The corporate governance regime in Singapore focuses primarily on companies listed on the Singapore Exchange Securities Trading Limited (SGX-ST) and consists of laws, rules and recommended practices.
The Companies Act (Chapter 50) of Singapore (CA) is the principal statute governing corporate governance matters in Singapore. The CA expressly provides that the board shall be responsible for supervising the overall management of the company, and may exercise all the powers of the company except any power that is required to be exercised by the company in general meetings under its constitution or the CA. The CA imposes specific duties on the board (see question 16).
The CA also codifies certain fiduciary duties of directors that exist at common law, for example, by providing that a director shall act honestly, use reasonable diligence in the discharge of his or her office and not make improper use of any information acquired by virtue of his or her position. These statutory duties are not exhaustive, but exist in addition to any other rule of law relating to the duty of directors or officers (including directors’ duties under the common law, as set out below).
Under the CA, a director has the duty to disclose:
- his or her interests in transactions or proposed transactions with the company. However, this duty does not apply where the director’s interest consists only of being a member or creditor of a corporation that is interested in a transaction, and if the interest of the director may properly be regarded as not being a material interest;
- the nature, character and extent of any potential conflict that may arise from his or her holding other offices or possessing any property; and
- the particulars necessary for the company to maintain its register of directors’ shareholdings and register of directors.
Under the common law, a director owes the company the following fiduciary duties (which overlap with the statutory duties imposed by the CA):
- to act bona fide in the interests of the company;
- to exercise skill, care and diligence;
- not to place himself or herself in a position of conflict with the company;
- not to make a secret profit from the company;
- to act within the powers conferred by the company’s constitution and to exercise such powers for proper purposes; and
- not to fetter his or her discretion.
The Securities and Futures Act (Chapter 289) of Singapore (SFA) and the Listing Manual of the SGX-ST (the Rules) play an important part in regulating the governance of Singapore-listed companies.
The SFA, which is the primary legislation regulating the securities and futures industry in Singapore, governs the offer of securities and regulates market conduct by providing for offences such as insider trading, false trading and market manipulation, dissemination of false information and the employment of manipulative and deceptive devices. Officers (including directors and senior management) of a listed company are prohibited from dealing in its securities while in possession of material price-sensitive information and during the blackout period (ie, the period surrounding the announcement of the company’s financial results), as such dealings could give rise to civil and criminal liability for insider trading under the SFA.
The Rules, which seek to secure and maintain confidence in the market, set out the requirements that a company must meet to qualify for admission to the Official List of the SGX-ST and the listing of its equity securities, as well as the continuing requirements that a listed company is required to observe. Despite the non-statutory nature of the Rules, a company is obliged to comply with them upon listing on the SGX-ST. The SGX-ST has the discretion, in respect of the interpretation and application of the rules and may apply to the court to enforce them pursuant to sections 25, 203 and 325 of the SFA. Additionally (or in the alternative), the SGX-ST may punish non-compliance in other ways (eg, by reprimanding a company, halting or suspending its trading, or even delisting it).
Under the Rules, listed companies are also required to disclose their corporate governance practices with specific reference to the principles and provisions of the Code of Corporate Governance 2018 (the Code). Listed companies are required to comply with the principles of the Code, and where a listed company’s practices vary from any provisions of the Code, it must explicitly state, in its annual report, the provision from which it has varied, explain the reason for variation, and explain how the practices it has adopted are consistent with the intent of the relevant principle.
Following the issuance of the Code by the Monetary Authority of Singapore (MAS) on 6 August 2018, which supersedes the previous version of the Code issued by the MAS in 2012, the SGX-ST has made certain consequential amendments to the Rules.
First, certain important requirements or baseline market practices previously in the Code have been shifted to the Rules (which, unlike the Code, apply on a mandatory basis rather than on a comply-or-explain basis). The key requirements or practices which have been shifted to the Rules are as follows:
- independent directors are to make up at least one-third of the company’s board (to take effect from 1 January 2022);
- certain objective and baseline tests of director independence based on whether the director or any of his or her immediate family members is or had been employed by the company or its related corporations have been shifted to the Rules; and
- the term of an independent director is to be limited to nine years, unless their continued appointment beyond nine years is approved by the majority of all shareholders and all shareholders excluding shareholders who also serve as directors or the CEO (and their associates) in separate resolutions (to take effect from 1 January 2022).
