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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.

Company law

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 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 and use reasonable diligence in the discharge of his or her office and shall not make improper use of any information acquired by virtue of his or her position. These directors’ 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 or any potential conflict arising from his or her holding other offices or possessing any property;
  • particulars necessary for the company to maintain its register of directors’ shareholdings and register of directors; and
  • if he or she is a director of a public company, the date when he or she has or will have attained the age of 70 years.

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.

Listing regime

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 required not to deal 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. It should be noted that despite the non-statutory nature of the Rules, a company is obliged to comply with them once it lists on the SGX-ST. The SGX-ST has discretion in respect to 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 of the Code of Corporate Governance 2012 (the Code) and disclose and explain any deviation from any guideline of the Code in their annual reports. The Code recommends that listed companies make a positive confirmation at the start of the corporate governance section of their annual report that they have adhered to the principles and guidelines of the Code, or specify the areas of non-compliance, if any. The SGX-ST, on 29 January 2015, provided further guidance on compliance with the Code by way of an additional disclosure guide whereby listed companies are encouraged to answer and enclose such answers in their annual reports.

As stated below, the Corporate Governance Council have made recommendations for certain guidelines to be amended and shifted from the Code to the Rules for enhanced compliance. If a requirement is included in the Rules, it would become mandatory instead of being on a ‘comply or explain’ basis. The key proposed changes are as follows:

  • independent directors are to make up at least one-third of the company’s board;
  • the term of an independent director is to be limited to nine years, or the alternative proposed amendment is that, independent directors can serve more than nine years if their continued appointment is approved by the majority of all shareholders and non-controlling shareholders in separate resolutions;
  • a director will not be considered independent if they or their immediate family member controls five per cent or more of the company’s shares, instead of the previous 10 per cent;
  • 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; and
  • first-time directors will be required to undergo training in the roles and responsibilities of a director.

Code of Corporate Governance 2012

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, and has been effective from and applies to annual general meetings held on or after 1 January 2007.

Further amendments to the Code were made on 2 May 2012, when the Monetary Authority of Singapore (MAS) issued a revised Code. The key changes to the Code are 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 apply to annual reports relating to financial years commencing from 1 November 2012. Notwithstanding the above, as MAS recognises that sufficient time should be given for companies to make board composition changes, a longer transition period will be provided for necessary board composition changes to comply with the requirement for independent directors to make up at least half of the boards in specified circumstances (Guideline 2.2). These changes should be made at the annual general meetings following the end of financial years commencing on or after 1 May 2016.

On 27 February 2017, 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. The key recommendations were as follows:

  • shift certain guidelines of the Code to the Listing Manual of the SGX-ST (as discussed above);
  • where the chairman is not independent, independent directors (ie, one who has no relationship with the company, its related companies 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) should make up majority of the board, instead of at least half of the board;
  • independent directors are required to be ‘independent in conduct, character and judgement’;
  • votes of non-controlling shareholders in the appointment of independent directors, who served on the board for less than nine years, are to be separately disclosed;
  • directors with conflict 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;
  • requirement for diversity to include ages of directors, also it is recommended that the company’s board diversity policies and progress in relation to such policies to be disclosed;
  • the company is to 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
  • requirement for engagement with stakeholders, specifically:
  • the company should put in place processes to identify its important groups of stakeholders and to manage relationships with such stakeholders;
  • the primary areas of focus with regard to the management of stakeholder relationships are to be disclosed by the company during the reporting period; and
  • the company should 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 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.

MAS, on the advice of the Securities Industry Council (SIC) issued a revised Takeover Code on 23 March 2012. The revised Takeover Code incorporated the feedback received from the public consultation conducted by the SIC on or around October 2011 and is consistent with international best practices. The amendments to the Takeover Code took effect on 9 April 2012.

Responsible entities

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, had been appointed by the Minister of Finance to review the CA and had issued its proposals for public consultation in the first half of 2010. Some of the key amendments proposed include allowing nominee companies or custodian banks to appoint more than two proxies to attend general meetings of a company, enhancing investor rights for Central Provident Fund (CPF) members who buy company shares through the CPF Investment Schemes, increasing minority shareholder protection and alternative modes of executing documents.

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 MAS under the SFA. If a listed company fails to comply with the Rules, 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 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 private reprimand or public censure or 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 16 January 2018, the CG Council also recommended the establishment of an industry-led Corporate Governance Advisory Committee, which will not have any formal regulatory powers but will act as an advisory body. Their functions include issuing Practice Guidance to clarify the Code and monitor the quality of listed companies’ corporate governance disclosures.

Rights and equitable treatment of shareholders

Shareholder powers

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, such an article will not be enforceable by a person who is not a member of the company unless there is a separate contract outside the constitution 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. 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).

