All questions

Corporate leadership

i Board structure and practices

Singapore companies have a single-tier board of directors where the role of the board is governed by the constitutional documents of the company and by statute. In particular, Section 157A of the CA provides that the business of a company shall be managed by, or be under the direction or supervision of, the directors; and that the directors may exercise all the powers of a company, except for any power that the CA or the constitution of the company requires the company to exercise at a general meeting of shareholders.

The Practice Guidance provides that the board's role is to:

  1. provide entrepreneurial leadership, and set strategic objectives, which should include appropriate focus on value creation, innovation and sustainability;
  2. ensure that the necessary resources are in place for the company to meet its strategic objectives;
  3. establish and maintain a sound risk management framework to effectively monitor and manage risks, and to achieve an appropriate balance between risks and company performance;
  4. constructively challenge management and review its performance;
  5. instil an ethical corporate culture, and ensure that the company's values, standards, policies and practices are consistent with that culture; and
  6. ensure transparency and accountability to key stakeholder groups.

The Listing Manual requires a listed company's board to have at least two non-executive directors who are independent and free of any material business and financial connection with the listed company. In addition, the latest iteration of the Code provides that non-executive directors are to make up a majority of the board, and independent directors should make up at least one-third of the board. Where the chairperson is not an independent director, the independent directors are to make up the majority of the board. 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 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 judgement in the best interests of the company.

The chairperson and the CEO are to be separate persons to ensure an appropriate balance of power, increased accountability and greater capacity of the board for independent decision-making. The relationship between the chairperson and the CEO of a listed company must be disclosed if they are immediate family members.

The Practice Guidance provides that the chairperson's overall role is to lead and ensure the effectiveness of the board, which includes promoting a culture of openness and debate at the board; facilitating the effective contribution of all directors; and promoting high standards of corporate governance.

Externally, the chairperson is the face of the board, and should ensure effective communication with shareholders and stakeholders. Within the company, the chairperson should ensure appropriate relations within the board, and between the board and management, in particular between the board and the CEO. In the boardroom, the chairperson's responsibilities range from setting the board agenda and conducting effective board meetings to ensuring that the culture in the boardroom promotes open interaction and contributions by all.

It should be noted that the definition of a director in the CA includes 'a person in accordance with whose directions or instructions the directors or the majority of the directors of a corporation are accustomed to act': that is, a shadow director.

Committees to be established by the board

The Listing Manual requires that a listed company 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 that clearly set out the authority and duties of the committees. The Code provides that:

  1. the duties of the audit committee include, among other things:
    • reviewing significant financial reporting issues and judgements so as to ensure the integrity of the financial statements of the company and any announcements relating to the company's financial performance;
    • reviewing the adequacy and effectiveness of the company's internal controls and risk management systems;
    • reviewing the assurance from the CEO and the chief financial officer on the financial records and financial statements;
    • making recommendations to the board on proposals to the shareholders on the appointment and removal of the external auditors, and the remuneration and terms of engagement of the external auditors; and
    • reviewing the adequacy, effectiveness, independence, scope and results of the external audit and the company's internal audit function.

    The importance of the audit committee is emphasised by the inclusion of provisions not just in the Code, but also in the CA and the Listing Manual. For example, Section 201B of the CA stipulates the composition and functions of the audit committee. Rule 704(8) of the Listing Manual provides that in the event of any retirement or resignation that renders the audit committee unable to meet the minimum number (not less than three), the listed company should endeavour to fill the vacancy within two months, but in any case not later than three months. Rule 1207(10C) of the Listing Manual requires the audit committee to comment on whether the listed company's internal audit function is independent, effective and adequately resourced;

  2. the role of the nominating committee is to, among other things:
    • make recommendations on the reappointment of each director;
    • determine annually if a director is independent; and
    • recommend for the board's approval the objective performance criteria and process for the evaluation of the effectiveness of the board as a whole, and of each board committee separately, as well as the contribution by the chairperson and each individual director to the board.

    The Practice Guidance also provides that the nominating committee should take into account the number of directorships and principal commitments of each director in assessing whether he or she is able to or has been adequately carried out his or her duties; and

  3. the role of the remuneration committee is to review and make recommendations to the board on a framework of remuneration for the board and key management personnel, and the specific remuneration packages for each director, the CEO and other key management personnel.
Remuneration

The Code provides that the level and structure of remuneration of the board and key management personnel are to be appropriate and proportionate to the sustained performance and value creation of the company, taking into account the strategic objectives of the company. A significant and appropriate proportion of executive directors' and key management personnel's remuneration is to be structured so as to link rewards to corporate and individual performance. Performance-related remuneration is to be aligned with the interests of shareholders and promote the long-term success of the company. Remuneration is to be appropriate to attract, retain and motivate directors to provide good stewardship of the company and key management personnel to successfully manage the company for the long term.

In addition, every company is to be transparent on its remuneration policies, level and mix of remuneration, the procedure for setting remuneration, and the relationships between remuneration, performance and value creation.

