Sources of corporate governance rules and practices
Primary sources of law, regulation and practice
What are the primary sources of law, regulation and practice relating to corporate governance? Is it mandatory for listed companies to comply with listing rules or do they apply on a ‘comply or explain’ basis?
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.
What are the primary government agencies or other entities responsible for making such rules and enforcing them? Are there any well-known shareholder groups or proxy advisory firms whose views are often considered?
The Accounting and Corporate Regulatory Authority (ACRA) is responsible for the administration of the CA. A steering committee, chaired by the attorney general and supported by a joint secretariat comprising the Ministry of Finance, the Attorney-General’s Chambers and ACRA (SC), had been appointed by the Minister of Finance to review the CA. As at 25 February 2019, the Ministry of Finance has accepted 192 and modified 17 recommendations of the SC. The wide-ranging changes are expected to, among other things, strengthen the culture of corporate governance. For example, a multiple proxies regime was introduced in 2016 to give indirect investors and CPF investors (ie, those who use their CPF funds to purchase company shares through the CPF Investment Scheme or the Special Discounted Share Scheme) to enjoy or exercise the same membership rights as direct investors.
The MAS oversees the securities and futures market in Singapore and has powers under the SFA to issue directions to the SGX-ST, make regulations for the due administration of the SFA, carry out civil enforcement actions in relation to market misconduct and conduct investigations in relation to matters under the SFA.
The Rules are made by the SGX-ST, subject to any requirements that may be prescribed by the MAS under the SFA. If a listed company fails to comply with the Rules, the MAS or the SGX-ST may apply to court to enforce the Rules, or the SGX-ST may reprimand the company, suspend the trading of the company’s securities or delist the company.
The Takeover Code was issued by the MAS under the SFA and it is administered by SIC, which comprises representatives from the private sector and the public sector appointed by the Minister of Finance. SIC has powers under the SFA to investigate any dealing in securities that is connected with a takeover offer. If SIC finds a breach of the Takeover Code, it may have recourse to privately reprimand or publicly censure or take further action designed to deprive the offender of the facilities of the securities market. If SIC finds evidence that a criminal offence has taken place, it will refer the matter to the appropriate authority.
In addition, certain organisations have been established to provide guidance and promote best practices in relation to corporate governance matters, such as the Singapore Institute of Directors, which was set up to promote the professional development of directors and uphold corporate governance standards and the Audit Committee Guidance Committee, which was set up to develop practical guidance for the audit committees of listed companies.
On 12 February 2019, the MAS established a Corporate Governance Advisory Committee (CGAC), upon recommendation by the CG Council. The CGAC comprises members with diverse and extensive experience in corporate governance matters. They include directors on the boards of listed entities and members from key stakeholder groups such as large and small companies, institutional and retail investors, audit and legal professionals, academia and the media. The CGAC will not have any formal regulatory powers but will act as an advisory body. The CGAC will identify current and potential risks to the quality of corporate governance in Singapore, and take a leading role in advocating good corporate governance practices. It will also monitor international trends, revise the Practice Guidance to clarify the Code, and recommend updates to the Code.
Rights and equitable treatment of shareholders
What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?
The CA states that unless provided for otherwise by the constitution of a company, a company may appoint a director by way of ordinary resolution (simple majority of over 50 per cent of the votes cast at a general meeting). The constitution of a company will typically provide that directors are to be elected or removed by shareholders passing an ordinary resolution.
In the case of public companies, the CA does not permit the appointment of two or more persons as directors by a single resolution, unless it is unanimously agreed to by the meeting that such a resolution may be moved. This is to allow members the opportunity to accept or reject each nominated director. The constitution of private companies may provide that certain shareholders have the power to appoint directors. However, given that the constitution is a contract between a company and its shareholders, such an article will not be enforceable by a person who is not a shareholder, unless there is a separate contract embodying that right.
Shareholders of a public company may, by way of an ordinary resolution passed at a general meeting, remove a director before the expiry of his or her term of office, notwithstanding anything contained in the constitution of the public company or in any agreement between the public company and the director. However, where the director was appointed to represent the interests of any particular class of shareholders or debenture holders, the resolution to remove him or her shall not take effect until a successor has been appointed. By contrast, a director of a private company may only be removed from office in accordance with its constitution. If the constitution does not provide for the removal of directors, directors cannot be removed before the expiry of their term of office unless the constitution is suitably amended by passing a special resolution (at least 75 per cent of the votes cast at a general meeting). The constitution of a private company may be drafted to contain provisions to entrench certain directors.
Shareholders may use their power to call for or requisition an extraordinary general meeting and require resolutions to be put for the purpose of appointing or removing directors, or amending the constitution to compel the board to pursue a particular course of action (see question 7).
What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?
