Assessment of a candidate for the role of an independent director of a public listed company (“𝗣𝗟𝗖”) is important and requires extensive due diligence, in particular for a company which is undertaking an IPO exercise.

The following are 3 things to consider when assessing a candidate for the role of an independent director of a PLC:

1. Whether there is any conflict of interest arising from the appointment of the candidate as an independent director

The Equity Guidelines provide that situations that are likely to give rise to conflict of interest include circumstances where an interested person (which include director):

(a) has an interest in a business which competes with the business of the company or its subsidiary companies;

(b) conducts or has interest in business transactions involving goods or services, either directly or indirectly, with the company or its subsidiary companies;

(c) provides or receives financial assistance to or from the company or its subsidiary companies; and

(d) leases property to or from the company or its subsidiary companies.

In practice, conflict of interest typically includes the candidate’s relationships with customers or suppliers, material investments in competitors or substantial shareholders of the PLC or its subsidiaries, or financial or other pecuniary interests in transactions entered by the PLC or its subsidiaries.

2. Whether the candidate has long or close relationship with existing directors, management or major shareholders which may erode objectivity or independent judgment of the candidate to act in the best interest of the company

3. Whether the candidate has adverse publicity or record

Typically, for IPOs, searches available from public records would be conducted on the candidate. Advisers would also conduct interview with the candidate to enquire, amongst others, whether there has been any investigation conducted by authorities on the candidate and whether the candidate has been disqualified or received any disciplinary action from professional bodies.

Please note that the above is not an exhaustive list.

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This post was first posted on Linkedin on 9 May 2022.