Shareholder decisions

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 to 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 Companies Act was amended to remove the one-share-one-vote restriction in public companies. The SGX-ST has also indicated that it would allow companies with dual-class share structures to list, although this may only be restricted to the mainboard.

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) shall have a 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, these must strictly comply with the requirements under sections 184B and 184F of the CA. Furthermore, 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 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 requiring them to call 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 an average sum, per shareholder, of not less than S$500, can then requisition the company to circulate notice of the proposed resolution (which may include director nominations) and a statement containing further details in respect of the proposed resolution. 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, must be deposited at the registered office of the company and must 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 gives the court the discretion to make a wide variety of orders, including but not limited to, directing or prohibiting acts and varying transactions.

Where the controlling shareholders also sit on the board of the company, they will then owe directors duties to the company. Other shareholders may then step into the shoes of a company, and bring enforcement action through either a common law derivative action or statutory derivative action (not available for listed companies).

Shareholder responsibility

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, except in exceptional circumstances. Shareholders of a company limited by shares are generally not liable for its debts except 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.

Corporate control

Anti-takeover devices

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 its merits. Such prohibited actions include issuance of shares to third parties, disposal of material amount of assets etc. 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.

There is no statutory pre-emption right for existing shareholders under Singapore law. 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 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 (offerer) 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 shares of the target company that are held by dissenting shareholders. Once the offerer 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.

Dissenters’ rights

Do shareholders have appraisal rights?

In Singapore, shareholders do not have appraisal rights under the CA. 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)

Board structure

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.

Board obligees

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 may 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 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.

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 and to use reasonable diligence in the discharge of their duties, and shall 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, the size and the 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 he or she held him 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 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?

Listed companies are required under the Rules to have 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 recommends that at least one-third of the board should comprise independent directors. In addition, pursuant to Guideline 2.2 of the Code, independent directors should make up at least half of the board in any of the following four scenarios:

  • the chairman of the board and the chief executive officer (CEO) (or equivalent) are the same person;
  • the chairman and the CEO are immediate family members;
  • the chairman is part of the management team; or
  • the chairman is not an independent director.

Principle 2 of the Code states that there should be a strong and independent element on the board of companies that is able to exercise objective judgement on corporate affairs independent from management and shareholders with at least 10 per cent of the total voting shares. The Code defines an ‘independent’ director as one who has no relationship with the company, its related companies, any shareholders with at least 10 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. Guideline 2.4 of the latest Code also states that the independence of any director who has served on the board beyond nine years from the date of his or her first appointment should be subject to particularly rigorous review. The board should also explain why any such director should be considered independent.

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. While there is no distinction drawn between the duties of independent directors and non-independent directors under the CA and the Rules and independent directors, by definition, are also non-executive directors, non-executive directors are not necessarily independent directors pursuant to Guideline 2.2 of the Code. The Code states that the role of non-executive directors is to constructively challenge and help develop proposals on strategy, to review the performance of management in meeting agreed goals and objectives, and to monitor the reporting of performance. To facilitate a more effective check on management, the Code also encourages non-executive directors to meet regularly without the presence of management.

All directors are subject to the same responsibilities under the general law, although the expectations of the necessary actions to fulfil 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 recent 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, and is independent from citizenship). 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 had been convicted of offences involving fraud and dishonesty, and management offences;
  • persons who had 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 recommends that independent directors should make up at least one-third of the board in ordinary circumstances, and one-half the board where there are relationships or circumstances that are likely to affect, or could appear to affect the director’s judgement.

If the company only possesses one director and he or she vacates office, this absence will be deemed invalid as this would contravene the requirement of the company having 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 board composition of listed companies is typically disclosed in the annual report as the Code recommends that listed companies disclose in their annual report several matters relating to a board’s practices (see question 27). The nominating committee of a listed company is responsible for recommending candidates to be appointed to the board of directors. Companies are also generally required to provide information on the composition of their board and their directors to ACRA.

Board leadership

Is there any law, regulation, listing requirement or practice that requires the separation of the functions of board chairman and CEO? If flexibility on board leadership is allowed, what is generally recognised as best practice and what is the common practice?

The Code recommends that there be a clear division of responsibilities at the helm of the company. Therefore, the chairman of the board (chairman) and the CEO should be separate persons, to ensure an appropriate balance of power (between the board and management), increased accountability (of management to the board) and greater capacity of the board for independent decision-making. However, it is not unusual for the chairman and CEO of listed companies to be the same person.

In addition, companies should disclose the relationship between the chairman and CEO where they are immediately related. Companies should appoint an independent non-executive director to be the lead independent director where the chairman and the CEO:

  • are the same person;
  • are related by close family ties;
  • the chairman is part of the executive management team; or
  • the chairman is not independent.