The following matters require shareholders’ approval under the CA:
- amendments to the constitution of the company;
- alteration of share capital;
- issuance of shares;
- reduction of share capital;
- disposal of the whole or substantially the whole of the company’s undertaking or property;
- provision or improvement of emoluments to directors in respect of their office; and
- appointment of auditors.
In addition, the Rules require listed companies to obtain shareholders’ approval for, inter alia, transactions with interested persons (as defined in the Rules), and acquisitions and disposals that exceed certain financial thresholds.
Furthermore, pursuant to shareholder agreements or amendments to the constitution, additional matters may require shareholders’ approval. The CA does not require any matter to be subject to a non-binding shareholder vote. However, shareholders may call for or requisition an extraordinary general meeting and require resolutions to be passed (see questions 3 and 6).
Disproportionate voting rights
To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?
The CA allows for the creation of different classes of shares, so that the respective shareholders are given varying rights in the company. The rights attached to the classes of shares would generally be contained in the constitution of the company. There may be shares that carry non-voting rights, additional voting rights, or restricted voting rights (ie, a share whereby there is only a right to vote in certain circumstances). For instance, the constitution may provide that a member shall not be entitled to vote unless all calls or other sums personally payable by him or her in respect of the company have been paid.
With effect from 2016, the CA was amended to remove the one-share-one-vote restriction in public companies. In addition, the SGX-ST had, in June 2018, approved a significant change to the Rules, such that companies with dual class share structures (DCS Structures) may now seek a primary listing on the main board of the SGX-ST. DCS Structures are share structures where certain classes of shares in a company carry more voting rights than others. In one class, ordinary shares will carry one vote per share, while shares in another class may carry multiple voting rights up to a limit of 10 votes per share.
Shareholders’ meetings and voting
Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?
The general rule is that every member who holds ordinary shares (excluding treasury shares) has the right to attend any general meeting of the company and to speak and vote on any resolution before the meeting. However, the constitution may provide that a member shall not be entitled to vote unless all calls or other sums personally payable by him or her in respect of the company have been paid. A shareholder may appoint a proxy (who need not be a shareholder) to vote on his or her behalf.
Only shareholders of private companies and unlisted public companies may pass resolutions by written means; however, such resolutions must strictly comply with the requirements under sections 184B, 184C, 184DA, 184E and 184F of the CA. Furthermore, the passing of written resolutions is not applicable to resolutions involving the removal of directors or dispensation of the requirement to hold an annual general meeting. Whether a company is able to hold a virtual meeting of shareholders depends on its constitution, which may provide that the meetings can be held by video or teleconference.
Shareholders and the board
Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?
Generally, shareholders holding not less than 10 per cent of the company’s paid-up share capital may serve a requisition on the directors of the company requiring the directors to call for an extraordinary general meeting. Two or more shareholders holding not less than 10 per cent of the company’s issued share capital (excluding treasury shares) may themselves call a meeting of the company.
Shareholders of the company who hold at least five per cent of the total voting rights, or at least 100 shareholders holding shares on which there has been paid up an average sum, per shareholder, of not less than S$500, may then requisition the company to circulate notice of a proposed resolution (which may include director nominations) and a statement containing further details in respect of such proposed resolution to be moved at the next annual general meeting. This must be done at the expense of the requisitionists (unless the company otherwise resolves). The copy of the requisition sent must contain signatures of all the requisitionists, be deposited at the registered office of the company and be followed by a sum of money reasonably sufficient to meet the company’s expenses in giving effect to the resolution.
Controlling shareholders’ duties
Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?
Controlling shareholders do not generally owe duties to the company or to non-controlling shareholders. However, a shareholder may apply to court for relief where the affairs of a company are being conducted in a manner that is oppressive towards him or her, disregards his or her interests, discriminates unfairly against him or her or is otherwise prejudicial to him or her under section 216 of the CA. A successful application under section 216 of the CA confers standing on a member of the company to apply to the court for relief. The court has the discretion to make a wide variety of orders, including but not limited to, directing or prohibiting acts and varying transactions.
Notwithstanding the above, where the controlling shareholders also sit on the board of the company, they will then owe fiduciary duties (in their capacity as directors) to the company. Should they be in breach of their fiduciary duties, the other aggrieved shareholders of the company may apply to court under section 216A of the CA for leave to commence an action in the name of the company against the controlling shareholder in his capacity as a director (not available for foreign companies - the member of the foreign company may only rely on the common law derivative action).
Can shareholders ever be held responsible for the acts or omissions of the company?
Shareholders are not generally held responsible for the acts or omissions of the company. Shareholders of a company limited by shares are generally not liable for its debts, save for exceptional circumstances, and to the extent that they are liable as contributories on the winding-up of the company, such liability being limited to any unpaid amount on shares held.
Are anti-takeover devices permitted?
