps, not least in law AAA rules in investor relations

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