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Revisions to the corporate governance code

A revised Code of Corporate Governance has been issued by the Monetary Authority of Singapore to enhance the corporate governance landscape in the city. Here are the key changes

Nicholas ChangAmy Han

A revised Code of Corporate Governance has been issued by the Monetary Authority of Singapore (MAS) as part of its effort to enhance the corporate governance landscape in the city. The revised Code will take effect in respect of annual reports relating to financial years commencing from November 1 2012. The MAS has accepted the recommendations made by the Corporate Governance Council/(Council), which was set up in 2010, to undertake comprehensive review of the Code.

The key changes to the Code are focused on the areas of director independence, board composition, director training, multiple directorships, alternative directors, remuneration practices and disclosure, risk management, as well as shareholder rights and roles.

This is the first time the concept of being independent from substantial shareholders has been introduced in the Code. It is increasingly being recognised that director independence, other than addressing the agency problem between shareholders and management, also acts as a safeguard against dominant shareholders, particularly in jurisdictions with concentrated share ownership models. The definition of director independence is tightened in this regard such that a director who is a substantial shareholder, or an immediate family member of a substantial shareholder, or is/was directly associated with a substantial shareholder in the current or immediate preceding financial year, would be considered non-independent. The MAS raised the shareholding threshold from the proposed 5% to 10%, which is viewed to be appropriate. Accordingly, the term 'substantial shareholder' will be replaced with '10% shareholder' to avoid confusion with the same term defined under the Companies Act. The threshold may be further revised in the future should circumstances require.

Crucial recommendations relating to board composition have also been accepted by the MAS. These include having independent directors making up at least half of the board if the chairman and chief executive officer is the same person; they are immediate family members; the chairman is part of the management team; or the chairman is not an independent director. A longer transition period of five years is granted to listed companies to meet this requirement, so board composition changes must be made at the annual general meetings following financial years commencing from May 1 2016. Meanwhile, independent directors who have served the boards beyond nine years will be subject to rigorous review.

Listed companies must fully disclose the remuneration of each individual director and the CEO, which means moving away from the practice of disclosing remuneration in S$250,000 ($197,000)-bands. The existing requirement of disclosure in bands of S$250,000 for top-five key management personnel (who are not directors or the CEO) will be retained after considering the need to strike a balance between companies' concern over poaching and upward ratcheting of remuneration, and the need for more disclosure of board and management remuneration.

The Council has recently released its Risk Governance Guidance for Listed Boards, which acts as a complement to the revised Code. Readers who are interested in learning more about these issues may wish to access the MAS' website at

Nicholas Chang and Amy Han

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