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Singapore – Revised Code Of Corporate Governance.

13 May, 2012


Legal News & Analysis – Asia Pacific – Singapore – Regulatory & Compliance




On 14 June 2011, the Corporate Governance Council (“Council”) issued a consultation paper with proposed revisions to the Code of Corporate Governance (“Code”). Please click here to refer to Drew & Napier LLC’s update on that consultation.


The Council was established by the Monetary Authority of Singapore (“MAS”) to promote a high standard of corporate governance among listed companies in Singapore.


MAS has since accepted the recommendations of the Council and has issued a revised Code on 2 May 2012. The revised Code will take effect in respect of annual reports relating to financial years commencing from 1 November 2012.




The Code first came into effect on 1 January 2003 and is applicable to listed companies in Singapore on a “comply or explain” basis. The Code takes the form of a list of principles, each being illustrated and elaborated upon by several guidelines and was last reviewed in 2005.


The key amendments to the Code include: Director independence, board composition, director training, multiple directorships, alternative directors, remuneration practices and disclosures, risk management as well as shareholder rights and roles.




Director independence


The Statement of Good Practice SGP No.7/2007 issued by the Singapore Institute of Directors states that the role of independent directors is that of vigilant guardians of the activities of the Board as a whole. An independent director acts as a check and balance on the acts of the Board and management of the company and is responsible for promoting the best interests of all shareholders.


In order to achieve this and ensure that independent directors act effectively, they should not possess any relationship with stakeholders such as 10% shareholders of the company which might compromise their independence.


Relationship with external organisations


Under the revised Code, if a director, in the current or immediate past financial year, is/was a 10% shareholder of, partner in (with 10% or more stake), executive officer of, or director of any organisation to which the company/its subsidiaries made, or from which the company/its subsidiaries received significant payments or material services in the current or immediate past financial year, the director will be deemed non-independent.


Relationship with 10% shareholders


The revised Code has also sought to tighten the definition of director independence. A director will be considered non-independent where he is a 10% shareholder, or an immediate family member of a 10% shareholder, or is/was directly associated with a 10% shareholder in the current or immediate past financial year.


This change was implemented to safeguard against dominant shareholders, particularly in jurisdictions with concentrated share ownership models.


To help facilitate the recommendation to tighten the definition of director independence, the revised Code provides for the following:


a) The “look-back” period in respect of a director’s direct association with a 10% shareholder (ie if during such period a director is/has been directly associated with a 10% shareholder, he would be deemed non-independent) has been reduced from the initially proposed “current or any of the past three financial years” to the “current or immediate past financial year”.


This is consistent with the period applied to a director’s relationship with other provisions dealing with director independence in the Code. 


(b) The relevant trigger shareholding threshold has been raised from the initially proposed 5% to 10%.


Under the Companies Act (“CA”) and Securities and Futures Act (“SFA”), a 5% threshold is adopted for the purposes of notification of substantial shareholdings. MAS has however sought to distinguish the substantial shareholding concept under the CA and SFA from the notion under the Code. MAS has noted that given that the concept of independence from substantial shareholders is being introduced in the Code for the first time, a 10% threshold will be appropriate.


Under the revised Code, a “10% shareholder” refers to a person who has an interest(s) in one or more voting shares (excluding treasury shares) in the company and the total votes attached to such share(s) is not less than 10% of the total votes attached to all the voting shares in the company.


Nine year period for Board service


The revised Code introduces a new Guideline 2.4 which states that the independence of any director who has served on the Board beyond nine years from the date of his first appointment should be subject to particularly rigorous review. The Board should also take into consideration the need for progressive refreshing of the Board.


Board composition


To safeguard the interests of shareholders and preserve the independence of the Board, the revised Code stipulates that where:


(a) the Chairman of the Board (“Chairman”) and the Chief Executive Officer (“CEO”) are the same person;


(b) the Chairman and the CEO are immediate family members;


(c) the Chairman is part of the management team; or


(d) the Chairman is not independent,


then the independent directors should make up at least half of the Board. In all other circumstances, independent directors should make up at least one-third of the Board.


As companies will need some time to make changes to their Board composition, MAS will provide a longer transition period of five years to allow sufficient time for these changes to be made. Companies will only have to comply with these changes at the Annual General Meetings following the financial years commencing from 1 May 2016.


Director training


Guideline 1.6 of the revised Code requires companies to be responsible for arranging and funding the training of directors, and the Board should disclose in the Annual Report the induction, orientation and training provided to new and existing directors. It will also be the responsibility of the Nominating Committee (“NC”) to make recommendations to the Board on matters relating to the review of training and professional programs. This is to ensure that directors are familiar with the company’s business and governance practices and are equipped to discharge their duties as directors.


Multiple directorships


To ensure that sufficient time and attention is given by a director with regards the affairs of the company, the revised Code now expressly states in Guidelines 4.3 and 4.4 that the NC has the responsibility to decide if a director is able to and has been adequately carrying out his duties as a director, taking into consideration the director’s number of listed company board representations and other principle commitments. The Board will also now be required to disclose the maximum number of listed company board representations which any director may hold in the company’s Annual Report.