The independent directors of a Singapore-listed company should make up at least half of its board under any of the four specific scenarios listed in question 22.

The lead independent director (if appointed) should be available to shareholders where they have concerns and for which contact through the normal channels of the chairman, CEO or chief financial officer (or equivalent) has failed to resolve or is inappropriate.

Board committees

What board committees are mandatory? What board committees are allowed? Are there mandatory requirements for committee composition?

The CA 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 chairman of the audit committee must not be an executive director or employee of the company or its related corporation.

Additionally, the Code recommends that the audit committee should comprise at least three directors, all non-executive, the majority of whom, including the audit committee chairman, should be independent. At least two members of the audit committee, including the audit committee chairman, 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 recommends that every listed company establishes 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 Guidelines 2.3 and 2.4. The nominating committee should comprise at least three directors, a majority of whom, including the chairman, should be independent. The lead independent director, if any, should be a member of the nominating committee.

The Code also recommends that every listed company establishes 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 chairman, are independent.

Guideline 11 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 risk committee or otherwise assess appropriate means to assist it in carrying out the responsibility of overseeing the company’s risk management framework and policies.

Board meetings

Is a minimum or set number of board meetings per year required by law, regulation or listing requirement?

Neither the CA nor the Rules prescribe a minimum number of board meetings to be held each year. The Code recommends that the board meets regularly and as warranted by particular circumstances, as deemed appropriate by the board members.

Board practices

Is disclosure of board practices required by law, regulation or listing requirement?

The Code recommends that listed companies 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;
  • the number of board and board committee meetings held in the year, and the attendance of every board member at these meetings;
  • the type of material transactions that require board approval under internal guidelines;
  • where the company considers a director to be independent in spite of 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;
  • where the board considers an independent director, who has served on the board for more than nine years from the date of his or her first appointment, to be independent, the reasons for considering him or her independent;
  • the relationship between the chairman and CEO where they are related to each other;
  • the composition of the nomination, remuneration and audit committees;
  • the process for the selection and appointment of new directors to the board;
  • the process for assessing the effectiveness of the board as a whole and the contribution of each individual director; and
  • the maximum number of listed company board representations that its directors may hold.

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?

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 recommends 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 by 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 recommends that executive directors’ remuneration should be structured to link rewards to corporate and individual performance, and long-term incentive schemes are encouraged. Executive directors’ remuneration should be linked to their level of contribution 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 recommends 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.

Listed companies typically provide in their constitutions that directors are to resign and present themselves for re-election at least every three years, as recommended by the Code. 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.

Directors are not prohibited from dealing with the company but they must disclose to the board any interest (whether direct or indirect) that they 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 recommends that the remuneration committee should recommend to the board a framework of remuneration and the specific remuneration package for the CEO or executive of equivalent rank, and review the remuneration of senior management.

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 public-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, any provision (whether in the constitution or in any contract or otherwise) exempting an officer (including a director) from or indemnifying him or her against liability for negligence, default, breach of duty or breach of trust is void. Although limited exemptions exist in relation to defending any proceedings in which he or she is acquitted or judgment is given in his or her favour. The court may also relieve directors from the consequences of their 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.

However, a company may purchase and maintain insurance against such liability for its officers or indemnify an officer against any liability incurred by him or her.

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. Shareholders cannot, however, ratify an illegal act. Additionally, under the CA, the court has the power to relieve directors from the consequences of their negligence, default, breach of duty or breach of trust, but the court will only exercise such power to excuse directors who have not received the company’s property in breach of trust. See also question 31.


What role do employees play in corporate governance?

At present, employees do not play 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 recommends that the audit committees ensure that appropriate measures are put in place for employees to raise any concerns in strict confidence with regard to any act of misfeasance by the management, together with an appropriate follow-up independent investigation of the concerns raised.

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 recommends a formal assessment of the effectiveness of the board as a whole and the contribution made by each director. The evaluation process should be carried out by the nominating committee, and the results of the assessment should be disclosed in the company’s annual report.

The Code further recommends that the nominating committee put together objective performance criteria to measure the board against. This should allow comparison with its industry peers and address how the board has enhanced long-term shareholder’s value (eg, the company’s return on investment, return on equity, return on assets over a long-term period). Individual evaluation should aim to assess whether each director continues to contribute effectively and demonstrates commitment to the role.

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 from ACRA, for a fee. However, such constitution may not include any amendments to it made pursuant to resolutions. While resolutions made 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.

Company information

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 company for each full financial year and for each of the first three-quarters of its financial year.

