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Singapore Corporate Governance Code – Overview and Summary of Requirements

By: Staff Editor
Date: March 01, 2013

The 2012 Singapore Corporate Governance Code supersedes and replaces the Code that was issued in July 2005. The Code is now under the purview of the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX). This article provides a brief overview and summary of the Code’s key requirements.

1. Board Matters

The code requires the following:

A company should have an effective Board at its head. Board members should determine whether the Board will meet on a regular basis or convene under special circumstances.
The Board’s role is to:
- provide entrepreneurial leadership,
- set strategic objectives and
- ensure that necessary financial and human resources are in place for the company to meet its objectives
- establish a framework of effective internal controls
- review management performance
- set ethical standards and corporate values
- consider sustainability issues (environmental and social)
Incoming directors must gain comprehensive training on regular basis.
Mention must be made of the obligations and duties of each director in the formal letter of appointment.
The Annual Report of the company must contain a comprehensive account of the Board’s activities including:
- the training of current and new directors,
- material transactions that warrant Board approval,
- number of meetings held each year,
- board member attendance.

Board Composition and Guidance

The Board must be independent.
No minor group or individual should try to dictate the decisions made by the Board.
The Board will have the final say in corporate matters.
Independent directors must constitute one-third of the Board and they must gain recognition in the Annual Report.
The size of the Board must not be unwieldy yet large enough to facilitate efficient decision-making.
The entire Board must contain a suitable diversity and balance of experience, skills, knowledge and gender.

CEO & Chairman

A clear division must exist between the responsibilities of the Board leadership and the responsibilities of the executives in charge of managing the business of the company.
The balance of power must be equal among all individuals.
It is better if the CEO and Chairman are separate individuals.
The Board must negotiate about the division of responsibilities between the CEO and Chairman.

Board Membership

The process of re-appointment and appointment of new Board directors must be transparent and formal.

The Board should establish a Nominating Committee or NC. The NC should:

Be able to forward recommendations on every board appointment, with written terms of reference which outline its duties and authorities.
Be made up of three independent directors.

The selection method should include issues like progressive renewal and composition of the Board as well as the commitment, performance, contribution, and skills of each independent director. Every director must submit themselves for re-appointment and re-nomination at least once in a three year-period. It is better if the Board does not approve of the appointment of alternate directors.

Board Performance

The company must formally assess the usefulness of the entire Board and their committee members on an annual basis. Each director’s contribution to the Board’s overall effectiveness must also face review.

Information Access

Directors must regularly offer sufficient information before Board meetings to help them make knowledgeable decisions for discharging their duties and completing their responsibilities.

Management has to offer adequate information to the Board on time. The Board must have independent and separate access to Management and the company secretary.

Information to be shared with the board includes:

board papers,
explanatory details for issues brought to the Board’s notice,
copies of budgets,
disclosure documents,
monthly internal economic statements and forecasts

2. Remuneration Issues

Remuneration Policy Development Methods

A transparent and formal process must remain in place for developing executive remuneration policy and establishing the remuneration packages for Board directors. Directors cannot select their own remuneration.

The Board should establish a Remuneration Committee or RC with written terms of reference and clear rules about its authority and duties. The RC should comprise at least three directors, the majority of whom, including the committee chairman, should be independent.

Remuneration Level and Mix

Remuneration structure and level must supplement the long-term risk policies and interests of the company. The remuneration must be able to draw, retain and facilitate the directors to offer effective company stewardship and help important management personnel successfully manage the company.

Remuneration Disclosure

The Annual Report of a company should contain clear details about its remuneration policies, mix and level of remuneration as well as the procedure for fixing remuneration. It must disclose its remuneration policies in order to assist investors in realizing the connection between performance and the remuneration paid to the directors along with important management personnel.

Accountability and Audit Accountability

It is the responsibility of the Board to offer an understandable and objective assessment of the performance, prospects and position of the company.

Internal Controls and Risk Management

Responsibility for risk governance must be taken by the Board. It must ensure that Management sustains sound internal controls and risk management system to protect the assets of the company as well as the interests of the shareholders. The Board has to determine the extent of the risks it is willing to take in order to achieve its strategic objectives.

Audit Committee

The Board must establish an Audit Committee with written terms of reference to mark its duties and authority in a clear manner.

The Audit Committee should comprise a minimum of three independent directors. Each member must be a non-executive director and be eligible to discharge his responsibilities. Disclosure of all the activities of the Audit Committee must be made in the Annual Report of the company.

Internal Audit

The company needs to establish a helpful internal audit function that boasts of sufficient resources and remains independent from the subject of its activities.

The Internal Auditor should primarily report to the Chairman of the Audit Committee but he can also report administratively to the CEO. The effectiveness and adequacy of the internal audit function must be reviewed at least once a year.

3. Rights and Responsibilities of Shareholders

Rights of Shareholders

All shareholders must receive fair and equal treatment. Companies must recognize, safeguard and support the rights of shareholders. Such governance agreements should receive regular review and updates from companies.

Shareholder Communication

Active engagement of shareholders must be a priority for companies. They should encourage efficient, regular and fair shareholder communications through establishment of an investor relations policy.

Conduct of Shareholder Meetings

Companies must promote greater participation of shareholders at general shareholder meetings. They should be able to share their views on different company issues.

Separate resolutions are important for each separate issue at general meetings. Companies should make suitable arrangements for absentia voting at general shareholder meetings.

Additional Resources

Read the full Singapore Code of Corporate Governance here.