Alternate directors


Guideline 4.5 has been introduced to strongly discourage Boards from approving the appointment of alternate directors and stipulates that such appointments should only be made in exceptional cases such as a medical emergency, and only for limited periods of time. In choosing an alternate director, the NC and the Board should review and conclude that the person would also similarly qualify as an independent director, before his appointment as an alternate director.


Remuneration practices and disclosure


Alignment of remuneration with long-term interest and risk policies The rationale behind the alignment of remuneration with long-term interest and risk policies is articulated in the new Principle 8 of the Code. Such an alignment will serve to attract and motivate:


(a) the directors to provide good stewardship of the company; and


(b) key management personnel to successfully manage the company.


Companies should however avoid paying more than is necessary to achieve this purpose.


Performance related remuneration should ultimately be aligned with the interests of the shareholders and promote the long term success of the company, at the same time taking into account the risk policies of the company.


Contractual provision to reclaim incentive components of remuneration


Guideline 8.4 of the Code has also been introduced to encourage companies to consider the use of contractual platforms and provisions to enable the company to reclaim incentive components of remuneration from directors and key management personnel in exceptional circumstances. This would include instances involving misstatement of financial results or misconduct resulting in financial loss to the company.


Independence of appointment remuneration consultants


Guideline 7.3 of the Code now requires the Remuneration Committee to ensure that its existing relationships, if any, between the company and the appointed remuneration consultants will not affect the independence and objectivity of the remuneration consultants. For greater transparency, the Code also stipulates that companies should disclose the names and firms of the remuneration consultants in the annual remuneration report and include a statement on whether the remuneration consultants have any such relationships with the company.


Disclosure on the link between remuneration and performance


To create greater transparency, the Code also introduces a new Guideline 9.6 which requires companies to disclose more information on the link between remuneration paid to executive directors, CEOs and key management personnel and performance. The Code states that the annual remuneration report should set out a description of performance conditions to which entitlement to short-term and long-term incentive schemes are subject, an explanation on why such performance conditions were chosen, and a statement of whether such performance conditions were met.


Enhanced disclosure of remuneration


Under Guideline 9.1 of the Code, a company should report to the shareholders each year on the remuneration of the directors, the CEO and at least the top five key management personnel (who are not also directors or the CEO) of the company. Guideline 9.2 stipulates that the company should fully disclose the remuneration of each individual director and the CEO on a named basis, with the figures rounded off to the nearest thousand dollars. Guideline 9.3 states that the company should also name and disclose the remuneration of at least the top five key management personnel in bands of $250,000. Companies will only be required to show the applicable bands. Additionally, the company should disclose in aggregate the total remuneration paid to the top five key management personnel (who are not directors of the CEO).


A new Guideline 9.4 has also been introduced, stating that the annual remuneration report should also disclose the details of the remuneration of employees who are immediate family members of the directors or the CEO, and whose remuneration exceeds $50,000 during the year. The disclosure of remuneration need only be in incremental bands of $50,000 and the company is only required to show the applicable bands.


Risk management


Recent global financial events have raised companies’ awareness of risk management. While audit committees are usually responsible for a company’s risk governance, the Code introduces further guidance on the Board’s role in assessing appropriate means for risk governance.


Guidelines 11.1 to 11.4 confer responsibility on the Board for the governance of risk, including the possibility of establishing a separate Board Risk Committee.


The Code stipulates that the Board should ensure that the management maintains a sound system of risk management and internal controls, to safeguard the interests of shareholders and the company’s assets. It should also determine the nature and extent of the significant risks which the Board is willing to take in achieving the strategic objectives of the company.


Guideline 11.3 states that the Board should comment in the company’s Annual Report on whether it has received assurance from the CEO and Chief Financial Officer that the financial records have been properly maintained and financial statements give a true and fair view of the company’s operations and finances, and that an effective risk management and internal control system has been put in place.


Shareholder rights and roles


The Code introduces a new Principle 14 and accompanying guidelines on shareholders’ rights to guide companies in their engagement with shareholders. A Statement on the Role of Shareholders (“Statement”) has also been introduced as an annexure to the Code but does not in itself form part of the Code. The Statement is aimed at enhancing the quality of engagement between shareholders and companies, so as to help drive higher standards of corporate governance and improve long-term returns to shareholders.


Guideline 16.5 has also been introduced to require all companies to put all resolutions to vote by poll and make an announcement of the detailed results showing the number of votes for and against each resolution and the respective percentages.




Please click on the following links to access the documents.


1. MAS’s Response to Recommendations by the Corporate Governance Council on the Code of Corporate Governance


2. Code of Corporate Governance 2012 



For further information, please contact:


Gary Pryke, Managing Director, Drew & Napier 

[email protected] 


Sin Boon Ann, Deputy Managing Director, Drew & Napier 

[email protected]


Eric Chan, Director, Drew & Napier 

[email protected]

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