Where the board of a target company believes a bona fide takeover offer is imminent, the Takeover Code requires that the board must not take any action, without the approval of shareholders at a general meeting, that could effectively result in the takeover offer being frustrated or the shareholders being denied an opportunity to decide on the merits of the takeover offer. Such prohibited actions include the issuance of shares to third parties, the disposal of a material amount of assets, entering into contracts (including service contracts) otherwise than in the ordinary course of business, and so on. The board, in advising the shareholders, should have regard to the interests of the shareholders as a whole.
Issuance of new shares
May the board be permitted to issue new shares without shareholder approval? Do shareholders have pre-emptive rights to acquire newly issued shares?
The constitution usually vests the power to issue shares in directors. However, the directors must not exercise any power to issue shares without the prior approval of the majority of the shareholders in the general meeting. Specifically, the board must obtain either a specific mandate for that particular issuance of shares or a general mandate by the shareholders at a general meeting authorising the board to issue shares. The general mandate may last for any period of time as determined by the shareholders, subject to the restriction that such period shall end no later than the conclusion of the next annual general meeting commencing after the date on which the general mandate was given.
There is no statutory pre-emption right for existing shareholders under Singapore law. However, shareholders may have pre-emptive rights to acquire newly issued shares if the constitution so provides.
Restrictions on the transfer of fully paid shares
Are restrictions on the transfer of fully paid shares permitted and, if so, what restrictions are commonly adopted?
Shares are transferable in the manner provided for in the constitution. The transfer of shares in a private company must be restricted in some way, usually by giving directors the discretion to refuse to register the transfer or existing shareholders’ pre-emptive rights. Public companies may, but are not required to, impose restrictions on the transfer of their shares. Listed companies are not permitted to restrict the transfer of their shares, except in the case of certain regulated industries where these companies are permitted to restrict the transfer of their shares to foreigners (eg, banks and some privatised government companies).
Compulsory repurchase rules
Are compulsory share repurchases allowed? Can they be made mandatory in certain circumstances?
If a company (offeror) acquires or has contracted to acquire at least 90 per cent of the shares in another company (the target company), it may compulsorily acquire the remaining shares of the target company that are held by dissenting shareholders. Once the offeror gives a dissenting shareholder notice of its intention to acquire the shares held by the dissenting shareholder, unless the court thinks fit to order otherwise on the application of the dissenting shareholder, the offeror will be bound to acquire the shares on the same terms as those applicable to the original offer for the acquisition of 90 per cent of the shares.
Do shareholders have appraisal rights?
In Singapore, shareholders do not have appraisal rights under the CA. However, shareholders of private companies may have appraisal rights if these are expressly provided for in the constitution or a shareholders’ agreement.
Responsibilities of the board (supervisory)
Is the predominant board structure for listed companies best categorised as one-tier or two-tier?
Listed companies have a one-tier board structure.
Board’s legal responsibilities
What are the board’s primary legal responsibilities?
Under the CA, the board has a general duty to manage the company’s business and is also obliged:
- to ensure that the company keeps such accounting and other records as are necessary to explain the transactions and financial position of the company;
- to present the audited accounts of the company at the annual general meeting;
- not to knowingly incur debts when there is no reasonable ground for expecting that the company will be able to pay the debts;
- not to allow payment of dividends by the company unless there are profits available for that purpose; and
- to ensure that the company complies with its statutory obligations under the CA (such as the obligations to maintain statutory books, make statutory filings with ACRA and convene general meetings annually) and other relevant laws and regulations.
The boards of listed companies have additional responsibilities under the Rules and the Takeover Code.
Whom does the board represent and to whom does it owe legal duties?
The board represents and owes fiduciary duties to the company. However, in discharging its duties, the board is entitled to consider the company’s commercial interests, the collective interests of shareholders and the interests of employees. Where the company is close to insolvency, the board must take into account the interests of the company’s creditors as a whole.
Enforcement action against directors
Can an enforcement action against directors be brought by, or on behalf of, those to whom duties are owed?
Directors owe fiduciary duties to the company and the company is the proper plaintiff to bring an action against its directors for the breach of these duties. Where the company has not brought an action against the defaulting director, a shareholder of the company may seek the court’s leave to bring a derivative action (ie, an action brought on behalf of the company and in respect of a cause of action vested in the company) against such director (see question 8).
Care and prudence
Do the board’s duties include a care or prudence element?
Under the CA, directors are required to act honestly at all times, use reasonable diligence in the discharge of their duties and act in the best interests of the company. Directors’ fiduciary duties under the common law include the duty to exercise care, skill and diligence. The standard of care and diligence expected of a director is objective; a director is expected to exercise the same degree of care and diligence as a reasonable director in his or her position. However, this standard is not fixed but a continuum depending on various factors such as the individual’s role in the company (eg, the standard is different between non-executive and executive directors), the type of decision being made and the size and business of the company. This standard will not be lowered to accommodate any inadequacies in the individual’s knowledge or experience. The standard will, however, be raised if the individual held himself or herself out to possess, or if he or she in fact possesses, some special knowledge or experience.
