Revisions to Code of Corporate Governance

Spurring more openness in listed firms

Revised corporate code will take effect from financial years starting Nov 1

By Magdalen Ng, The Straits Times, 3 May 2012

LISTED companies here are being encouraged to become more transparent and accountable under a revised version of the Code of Corporate Governance.

The revised code, issued by the Monetary Authority of Singapore (MAS) yesterday, will take effect from financial years starting Nov 1.

The MAS accepted the recommendations made last November by the Corporate Governance Council.

Ms Teo Swee Lian, deputy managing director of financial supervision at the MAS, said: 'The council has delivered a set of sound and balanced recommendations that will underpin strong corporate governance among Singapore-listed companies and enhance investors' confidence in Singapore's capital markets.'

Some changes to the code include increasing the required number of independent directors of a company's board to 50 per cent from the current one-third, in certain circumstances.

One such example is when the chairman and chief executive are the same person. Changes to the board composition will have to be made at the annual general meetings for the financial years commencing from May 1, 2016.

The definition of an independent director is also being tweaked.

Previously, directors who have served on a board for nine years were no longer considered independent. In the revised code, these directors can still be considered independent, even after serving nine years, but the company's board must justify the director's independence.

Directors who own more than 10 per cent of the company's shares, or someone who is directly associated with shareholders with more than 10 per cent of shares, in the current or immediate past financial year, will also be non-independent.

Mr Irving Low, partner and head of risk consulting at KPMG in Singapore, said that the revisions are timely as the business environment has evolved since the last update in 2005.

He said: '(The revisions) reflect the changes in Singapore's corporate governance structure and practices. They also address the information needs of shareholders who are increasingly sophisticated and discerning.'

Mr Low added that implementation of the code should not be an issue with most companies as 'many companies have already begun taking steps to comply with the proposed code'.

The revisions, which cover a range of issues, from pay to risk management, and the independence of directors, will align Singapore's guidelines with international practices.

While the Code of Corporate Governance is not mandatory, it provides principles and guidelines on how listed companies should be directed and controlled. Non-compliance by companies has to be explained in their annual reports.

Studies show that most companies in Singapore do comply with the code, as they believe it boosts their reputation.

Mr Gautam Banerjee, executive chairman of PwC Singapore, said: 'The detailed guidance in the manual will move the needle for a number of companies in Singapore that struggle with a robust risk governance process, which includes active board participation from the outset and not just at the end.'

He is also a member of the Corporate Governance Council, chaired by Singapore Press Holdings chief executive Alan Chan.

Key revisions to Code of Corporate Governance

BOARD COMPOSITION

In certain situations, such as where the chairman and the chief executive of the company is the same person, half the board must be independent directors, up from the current one-third.

The MAS is providing a longer transition period for this requirement as many listed companies may need to make changes. These firms will have to announce their board changes at the annual general meetings for the financial years starting from May 1, 2016.

INDEPENDENCE OF DIRECTORS

A director will not be deemed independent if:

- in the current or immediate past financial year he owned more than 10 per cent of shares, or is a partner, an executive officer, or director of any organisation that the company or any of its subsidiaries made or received significant payment or material services from in the current or immediate past financial year; 

- he is an immediate family member of a shareholder with more than 10 per cent holdings; 

- he is directly associated with a shareholder who owns more than 10 per cent of the company, in the current or immediate past financial year.

RISK MANAGEMENT

The board of directors of a company will be responsible for the risk governance of the company, and should determine the nature and extent of risks which the firm may undertake. The board should ensure the firm's management maintains a sound system of risk management and internal controls.