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Proposed Revisions To The Code Of Corporate Governance
December 2011 | | Business Bulletin

In the wake of the global financial crisis, the corporate world continues to be plagued by scandal.

The bankruptcy of financial derivatives broker MF Global and the hiding of losses going back more than twenty years by Tokyo-based camera maker Olympus are but a few of the more recent events which are prompting law makers across the world to review their corporate governance regulations and policies in a bid to increase the accountability of key officers and management, while seeking to enhance transparency and reduce the potential for abuse.

In Singapore, the Code of Corporate Governance (“Code”) provides guidelines and best practices for corporate governance. All companies listed on the Singapore Exchange are required to comply with and give a complete description of their corporate governance practices with specific references to each of the guidelines set out in the Code and, where they deviate, companies are required to disclose such non-compliance with appropriate explanations.

The Code was first introduced in Singapore on 21 March 2001, and since then has gone through various revisions and enhancements, most recently in 2005. On 14 June 2011 the Corporate Governance Council issued a consultation paper proposing further revisions to the Code.

These proposed changes enhance the role directors and management have to play in ensuring corporate governance standards are met. To enhance effectiveness, directors and key officers must be suitably trained or qualified. The test of independence of directors will also be made more stringent. Transparency and accountability are sought to be increased by the requirement for additional and more complete disclosure of key and potentially sensitive information, including remuneration of officers and directors, relationships between incoming directors and current directors and/or substantial shareholders, and details of other principal commitments and directorships.

Guidelines on remuneration policies have also been enhanced with emphasis on fair or appropriate remuneration and avoidance of overcompensation. Greater shareholder engagement and interaction are also to be encouraged, with proposed guidelines on the conduct of shareholder meetings and the role and involvement of directors and key officers at such meetings.

Some of the proposed changes to the Code include the following:-

1. Additional instances where a director will not be deemed independent such as:-
   1. if the director is or was, in the current or any of the past three financial years, a substantial shareholder, partner, executive officer, or director of organisations to which the company or any of its related corporations made or received significant payments or material services in the current or immediate past financial year;
   2. if the director is a substantial shareholder or an immediate family member of a substantial shareholder of the company;
   3. if the director is or has been directly associated with a substantial shareholder of the company in the current or any of the past three financial years; or
   4. if the director has served on the board for more than nine years from the date of his or her first election.


2. Additional requirement that independent directors should make up at least half of the board in certain instances such as where:-
   1. the chairman of the board ("Chairman") and the chief executive officer ("CEO") is the same person;
   2. the Chairman and the CEO are immediate family members;
   3. the Chairman and the CEO are both part of the management team; or
   4. the Chairman is not an independent director.


3. New requirements for companies to arrange and fund training for new and existing directors.


4. The nominating committee of a company should decide if a director is able to and has been adequately carrying out his or her duties as a director, taking into consideration the director’s number of listed company board representations and other principal commitments. The board should further determine the maximum number of listed company board representations which any director may hold, and disclose this in the company’s annual report.


5. Companies should fully disclose the remuneration of each individual director and the CEO on a named basis. Companies should disclose in aggregate the total remuneration paid to the top five key management personnel (who are not directors or the CEO).


6. The board is responsible for the risk governance of the company and should determine the nature and extent of risks which the company may undertake, and that it should ensure that management maintains a sound system of risk management and internal controls; and the board should assess appropriate means to carry out its responsibility of overseeing the company’s risk management framework and policies.


7. The board should comment on whether it has received assurance from the CEO and the chief financial officer that:-
   1. the financial records have been properly maintained and the financial statements give a true and fair view of the company’s operations and finances; and
   2. an effective risk management and internal controls system has been put in place.


8. To introduce as an annexure to the Code a statement on the role of shareholders in engaging with the companies in which they invest.

For full details and further commentary on the proposed revisions, you may wish to refer to the following materials (which are available from the Monetary Authority of Singapore Website (www.mas.gov.sg):

1. Proposed Revisions to the Code (14 June 2011)
2. Proposed revision set out against the Code
3. MAS Press Release on Proposed Revisions to the Code (14 June 2011)
4. Business Times Article - "Governance code feedback under review" (28 October 2011)