Board member duties
To what extent do the duties of individual members of the board differ?
All directors are subject to the same responsibilities under the general law, although the expectations of the necessary actions to fulfil the directors’ duties may differ (see question 19).
Delegation of board responsibilities
To what extent can the board delegate responsibilities to management, a board committee or board members, or other persons?
In practice, the board of a listed company will delegate responsibility for the day-to-day operations of the company to management, and responsibilities for certain board matters to its audit, remuneration and nomination committees (see question 25). However, directors have a non-delegable duty of supervision.
The CA also entitles directors to rely on information (eg, reports, statements and financial data) prepared by the company’s employees, professional advisers or experts, or any other company director, based on professional or expert advice given. Directors must ensure that they have acted in good faith, made proper inquiries where the need was indicated by the circumstances, and had no knowledge that such reliance on the information prepared was unwarranted.
Non-executive and independent directors
Is there a minimum number of ‘non-executive’ or ‘independent’ directors required by law, regulation or listing requirement? If so, what is the definition of ‘non-executive’ and ‘independent’ directors and how do their responsibilities differ from executive directors?
A listed company is required under the Rules to have on its board at least two non-executive directors who are independent and free of any material business or financial connection with the listed company. Further, the Code requires that at least a majority of the board should comprise non-executive directors. In addition, pursuant to provision 2.2 of the Code, independent directors should make up a majority of the board in any of the following four scenarios:
- where the chair of the board and the chief executive officer (CEO) (or equivalent) are the same person;
- where the chair and the CEO are immediate family members;
- where the chair and the CEO have close family ties with each other as determined by the nominating committee;
- where the chair is part of the management team; or
- where the chair is not an independent director.
Principle 2 of the Code states that the board should have an appropriate level of independence and diversity of thought and background in its composition to enable it to make decisions in the best interests of the company. The Code defines an ‘independent’ director as one who is independent in conduct, character and judgement, and has no relationship with the company, its related companies, any shareholders with at least five per cent of the total voting shares or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director’s independent business judgement with a view to the best interests of the company. The Rules have recently been amended to further state that for independent directors that have served beyond nine years, their continued appointment will be subject to a two-tier vote to be approved by the majority of all shareholders and all shareholders excluding shareholders who also serve as directors or the CEO (and their associates).
The CA defines a ‘non-executive director’ as a director who is not an employee of, and does not hold any other office of profit in, the company or its related corporation in conjunction with his or her office of director and his or her membership of any audit committee. Practice Guidance 1 of the Code similarly defines a ‘non-executive director’ as a director who is not an employee of the company and does not participate in the company’s day-to-day management. According to Practice Guidance 1 of the Code, non-executive directors are expected to:
- be familiar with the business and stay informed of the activities of the company;
- constructively challenge the management and help develop proposals on strategy;
- review the performance of the management in meeting agreed goals and objectives; and
- participate in decisions on the appointment, assessment and remuneration of the executive directors and key management personnel generally.
Practice Guidance 1 of the Code further clarifies that while independent directors are by definition also non-executive directors, independent directors, in addition to performing the duties of a non-executive director, are intended to function as an independent and objective check on the management of the company.
All directors are subject to the same responsibilities under the general law, although the expectations of the necessary actions to fulfil the directors’ duties may differ (see question 19). Although independent directors, as non-executive directors, are not expected to give the same continuous attention to the affairs of the company as executive directors, they will be liable, just like executive directors, if it is found that they failed to properly discharge their duties at law. This is illustrated in a case involving the release of a misleading statement by a listed company, Airocean, where the court had imposed a fine on the other directors involved in the offence but imposed a four-month custodial sentence on the independent director as he was found to have played a major part and was the most culpable among the directors in relation to the release of the misleading statement that downplayed a bribery probe involving Airocean’s former chief executive officer. However, in the independent director’s appeal to the High Court, the then Chief Justice Chan Sek Keong acquitted him, stating that Airocean had not acted recklessly as the company had relied on legal advice from its lawyer and acted in accordance with the legal advice that has been provided.
Board size and composition
How is the size of the board determined? Are there minimum and maximum numbers of seats on the board? Who is authorised to make appointments to fill vacancies on the board or newly created directorships? Are there criteria that individual directors or the board as a whole must fulfil? Are there any disclosure requirements relating to board composition?
