PRIMER: Singapore’s Corporate Governance Code

Author: Karry Lai | Published: 22 Aug 2018
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What are the main changes to the Code?

The Singapore Exchange (SGX) has amended its listing rules after the Monetary Authority of Singapore (MAS) accepted a series of changes to the Corporate Governance Code, recommended by the Corporate Governance Council following a public consultation. The Council was set up by the MAS to review the Code in February 2017, which applies to listed companies in Singapore on a comply-or-explain basis. The changes revolve around director independence, board composition and diversity, and remuneration.

SingaporeIn terms of board diversity, the revised Code requires that companies disclose their board diversity policy and progress made in achieving it. A practice guidance is available to provide examples of qualitative and quantitative objectives. Independent directors are to make up at least one-third of the board and the term of an independent director will be limited to nine years. Independent directors who serve beyond nine years will need to be approved by the majority of shareholders and shareholders excluding those who also serve as directors or as chief executive.

For director independence, the shareholding threshold has been changed from 10% to 5%, aligning with the definition of substantial shareholders in Singapore’s Companies Act and Securities and Futures Act.

To provide more transparency on remuneration, companies are required to disclose the relationship between remuneration and value creation. Additionally, businesses have to disclose the names and remuneration of employees who are substantial shareholders and immediate family members of substantial shareholders.

When will the changes be taking effect?

Changes to the Code will take effect on January 1 2019, except for revisions relating to the nine-year tenor for independent directors and the requirement for independent directors to comprise at least one-third of the board, which will both take effect on January 1 2022.

"An elephant in the room is the potential re-emergence of dual class shares in the Singapore market"

Why is the Code being revised?

First issued in 2002, the Code of Corporate Governance was earlier revised in July 2005. This round of changes aimed to clarify the expectations under the comply-or-explain regime as well as to encourage board renewal and improve board diversity and director independence. The proposed changes were foreshadowed in January 2018, and a number of this year’s changes are in response to comments made in recent years, such as directors’ independence. 

What aspects of the revised Code will businesses find most challenging?

Min-tze Lean, principal at Baker McKenzie Wong & Leow, explains that the most significant challenges arising from the latest raft of revisions are  board renewal and diversity. The new nine-year-term review does not impose a hard limit on a director’s ability to continue serving on a board as it is subject to a two-tiered shareholder vote, with one tier having the controlling shareholders disenfranchised. 

"Yet companies would still need to cater for board renewal and evolve the composition of their boards to comply with the expectation for diversity," said Lean. As a result, seeking out the right talent and considering periodic board renewal will continue to be the major challenges that boards face.

Where are the gaps in the revised Code?

George Dallas , policy director at the International Corporate Governance Network, says that i t is positive to see tougher independence standards in the revised Code, but the new standards still lag behind more developed markets. While the standards move Singapore in the right direction, the changes may be a waypoint in a longer term journey. 

"An elephant in the room, not mentioned in the Code, is the potential re-emergence of dual class shares in the Singapore market," said Dallas. "This is a retrograde development in Singaporean corporate governance and it could come to threaten some of the positive changes that the new Code is trying to introduce."

How similar are the changes to Hong Kong’s?

Hong Kong has also revised its corporate governance code recently. There is broad alignment with Singapore on certain areas, such as the new requirement for a board diversity policy and greater emphasis on the independence criteria, however Lean notes that there are certain aspects of the revisions that are unique to each jurisdiction. For instance, Singapore’s introduction of a mandatory nine-year-term review for independent non-executive directors and Hong Kong’s introduction of a safeguard against overboarding.


See also

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