In addition, further requirements proposed by the SGX-ST have also been added to the Rules:
- one or more committees must be established to perform the functions of an audit committee, a nominating committee and a remuneration committee, with written terms of reference which clearly set out the authority and duties of the committees;
- the relationship between the chair and the CEO must be disclosed in the company’s annual report if they are immediate family members;
- all directors, including their designations (ie, independent, non-executive, executive, etc) and roles (as members or chairmen of the board or board committees), must be identified in the company’s annual report;
- all directors must submit themselves for renomination and reappointment at least once every three years;
- where a candidate is standing for election for the first time or an existing director is seeking re-election to the board, the company must provide certain information relating to the candidate (such as professional qualifications, date of last reappointment and relationship (including immediate family relationships) with any existing director, existing executive officer, the company or substantial shareholder of the company or of any of its principal subsidiaries) in the notice of meeting, annual report or relevant circular distributed to shareholders prior to the general meeting;
- companies are required to establish and maintain, on an ongoing basis, an effective internal audit function that is adequately resourced and independent of the activities it audits. The audit committee of the company will be required to comment in the annual report on whether the internal audit function is independent, effective and adequately resourced;
- where weaknesses in the effectiveness of internal controls are identified by the company’s board or its audit committee, such weaknesses and the steps taken to address them are to be disclosed in the company’s annual report, in addition to commenting on the adequacy and effectiveness of internal controls;
- first-time directors will be required to undergo mandatory training in the roles and responsibilities of a director as prescribed by the SGX-ST; and
- in the event directors decide not to declare or recommend a dividend, this must be announced together with the reason for such decision.
Code of Corporate Governance 2018
The Code was first issued by the Corporate Governance Committee on 21 March 2001, with the objective of encouraging Singapore-listed companies to enhance shareholder value through good corporate governance, and was effective from and applied to annual general meetings held from 1 January 2003 onwards. Following a review of the Code by the Council on Corporate Disclosure and Governance, a revised Code was issued on 14 July 2005, which applied to annual general meetings held on or after 1 January 2007.
Further amendments were made to the Code by the MAS on 2 May 2012. The key changes to the Code 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. The revisions applied to annual reports relating to financial years commencing from 1 November 2012.
On 27 February 2017, the MAS announced that it had formed a Corporate Governance Council (the CG Council) to review the Code, and on 16 January 2018, the CG Council released a consultation paper on its recommendations to revise the Code for a third time. All of the CG Council’s recommendations were subsequently accepted by the MAS and, on 6 August 2018, the MAS issued a third revised Code. Annual reports of SGX-listed companies issued in financial years commencing from 1 January 2019 will be subject to the revised Code.
The key changes to the Code are as follows:
- the Code has been streamlined in three main ways:
- the shifting of important requirements or baseline market practices to the Rules (as discussed above);
- the removal of requirements that are overly prescriptive or that are already set out in the Rules; and
- the introduction of a set of voluntary practice guidance that provides guidance on complying with the Code and best practices for companies to adopt (Practice Guidance);
- independent directors are required to be ‘independent in conduct, character and judgement, and have no relationship with the company, its related corporations, its substantial shareholders or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director’s independent business judgment in the best interests of the company’;
- where the chair is not independent, independent directors should make up the majority of the board, instead of at least half of the board;
- the shareholding threshold to determine the independence of a director under the Code has been revised from 10 to 5 per cent;
- non-executive directors are to make up a majority of the board;
- companies should disclose their board diversity policy and the progress made towards implementing it, including its objectives, in their annual reports;
- directors with conflicts of interest are to abstain from attending meetings and making decisions involving issues of conflict;
- an expansion of the scope of duties of the company’s audit committee to include reviewing the assurance from the chief executive officer and chief financial officer on the financial records and financial statements;
- an increased cooling off period from 12 months to two years for a former director of the company’s existing auditing firm to serve in the audit committee;
- companies should disclose the names and remuneration of employees in bands no wider than S$100,000, who are substantial shareholders or who are immediate family members of substantial shareholders and whose remuneration exceeds S$100,000; and
- a requirement for engagement with stakeholders. Specifically, companies should:
- put in place processes to identify their important groups of stakeholders and to manage relationships with such stakeholders;
- disclose in their annual reports their strategy and key areas of focus in relation to the management of stakeholder relationships during the reporting period; and
- have an updated corporate website that enables stakeholders to keep abreast of important updates in a timely manner.
The Singapore Code on Takeovers and Mergers
In Singapore, takeover offers are regulated under the SFA. The Singapore Code on Takeovers and Mergers (the Takeover Code), which was issued by the MAS under the SFA, governs the takeover or merger of a company or business trust with a primary listing on the SGX-ST, or an unlisted public company or unlisted registered business trust with more than 50 shareholders or unit holders (as the case may be) and net tangible assets of S$5 million or more (target company).
In a takeover situation, the board of a target company is required to observe both the spirit and provisions of the Takeover Code. The MAS, on the advice of the Securities Industry Council (SIC), issued a revised Takeover Code on 24 January 2019 to clarify the Takeover Code’s application to companies with a dual class share structure with a primary listing on the Singapore Exchange. The revised Takeover Code incorporates the feedback received from the public consultation conducted by the SIC on or around July 2018. The amendments to the Takeover Code took effect on 25 January 2019.
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