In general, there is no legal requirement as to board size, apart from the minimum requirement under section 145 of the CA that each company is required to have at least one director who is ordinarily resident in Singapore (ie, resident in Singapore with some degree of continuity and apart from accidental or temporary absences. To that end, it should be noted that this requirement is separate from citizenship: a person may be a Singapore citizen, but found to not be ordinarily resident in Singapore). Any person may be a director as long as he or she is a natural person, of full age (ie, at least 18 years old) and capacity. Although there is no requirement that a director must have any particular educational qualification or business experience, the CA imposes restrictions on the following categories of persons from assuming the post of a director:
- undischarged bankrupts;
- unfit directors of insolvent companies (ie, the court being satisfied that the conduct of a director of a company that went into insolvent liquidation makes him or her unfit to take part in the management of a company);
- persons who have been convicted of offences involving fraud and dishonesty, and management offences;
- persons who have been thrice convicted of failing to file returns, accounts and documents with ACRA as required under the CA; and
- directors of companies that had been wound up on grounds of national security.
With reference to the above, it should be noted that the constitution of the individual company may increase the minimum number of directors or require specific qualifications in respect of the directors. Additionally, in the case of listed companies, the Code provides that independent directors should make up a majority of the board where the chair is not independent.
If the company has only one director, and he or she vacates office, this absence will be deemed invalid as it would contravene the requirement of the company to have at least one director. All subsequent and additional appointments of directors and casual vacancies are dictated by the constitution of the company. In the case of listed companies, the nominating committee of a listed company is responsible for recommending candidates to be appointed to the board of directors.
The Rules require the annual report of listed companies to disclose the identities of all directors of the board, including their designations (ie, independent, non-executive, executive, etc) and roles (as members or chairmen of the board or board committees). The nominating committee of a listed company is responsible for recommending candidates to be appointed to the board of directors. The Code further requires that the board and board committees be of an appropriate size, and comprise directors who, as a group, provide the appropriate balance and mix of skills, knowledge, experience, and other aspects of diversity such as gender and age, so as to avoid group-think and foster constructive debate. In this regard, companies are required to disclose in their annual report the board diversity policy and progress made towards implementing the board diversity policy, including its objectives.
Is there any law, regulation, listing requirement or practice that requires the separation of the functions of board chair and CEO? If flexibility on board leadership is allowed, what is generally recognised as best practice and what is the common practice?
The Code requires that there be a clear division of responsibilities between the leadership of the board and the management. Therefore, the chair of the board and the CEO should be separate persons, to ensure an appropriate balance of power (between the board and the management), increased accountability (of the management to the board) and greater capacity of the board for independent decision-making. However, it is not unusual for the chair and CEO of listed companies to be the same person.
In addition, pursuant to the Rules, listed companies should disclose in their annual reports the relationship between the chair and CEO where they are immediately related. The Code also requires that companies appoint an independent non-executive director to be the lead independent director where the chair is conflicted and especially when the chair is not independent.
As elaborated in question 22, the Code requires that independent directors of a company make up the majority of its board where the chair is not independent.
The lead independent director (if appointed) should be available to shareholders where they have concerns and for which contact through the normal channels of communication with the chair or management are inappropriate or inadequate.
What board committees are mandatory? What board committees are allowed? Are there mandatory requirements for committee composition?
The Rules require listed companies to establish one or more committees as may be necessary 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 such committees. The CA further requires every listed company to establish an audit committee comprising three or more members of the board, the majority of whom must be independent directors. The chair of the audit committee must not be an executive director or employee of the company or its related corporation.
Additionally, the Code provides that the audit committee should comprise at least three directors, all non-executive, the majority of whom, including the audit committee chair, should be independent. At least two members of the audit committee, including the audit committee chair, should have accounting or related financial management expertise or experience. The CA, the Rules and the Code set out the role of the audit committee in reviewing audit matters, financial reporting matters, the internal control systems of the company and interested party transactions.
The Code requires every listed company to establish a nominating committee to make recommendations to the board on all board appointments (including the re-nomination of directors). The nominating committee is also responsible for determining if a director is independent, bearing in mind the circumstances set forth in provision 2.1. The nominating committee should comprise at least three directors, a majority of whom, including the chair, should be independent. The lead independent director, if any, should be a member of the nominating committee.
The Code also provides that every listed company should establish a remuneration committee to make recommendations to the board on the remuneration of directors and the CEO (or executive of equivalent rank) and review the remuneration of senior management. The remuneration committee should comprise at least three directors, all non-executive, the majority of whom, including the remuneration committee chair, are independent.
Principle 9 of the Code states that the board should be responsible for the governance of risk in the company, and recommends the establishment of a separate board risk committee to specifically address this.
The Code further provides that board committees must be formed with clear written terms of reference setting out their composition, authorities and duties, including reporting back to the board. The names of the committee members, the terms of reference, any delegation of the board’s authority to make decisions, and a summary of each committee’s activities, should be disclosed in the company’s annual report.
Is a minimum or set number of board meetings per year required by law, regulation or listing requirement?
Neither the CA, the Rules nor the Code prescribe a minimum number of board meetings to be held each year.
Is disclosure of board practices required by law, regulation or listing requirement?
