Boardroom Technology

Board Independence at heart of Singapore Corporate Governance Code Update

Monetary Authority of Singapore on Aug. 6, 2018, has published an extensive revision of the Corporate Governance Code, which has been revised in 2012. Changes are comprehensive, and have been adopted in the Singapore Exchange’s Listing Rules. The changes revolve around director independence, board composition and diversity, and remuneration. Experts saw the move as an effort to increase independence for boards and to empower them to control corporate behavior more closely.

In an effort to increase independence and oversight board, the Monetary Authority of Singapore (MAS), on Aug. 6, 2018, released revision of the Corporate Governance Code. The move comes in the wake of a series of corporate scandals.

The Code’s last revised in 2012, but since then there have been more than five major corporate scandals, of which the latest one is at Keppel Offshore and Marine, according to press reports .

But the revisions to the Code are effective means to oversee corporate behaviors, according to analysts at Ernst & Young : “This is a good move as it will help to introduce more diverse and independent viewpoints into board discussions the needs of all stakeholders of the companies, ”  said  Sing Hwee Neo , Partner, Advisory Services at Ernst & Young Advisory.

Collectively, these revisions represent a major, systematic reconfiguration of Singapore’s corporate governance regulations. Certain regulations have been adopted. Singapore Exchange Listing Rules for mandatory compliance.

“Key changes to the Code to encourage board renewal, strengthen director independence and enhance board diversity will reinforce board competencies,” MAS said in a statement. Shareholders will encourage better engagement between companies and all stakeholders. “

 

Comprehensive Changes

The changes revolve around director independence, board composition and diversity, and remuneration.

The revised Code requires that companies disparate their policies on board member.

Independent directors are at least one-third of boards – if, at small companies, there are only four directors (and the chairman is not independent), then three directors must be independent. The term ‘independent’ is now defined in terms of holding 5 per cent of the shares of the organization or less.

The term of an independent director is limited to nine years. By a majority, the majority of those who wish to have a two-tier system are eligible.

 “The nine-year rule for director independence is a step in the right direction. While many may argue that it is a state of mind issue, it is difficult to ensure that it is consistent with the concept. Yeoh Oon Jin, executive chairman of PwC Singapore. “I believe that the tenure limit encourages board renewal and its associated benefits.”

 

Remuneration must be disclosed

Remuneration, a hot topic in Singapore law, is addressed in the new Code. In July 2016, the Singapore Exchange (SGX) released the results of its inaugural review of 545 mainboard companies’ disclosures in their annual reports. Disclosures related to remuneration matters were flagged as the area where compliance is the code is lowest.

To provide more transparency on remuneration, companies are required to disclose the relationship between remuneration and value creation. Additionally, businesses have substantial and immediate family members of substantial shareholders.

 Some experts do not consider these regulations to be effective. “It is a stretch to expect to improve, given the intractable response by companies to date,” warns dr. Chua Wei Hwa , of the Singapore Institute of Directors. It also suggests that it should be made part of the Listing Rules for the Singapore Exchange, which would make it legally mandatory and not simply subject to the “comply or explain” regime of the Corporate Governance Code.

The guidelines that the MA published along with the corporate governance changes include one encouraging companies to develop an annual report. The remuneration report would be comprehensive and payable to directors. There is, however, no legal obligation to publish a report, nor is it included in “comply or explain” principles.

Overall, expert judgments of the Code revision were positive. “In a matured ecosystem, we need a nimbler and more adaptable framework, where we are concerned, reviewed and implemented in the absence of reviewing the entire code,”  Irving Low,  partner, head of clients & markets and deputy head of advisory at KPMG points out.

 

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