The Code sets out additional matters that listed companies are encouraged to disclose in their annual reports, such as the remuneration of directors and key executives, the policy on remuneration, details of employee share schemes and the adequacy of internal control systems.

Hot topics


Do shareholders have an advisory or other vote regarding executive remuneration? How frequently may they vote?

Payments to directors in his or her capacity as a director or otherwise in connection with the affairs of the company must be approved by an ordinary resolution of the shareholders at the annual general meeting. However, payment of a director’s fees for services rendered need only be approved by the board. Executive directors’ remuneration falls within the purview of the remuneration committee. However, where the executive directors’ 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.

Shareholder-nominated directors

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, the shareholders can nominate directors without the recommendation of the board (see questions 3 and 7).

Shareholder engagement

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 recommends that listed companies actively engage their shareholders and put in place an investor relations policy to promote regular, effective and fair communication with shareholders. Some of the recommended ways in which companies can engage their shareholders that are set out in the Code include disclosing information through a company website and establishing regular dialogue by way of analyst briefings or investor roadshows. The foregoing is in addition to annual meetings, which are required by all companies under the Act.

Typically, for engagement efforts outside annual meetings, representatives from listed companies are limited to management. At annual meetings, engagement efforts are usually led by the directors and senior management. However, for annual meetings and extraordinary general meetings where the listed company is seeking approval from shareholders for specific transactions or corporate actions, it is common for the relevant outside counsel to be present to answer shareholder queries.

Sustainability disclosure

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 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
  • 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 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 the company should report to shareholders annually on the remuneration of directors, the CEO and at least the top five key management personnel.

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.

Listed companies can highlight gender, skills and experience as an ESG factor material to business sustainability in their sustainability report (see question 40). If diversity is not assessed to be a material ESG factor by the company, where stakeholders express sufficient interest in the information the issuer is advised to state its policy and actions on its website.

Update and trends

Update and trends

Please identify any new developments in corporate governance over the past year (including any significant proposals for new legislation or regulation, even if not yet adopted). Please identify any significant trends in the issues that have been the focus of shareholder interest or activism over the past year (without reference to specific initiatives aimed at specific companies).

Dual-class shares

SGX-ST has, after extensive public consultation, decided to allow companies with dual-class shares to list on the SGX.

Dual-class share structure would allow companies to issue classes of shares that are entitled to different voting rights or other rights. This would allow founders or other managing shareholders to retain more control of the company, despite holding a small proportion of shares.

From a corporate governance perspective, dual-class shares allow certain shareholders to concentrate voting power and this increases the risk of such shareholders entrenching control. It may also serve to insulate management from challenge and thus, decrease accountability.

The SGX-ST had proposed certain rules and safeguards to mitigate such risks, including and not limited to the dual-class shares structure being an exception that requires justification, all shares to carry one vote during certain circumstances such as appointment and removal of independent directors, and multi-vote shares to carry a maximum of 10 votes.

Nonetheless, allowing for dual-class shares is unlikely to address SGX-ST’s loss of competitiveness, which is the result of other more fundamental problems, most notably small market size and low valuations, and allowing for dual-class share structures is not necessary a solution.

Shareholder activism

In the context of a takeover

A Singapore-listed parent company had been thwarted in its attempt to privatise a London-listed company owing to the latter’s investors being dissatisfied with the terms of the takeover proposal.

The investors had criticised the independent directors of the company for supporting the bid as they believe that the offer is undervalued, and did not reflect the true value of the assets held by the company. The company’s directors had been accused of failing in their duty to create maximum value for all the shareholders, and investors alleged that independent directors should have consulted other shareholders regarding the offer.

Such privatisation exercises also allow the controlling shareholder to unlock value in the target for its shareholders, especially where the cash or asset rich target is trading at low valuations.

Action against management

Singapore has seen a rise in shareholder activism in recent years. A case study is that of an under-performing Real Estate Investment Trust (REIT) listed on the SGX-ST, with investors who are dissatisfied with the REIT manager owing to reasons such as poor occupancy rates, a dilutive rights issue and high remuneration of the management despite poor performance.

The investors coalesced and took steps for collective action against the REIT managers, which include proposing to vote against the general mandate for the rights issue, and arranging a meeting to remove the REIT manager, which requires at least 50 unit holders or those representing no less than 10 per cent of total units to request for such a meeting.

As a result of such discontent from the investors, the REIT had undertaken a strategic review that resulted in a cut in directors’ fees and a new chief executive officer for its manager. The REIT had also appointed a third independent, non-executive director to join the audit committee.

The fact that significant minority investors had taken initiative to drum up support for the campaign and that investors have gathered on social media to demand action from the REIT managers is demonstrative that shareholder activism in publicly-listed companies is taking off all over the world, including Singapore.