The Rules provide that listed companies must disclose in their annual report, inter alia, the following matters relating to a board’s practices:
- the relationship between the chair and CEO where they are related to each other; and
- a list of all directors, including their designations (ie, independent, non-executive, executive, etc) and roles (as members or chairmen of the board or board committees).
Furthermore, the Rules require an announcement to be made if the directors of a listed company decide not to declare or recommend a dividend. Such announcement will need to contain the reason for such decision.
In addition, the Code provides that companies must disclose in their annual report, inter alia, the following matters relating to a board’s practices:
- any delegation of authority by the board to any board committee to make decisions on certain board matters, including with reference to such board committee, the names of the committee members, the terms of reference and a summary of each committee’s activities;
- the number of board and board committee meetings held in the year, and the attendance of every board member at these meetings;
- the matters requiring board approval;
- the induction, training and development provided to new and existing directors;
- where the company considers a director to be independent, despite the existence of a relationship as stated in the Code that would otherwise deem him or her as non-independent, the nature of the director’s relationship and the reason for considering him or her as independent;
- the company’s directorships and principal commitments of each director, and where a director holds a significant number of such directorships and commitments, the company provides the nominating committee’s and board’s reasoned assessment of the ability of the director to diligently discharge his or her duties;
- the relationship between the chair and CEO where they are related to each other;
- the process for the selection, appointment and re-appointment of directors to the board, including the criteria used to identify and evaluate potential new directors and channels used in searching for appropriate candidates;
- the process for assessing the board, the board committees and each director, including the identity of any external facilitator and its connection, if any, with the company or any of its directors;
- the attendance of each director at the general meetings of shareholders held during the financial year; and
- the board diversity policy and progress made towards implementing the board diversity policy, including its objectives.
Remuneration of directors
How is remuneration of directors determined? Is there any law, regulation, listing requirement or practice that affects the remuneration of directors, the length of directors’ service contracts, loans to directors or other transactions or compensatory arrangements between the company and any director?
Under the CA, a company cannot provide or improve emoluments for a director in respect of his or her office unless the provision is approved by a shareholders’ resolution that is not related to other matters.
The Code provides that the remuneration committee makes recommendations on remuneration policies and packages of directors and senior management to be submitted to the board for endorsement (see question 25). For listed companies, the fees payable to non-executive directors must be a fixed sum, and not be a commission on or a percentage of profits or turnover and likewise, salaries payable to executive directors may not include a commission on or a percentage of turnover. The Code provides that the remuneration of executive directors and key management personnel should be structured to link rewards to corporate and individual performance, and long-term incentive schemes are encouraged (although the costs and benefits of such schemes should be carefully evaluated). Non-executive directors’ remuneration should be linked to their level of contribution (taking into account factors such as effort, time spent and responsibilities), and the remuneration committee should consider implementing schemes to encourage non-executive directors to hold shares in the company to align their interests with shareholders. The constitution may require the remuneration of directors to be put forward for shareholders’ approval at the annual general meeting (see question 37). The Code also provides that the remuneration policy, level and mix of remuneration, and the procedure for setting remuneration be disclosed in the annual report of the company, and the remuneration of each individual director and the CEO on a named basis should also be disclosed.
The Rules require listed companies to have all directors submit themselves for renomination and reappointment at least once every three years. Constitutions of listed companies must also provide that, where a managing director or a person holding an equivalent position in a listed company is appointed for a fixed term, the term must not exceed five years.
Companies (other than private companies in which no corporation holds a beneficial interest and that have no more than 20 members) are prohibited from granting loans, providing security or entering into any such credit transactions with their directors or directors of their related companies, subject to limited exceptions under the CA. Prior to listing, all debts owing to the company or the group to be listed by its directors, substantial shareholders and companies controlled by such directors and substantial shareholders should be settled.
While directors are not prohibited from dealing with the company, they must disclose to the board any interest (whether direct or indirect) that they may have in any transaction with the company, unless such interest may properly be regarded as being immaterial. Under the Rules, the constitutions of listed companies must provide that a director must not vote during board deliberations in relation to any contract or proposed contract or arrangement in which he or she has, directly or indirectly, a personal material interest.
Remuneration of senior management
How is the remuneration of the most senior management determined? Is there any law, regulation, listing requirement or practice that affects the remuneration of senior managers, loans to senior managers or other transactions or compensatory arrangements between the company and senior managers?
Executive remuneration is a matter for the board to determine. The Code provides that the remuneration committee should recommend to the board a framework of remuneration and the specific remuneration package for the key management personnel and review the remuneration of such key management personnel.
D&O liability insurance
Is directors’ and officers’ liability insurance permitted or common practice? Can the company pay the premiums?
Companies are allowed but not obliged to purchase and maintain directors’ and officers’ liability insurance to insure directors and officers against monetary liability arising from any claims made against them in respect of their performance of duties. However, such insurance generally does not cover fraudulent, criminal, dishonest acts or wilful breaches of duty. At present, it is not a widespread practice for unlisted companies to purchase directors’ and officers’ liability insurance for their directors and officers, but it is increasingly common for listed companies to do so.