For Singapore-incorporated companies, Section 169 of the CA provides that emoluments for a director in respect of his or her office must be approved by a resolution that is not related to other matters.

ii Directors

Singaporean law does not impose an all-embracing code of conduct on directors. In practice, a company's constitution prescribes the ambit of the directors' powers. The duties and responsibilities of directors of Singapore-incorporated companies arise under common law and the CA, and for directors of listed companies, the SFA, the Listing Manual and the Code.

There are two broad categories of directors' duties under common law and statute. They are the duty of good faith (which encompasses specific obligations arising out of the fiduciary obligations of directors) and the duties of care and skill. These duties are owed to the company alone, and not to individual shareholders or groups of shareholders or other members of the company's group.

In relation to the duty of good faith, Section 157(1) of the CA provides, among other things, that a director shall at all times act honestly in the discharge of the duties of his or her office. Section 157(2) of the CA prohibits, among other things, a director from making improper use of his or her position as an officer or agent of the company or any information acquired by virtue of his or her position as an officer or agent of the company to gain, directly or indirectly, an advantage for him or herself or for any other person, or to cause detriment to the company. Section 158 of the CA, however, allows nominee directors to disclose information to their nominating shareholders if authorised by the board of directors by general or specific mandate, provided that such disclosure is not likely to prejudice the company.

In relation to the duties of care and skill, Section 157(1) of the CA also provides that a director must use reasonable diligence in the discharge of the duties of his or her office. Directors have a continuing duty to acquire and maintain a sufficient understanding of the company's business to enable the proper discharge of their duties. However, Section 157C of the CA allows directors to rely on information and advice prepared or supplied by employees, professionals and experts with respect to matters within their respective areas of competence. This statutory protection only applies if the director acts in good faith, makes proper inquiry where the need for inquiry is indicated by the circumstances and if the director has no knowledge that such reliance is unwarranted.

A director's breach of duties may result in the following consequences:

  1. statutory liabilities: Section 157(3) of the CA provides that a director who breaches his or her statutory duties to act honestly and use reasonable diligence in the discharge of his or her duties, or makes improper use of his or her position as an officer or agent of the company or any information acquired by virtue of his or her position, will attract both civil and criminal liabilities. A director who is in breach of any of these statutory duties shall be liable to the company for any profit made by him or her or for any damage suffered by the company as a result of the breach. If he or she is guilty of an offence, he or she is also liable on conviction to a fine or imprisonment. Further, Section 331 of the SFA provides that where an offence under the SFA is committed by a listed company with the consent or connivance of, or is attributable to any neglect on the part of, a director, the director as well as the listed company will be guilty of the offence and liable to be proceeded against;
  2. liabilities under common law: breaches of common law duties also enable the company to take action against a director and sue for its loss;
  3. disqualification and debarment: in certain circumstances, a director may also be disqualified either automatically, or by a disqualification order made by the court against him or her, or be the subject of a debarment order. Such a director will be prohibited from taking part in the management of companies, whether directly or indirectly, during the period of the disqualification or disqualification order; and
  4. sanctions under the Listing Manual: under the Listing Manual, a director is required to immediately resign from the board of directors of a listed company if he or she is disqualified from acting as a director in any jurisdiction for reasons other than on technical grounds. Further, where the SGX-ST is of the opinion that a director or executive officer of a listed company has wilfully contravened any relevant laws, rules and regulations, or refused to extend cooperation to the SGX-ST or other regulatory agencies on regulatory matters, the SGX-ST may take action, including objecting to his or her appointment as an individual director or executive officer in any issuer for a period not exceeding three years. The SGX-ST may refer any contravention of the listing rules to the Disciplinary Committee and also refer possible breaches of directors' duties to other relevant authorities.

A listed company's shareholders need to be satisfied regarding the independence and integrity of its directors. The CA and the SFA lay down the statutory framework governing directors' dealings with the company and securities of the company and its related corporations, and require that certain personal interests be disclosed and approved.

Under the SFA, the interests and any changes in interests of a director or any of his or her family members in securities of a listed company or any of its related corporations must be promptly disclosed to the listed company within two business days.

As fiduciaries, directors must not allow themselves to get into a position where there is a conflict between what they ought to do for the company and what they might do for themselves. An area in which conflicts of interest often arise is the entering into of transactions between the company and a director. Under the CA, a director who is in any way, whether directly or indirectly, interested in a transaction or proposed transaction with the company must, as soon as he or she is aware of the relevant facts, either declare the nature of his or her interest at a board of directors' meeting, or send a written notice to the company containing details on the nature, character and extent of his or her interest in the transaction or proposed transaction with the company. However, this disclosure requirement is not applicable if the interest of the director consists only of being a member or creditor of a company that is interested in a transaction or proposed transaction with the first-mentioned company, if the interest of the director may properly be regarded as not being a material interest.

In addition to the above, subject to limited exemptions, the Listing Manual considers transactions between a listed company and any of its directors (and their respective associates) to be interested person transactions and, therefore, subject to the enhanced disclosure and approval requirements for such transactions.