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Singapore – MAS Ramps Up On Listed Companies’ Corporate Governance.

31 May, 2012


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


On 2 May 2012, the Monetary Authority of Singapore (“MAS”) accepted all recommendations made by the Corporate Governance Council (“Council”) on the Code of Corporate Governance (“Code”), and issued the revised Code of Corporate Governance.


The Code, which was first introduced in 2001, was last revised in 2005. The key changes to the Code are focused on the areas of director independence, board composition, director training, multiple directorships, alternate directors, remuneration practices and disclosures, risk management, as well as shareholder rights and roles.


Key Changes to the Code


(a) Director independence


The revised Code clarifies the term “independent director”. An “independent” director is one who has no relationship with the company, its related corporations, its 10% shareholders or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director’s independent business judgment.


Relationships with external organizations – If a director of a company or his immediate family member is also a 10% shareholder, or a partner with at least 10% stake, or an executive officer or director to any organisation to which the company or its subsidiaries had made or received significant payments or material services in the current or immediate past financial year, he will be deemed non-independent. Payments aggregated over any financial year in excess of S$200,000 should be deemed significant (CCG Code 2.3(d)).


Relationships with substantial shareholders – A director who is a 10% shareholder, or an immediate family member of a 10% shareholder, or is or has been directly associated with a 10% shareholder in the current or immediate past financial year would be considered non-independent (CCG Code 2.3(e) & (f)).


A director will be considered “directly associated” with a 10% shareholder when the director is accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of the 10% shareholder in relation to the corporate affairs of the corporation. A director will not be considered “directly associated” with a 10% shareholder by reason only of his or her appointment having been proposed by that 10% shareholder. (Footnote 6 to CCG Code 2.3(d))


A director who has served on the Board beyond 9 years should be subject to particularly rigorous review (CCG Code 2.4)


(b) Board Composition


The revised Code recommends that independent directors make up at least half of the Board where the Chairman and CEO (i) is the same person; (ii) are immediate family members; (iii) are part of the same management team; or (iv) if the Chairman is not independent (CCG Code 2.2).


(c) Other issues related to directors


Director training – Companies should be responsible for training directors (CCG Code 1.6) and the Board should disclose in the Annual Report the details of such training. The Nominating Committee (“NC”) should make recommendations to the Board on professional development programmes to the Board (CCG Code 4.2).


Multiple Directorships – When a director has multiple board representations, the NC should decide if a director is able to carry out duties as a director, taking into consideration the director’s number of listed company board representations and other principal commitments (CCG Code 4.4).


Alternative Directors – Boards should avoid approving alternate directors, except for limited periods in exceptional cases such as when a director has a medical emergency. A person proposed as an alternate director to an independent director should similarly qualify as an independent director (CCG Code 4.5).


(d) Remuneration


Practices and disclosureThe level and structure of remuneration should be aligned with the long-term interest and risk policies of the company and should be appropriate to attract and motivate directors and key management (CCG Code 8). Companies are urged to consider the use of contractual provisions to reclaim incentive components of remuneration from directors and key management personnel in exceptional circumstances involving misstatement of financial results, or misconduct resulting in financial loss to the company (CCG Code 8.4).


A company should fully disclose the remuneration of each individual director and the CEO. For the top five key management personnel, companies should disclose in aggregate the total remuneration paid to them (CCG Code 9.3).


(e) Risk management


The Board is responsible for risk governance and should determine the nature and extent of risks which the company may undertake. In doing this, it should ensure management maintains a sound risk management system and should assess means to assist it in carrying out this responsibility (CCG Code 11.1).


The Board should comment in the company’s Annual Report whether it has received assurances from the CEO and CFO that (i) financial records have been properly maintained and the financial statements give a true and fair view of the company’s operations and finances; and (ii) regarding the effectiveness of the company’s risk management control systems (CCG Code 11.3).


(f) Shareholder Rights


The revised Code also introduces a new principle to guide companies in their engagement with shareholders. Under this new principle, companies should treat all shareholders fairly and equitably, and should recognize, protect and facilitate the exercise of shareholders’ rights, and continually review and update such governance arrangements (CCG Code 14.1).


A new annexture, introduced to the Code, contains a statement on the role of shareholders in engaging with the companies in which they invest. The annexture states that In order to ensure boards achieve and sustain high standards of corporate governance in practice, active and constructive shareholder relations are a crucial part of the process.


Effective Date


The revised Code will take effect in respect of annual reports relating to financial years commencing from 1 November 2012. Companies will need to make changes to board composition at the annual general meetings following the end of the relevant financial year, except in situations where more than half the board needs to be made up of independent directors. These changes should be made at the AGMs following the end of financial years commencing on or after 1 May 2016.



For further information, please contact:


Marcus Chow, Partner, ATMD Bird & Bird






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