Indemnification of directors and officers
Are there any constraints on the company indemnifying directors and officers in respect of liabilities incurred in their professional capacity? If not, are such indemnities common?
Under the CA, a company may indemnify its officers, including its directors (whether in the constitution or in any contract or otherwise) against liability incurred by the officers to third parties, subject to certain qualifications. The indemnity shall not apply where it is against any liability of the officer to pay a fine in criminal proceedings or a penalty to a regulatory authority for non-compliance with any regulatory requirement or any liability incurred by the officer in defending criminal proceedings where he is convicted or in defending civil proceedings brought by the company or a related company where judgment is given against him or where an application for relief is rejected by the court.
The court may also relieve a director from the consequences of his or her default if the director shows that he or she has acted reasonably and honestly and in such circumstances it is fair to excuse him or her.
It should be noted that in practice, companies usually purchase and maintain insurance against such liability for its officers or indemnify an officer against any liability incurred by him or her (see question 30).
Exculpation of directors and officers
To what extent may companies or shareholders preclude or limit the liability of directors and officers?
Shareholders may agree to release a director from his or her fiduciary duties and excuse him or her for liability for breaches of duty to the company provided the director has made a full and frank disclosure of all material facts. However, in order for such consent to be valid, the shareholders must be fully informed of the facts giving rise to the breach. In addition, shareholders cannot ratify any illegal acts. An application may also be made to court for relief from civil liability for breach of fiduciary duty or negligence if the director or officer in question is able to establish that he has acted honestly and reasonably (see also question 31).
What role do employees have in corporate governance?
At present, employees do not have a formal role in the corporate governance process, except to the extent that they are also shareholders, directors or officers of the corporation. However, through whistle-blowing, employees may help to uncover acts of misfeasance by the company’s management.
Although there is no general legislation protecting employees who are whistle-blowers, the Code provides that audit committees should review the policy and arrangements for concerns about possible improprieties in financial reporting or other matters to be safely raised, independently investigated and appropriately followed up on, and ensure that the company publicly discloses, and clearly communicates to employees, the existence of a whistle-blowing policy and procedures for raising such concerns.
Board and director evaluations
Is there any law, regulation, listing requirement or practice that requires evaluation of the board, its committees or individual directors? How regularly are such evaluations conducted and by whom? What do companies disclose in relation to such evaluations?
In respect of listed companies, the Code requires that the board undertake a formal assessment of its effectiveness as a whole and that of each of its board committees and individual directors. The evaluation process should be recommended by the nominating committee for the board’s approval, and the manner in which the assessment has been conducted, including the identity of any external facilitator and its connection, if any, with the company or any of its directors, should be disclosed in the company’s annual report.
The Code further recommends that the nominating committee put together objective performance criteria against which the board’s performance should be measured. The evaluation should consider the board’s composition (balance of skills, experience, independence, knowledge of the company, and diversity), board practices and conduct, and how the board as a whole adds value to the company. The performance criteria should be approved by the board. The board should also consider the use of peer comparisons and other objective third-party benchmarks. Such performance criteria should not be changed from year to year, and where circumstances deem it necessary for any of the criteria to be changed, the onus should be on the board to justify this decision.
The evaluation of an individual director’s performance should aim to assess whether such director is willing and able to constructively challenge and contribute effectively to the board and demonstrate commitment to his or her roles on the board (including the roles of chair of the board and chair of a board committee). The chair should act on the results of the performance evaluation, and, in consultation with the nominating committee, propose, where appropriate, new members to be appointed to the board, or seek the resignation of directors.
To provide a greater level of objectivity in the evaluation process, the Code recommends that the board considers the use of external facilitators in the performance assessment. Such facilitators should be independent of the company and its directors.
There are no similar laws or regulations requiring private companies to do the same.
Disclosure and transparency
Corporate charter and by-laws
Are the corporate charter and by-laws of companies publicly available? If so, where?
The constitution of a company incorporated in Singapore is publicly available and can be obtained from ACRA, for a fee. However, such constitution may not include any amendments to it made pursuant to resolutions. While resolutions filed by the company may be separately obtained from ACRA for a fee, prior to the purchase of such resolutions, an interested party will not be able to identify the contents of resolutions filed by the company.
What information must companies publicly disclose? How often must disclosure be made?
