John Lim: “One size fits all does not work in corporate governance practices”

John Lim, immediate Past Chairman of the Singapore Institute of Directors, was in Mauritius last week at the invitation of GML and the Mauritius Institute of Directors. In this interview, he talks about best practices, regulations, independence and diversity of directors on boards and trends pertaining to corporate governance.

BUSINESSMAG. You have been invited by GML for a governance leadership program as part of the celebration of ten years of corporate governance in Mauritius. GML is a national leader and third largest regional leader in the Southwest Indian Ocean region… How can the group be a trendsetter in terms of corporate governance?

It is really commendable for GML to set itself up as a leader in the corporate governance field and to organize such an event as they are under no pressure of any kind to do it. Through this workshop, they gained a better understanding which will allow them to be a role model for other companies.

I am quite sure GML will look carefully at what they are doing. When you try to do something, you have to decide who your target audience is. One size fits all does not work in corporate governance practices. How these principles are implemented depends on each company. Adopting the best corporate governance practices should lead to better performance but does not guarantee it. However you are more than likely to be able to better meet the challen-ges than other companies which are unprepared.

BUSINESSMAG. What are the overarching principles of corporate governance?

Corporate governance is about doing things that encapsulates fairness, transparency, accountability, responsibility, with values of honesty, integrity, etc. in a company. Corporate go-vernance is also about how a company is managed and controlled. How to have a ba-lance between the law and what companies can do voluntarily.

BUSINESSMAG. Do the principles of existing corporate governance codes provide a complete set of necessary high-level principles to guide the behavior of a company board operating in today’s business environment?

I have read the Code of Corporate Governance in Mauritius. In some ways, even though it dates back to 2004, it was ahead of its time! The Code is there as a guide and companies that do not follow the code should be able to explain why and if they can do better than the existing code, how they plan to do it. There will always be new things coming up. But honesty and integrity are evergreen. They will always be there. Transparency and disclosure, like letting the shareholders know what the company is doing and what it will be doing in the future must also be there. But, how we implement these principles will change. Some of these principles may have to be embodied in
legislation, in law.

BUSINESSMAG. Mauritius is a small country in terms of geographical size and population. Its smallness impacts on corporate governance, as the pool of independent non-executive directors is very small. True independence is therefore very difficult to achieve. How can this be remedied?

In a small country, a lot of people know each other. Thus directors must have independence of mind and action. They must be able to look objectively at situations. Of course, it is easier said than done. So, I think you might have to start a program to train directors, by equipping them with necessary knowledge and skills to act as directors.

The problem in many communities, especially the smaller ones, is that people tend to go for experienced directors, with the results that they are overloaded. Then, where do new directors start? One essential requirement for both independent and non executive directors is to spend time understanding the company’s business so that they can better constructively dialogue with management and add value to the company. The Mauritius Institute of Directors is doing an excellent job in helping to train and develop directors here and can contribute to enlarging the pool of competent directors here.

BUSINESSMAG. When there is a small pool of professionals, this leads also to a lack of diversity on boards and, in extension, to poor decision making. Many companies in Mauritius have been criticized for this lack of diversity. How diverse should boards be?

First, there is no hard and fast rule as to what makes a good board. But there are various things that non executive directors should have. Integrity which allows them to speak their mind and honesty to know if they are overcommitted. When you sit on a board, you must be sure to have enough time to support that and sufficient courage to air your views, even though the majority may not agree.

Board members should also be able to work collaboratively with other board members and management. To support and to disagree when necessary. As a board member, you must be goal oriented, add value to the company, be results-focused, have a vision and the drive to improve yourself all the time.

When you have a small pool, it’s harder to have diversity. Sometimes diversity has many forms. People think gender is the only diversity, but there is diversity of skills, experience, nationality, culture. However, what forms of diversity you require for any board will vary from company to company. But the key is that you can always develop. You will find in a community, people telling you that they can’t get enough independent directors. If you cast your net a bit wider, combine that with a training program. Mauritius has people. Today, some of the younger directors have skills that a lot of the older directors do not have. Younger people think differently. They may be prepared to take more risks but this can be balanced by the greater maturity and experience of the older directors.

BUSINESSMAG. Government expects boards and shareholders to show sensitivity and exercise restraint in areas of corporate behavior and particularly remuneration. How realistic is it that?

Clearly, boards have to exercise judgment in terms of remuneration. You want to pay ma-nagement sufficiently to ensure you can attract best talents but at the same time you don’t want to overpay because it is the money of the company. Incentives put in should preferably be result oriented, performance linked. But rewards should not be only short term but also long term.

Short term is not in the best interests of the company. Some of the long term incentives can be in the form of shares which may have to be held for a minimum period of time. Your wealth is, thus, linked to the success of the company long term.

In the old days, people would say that the responsibility of the board was to shareholders alone. For a company to sustain growth and value longer, it needs to ensure that the needs of the stakeholders are also addressed. Employees are one of your key stakeholders. Sure, there have been companies which have maximized their profits at the expense of the employees. They made sure that they got paid less. You can get away with that when jobs are not easy to come by, supply greater than demand etc. But when things change, these people are not going