Listed companies must observe the continuing disclosure requirements in the Rules and make timely and non-misleading disclosure of the information set out below (which is non-exhaustive):
- material information (including information necessary to avoid the establishment of a false market in its securities, information that might be price-sensitive and information concerning the listed company’s assets, business, financial condition and prospects, information concerning a significant change of ownership of the listed company’s securities owned by insiders, a change in effective or voting control of the issuer and any developments that materially affect the present or potential rights or interests of the shareholders);
- transactions between the listed company, its subsidiaries and associated companies, and interested persons (and obtain shareholder approval if necessary);
- acquisitions and disposals that exceed certain financial thresholds (and obtain shareholder approval if necessary); and
- the financial statements of the listed company for each full financial year and for each of the first three-quarters of its financial year.
The Rules and the Code set out additional matters that listed companies are required to disclose in their annual reports, such as certain board practices (see question 27), the remuneration of directors and key executives, the policy on remuneration, the details of employee share schemes, and the adequacy and effectiveness of internal control systems.
Do shareholders have an advisory or other vote regarding remuneration of directors and senior management? How frequently may they vote?
Payments to directors in his or her capacity as a director (ie, directors’ fees) must be approved by an ordinary resolution of the shareholders at the annual general meeting. However, payment of salary to an executive director in his or her capacity as a company employee need only be approved by the board, and not by the shareholders. Likewise, the remuneration of senior management need only to be approved by the board beforehand (as opposed to shareholders).
In addition, the Code provides that the remuneration committee is required to review and make recommendations on the specific remuneration packages for each director as well as for the key management personnel. The Code also provides that companies should disclose in their annual reports the policy and criteria for setting remuneration, as well as names, amounts and breakdown of remuneration of each individual director and the CEO and at least the top five key management personnel (who are not directors or the CEO) in bands no wider than S$250,000 and in aggregate the total remuneration paid to these key management personnel.
Where the executive director’s remuneration or senior management’s remuneration includes employee share options or incentive shares, separate shareholders’ approval may be required prior to the granting of such share options or share awards.
Do shareholders have the ability to nominate directors and have them included in shareholder meeting materials that are prepared and distributed at the company’s expense?
Subject to the constitution of the company, and any other agreements entered into between the shareholders, certain shareholders can nominate directors without the recommendation of the board (see questions 3 and 7).
Do companies engage with shareholders? If so, who typically participates in the company’s engagement efforts and when does engagement typically occur?
The Rules require listed companies to make continual disclosures relating to select matters, including but not limited to any information likely to materially affect the price of a listed company’s securities (see question 36). Such disclosures are to be made on the SGX-ST’s website, SGXNET.
The Code also requires listed companies to communicate regularly with their shareholders and facilitate the participation of shareholders during general meetings and other dialogues to allow shareholders to communicate their views on various matters affecting the company. Specifically, the Code provides that companies should put in place an investor relations policy that allows for an ongoing exchange of views so as to actively engage and promote regular, effective and fair communication with shareholders. Such investor relations policies should set out the mechanism through which shareholders may contact the company with questions and through which the company may respond to such questions. The Code further recommends that companies should provide a specific investor relations contact, such as an online submission form, email address or contact number, through which shareholders are able to ask questions and receive responses in a timely manner. Where companies have a lead independent director, they should provide information as to how shareholders can contact the lead independent director directly, rather than having to go through the company.
Typically, for engagement efforts outside annual general meetings, representatives from listed companies are limited to the company’s management. At annual general meetings, engagement efforts are usually led by the directors and senior management. However, where the listed company is seeking approval from shareholders for specific transactions or corporate actions at annual meetings and extraordinary general meetings, it is common for external counsel to be present to answer shareholder queries.
Are companies required to provide disclosure with respect to corporate social responsibility matters?
The Rules require listed companies to prepare an annual sustainability report. The sustainability report must describe the company’s sustainability practices with reference to the following components:
- environmental, social and governance (ESG) factors material to the company and its business;
- policies, practices and performance in relation to the material ESG factors identified and previously disclosed targets;
- targets for the forthcoming year in relation to each material ESG factor identified;
- sustainability reporting framework to guide its reporting and disclosure; and
- a board statement on the board having considered sustainability issues as part of its strategic formulation, determined such ESG factors and overseen the management and monitoring of the material ESG factors.
If the listed company excludes any primary component, it must disclose such exclusion and describe what it does instead, with the relevant reasons.
CEO pay ratio disclosure
Are companies required to disclose the ‘pay ratio’ between the CEO’s annual total compensation and the annual total compensation of other workers?
There is no such requirement, although the Code provides that listed companies should report to shareholders annually on the remuneration of directors, the CEO and at least the top five key management personnel (see question 37).
Gender pay gap disclosure
Are companies required to disclose ‘gender pay gap’ information? If so, how is the gender pay gap measured?
There is no such requirement, although the Code provides for certain disclosure requirements in relation to remuneration (see question 37).
Listed companies can highlight gender, skills and experience as an ESG factor material to business sustainability in their sustainability report (see question 40). Even if diversity is not assessed to be a material ESG factor by the company, where stakeholders express sufficient interest in the information, such company is advised to state its policy and actions on its website.