20 December 2018

On 28 November 2018, Singapore Exchange Limited (“SGX”) issued transitional practice notes on “Transitional Arrangements Regarding Code of Corporate Governance 2018” (“Practice Note”). The Practice Note sets out the transitional arrangements for certain baseline corporate governance practices stipulated in the Code of Corporate Governance issued in May 2012 (“2012 CG Code”) that will be migrated to the Singapore Exchange Securities Trading Limited Listing Rules (Mainboard) and Listing Rules (Catalist) (collectively, “SGX-ST Listing Rules”).

By way of background, on 6 August 2018, the Monetary Authority of Singapore (“MAS”) issued the revised Code of Corporate Governance (“2018 CG Code”). The 2018 CG Code replaces the 2012 CG Code and applies to annual reports of an issuer listed on the SGX-ST (“issuer”) for financial years (“FYs”) commencing on or after 1 January 2019. Important requirements or baseline corporate governance practices stipulated in the 2012 CG Code will be shifted to the SGX-ST Listing Rules, rendering compliance with these requirements mandatory. Amendments to the SGX-ST Listing Rules to implement these requirements will take effect on 1 January 2019, with the exception of those relating to board composition that will take effect on 1 January 2022.

Changes effective from 1 January 2019

Directors to be re-nominated and re-appointed at least once every three years

With effect from 1 January 2019, the SGX-ST Listing Rules will require all directors of an issuer, including executive directors, to submit themselves for re-nomination and re-appointment at least once every three years. The Practice Note clarifies that:

  • A director who is appointed or re-appointed before 1 January 2019 must submit himself for re-nomination and re-appointment at a general meeting before 31 December 2021 (i.e. within three years from 1 January 2019). 
  • A director who is appointed or re-appointed on or after 1 January 2019 must submit himself for re-nomination and re-appointment at a general meeting by the end of the calendar year of the third anniversary of his appointment or re-appointment.

Description of corporate governance practices with reference to 2018 CG Code

On 1 January 2019, the SGX-ST Listing Rules will be amended to provide that an issuer is required to describe in its annual report its corporate governance practices with specific reference to the principles and provisions of the 2018 CG Code, in accordance with the amendments to Rule 710 of the SGX-ST Listing Rules (Mainboard) or Rule 710 of the SGX-ST Listing Rules (Catalist), as the case may be (collectively, “Amended Rule 710”). The Practice Note clarifies that this requirement applies to an annual report for any FY commencing on or after 1 January 2019. The first batch of annual reports that describes issuers’ corporate governance practices with specific reference to the principles and the provisions of the 2018 CG Code will likely be issued in 2020 or thereafter.

Enhanced disclosures in annual reports on adequacy and effectiveness of issuers’ internal controls and risk management systems

On 1 January 2019, the SGX-ST Listing Rules will provide that the annual report of an issuer must disclose the Board’s comment on the adequacy and effectiveness of the issuer’s internal controls (including financial, operational, compliance and information technology controls) and risk management systems. The Practice Note clarifies that this new disclosure requirement applies to the annual report of an issuer for its FYs commencing on or after 1 January 2019.

Directors are not independent if they or their immediate family members are employed by issuer or its related corporations

The Practice Note clarifies that on or after 1 January 2019, a director will not be an independent director (“ID”) if he/she:

  • Is employed by the issuer or its related corporations for the current or any of the past three FYs; and/or
  • Has an immediate family member who is employed or has been employed by the issuer or its related corporations for the past three FYs, and whose remuneration is determined by the remuneration committee of the issuer.

Such a director may remain on the Board as a non-ID.

Prior to 1 January 2022, Guideline 2.1 of the 2012 CG Code applies to an issuer on a comply-or-explain basis. Guideline 2.1 of the 2012 CG Code provides that there should be a strong and independent element on the Board, with IDs making up at least one-third of the Board. Therefore, should the change in the independence of such a director result in the issuer deviating from Guideline 2.1 of the 2012 CG Code, the issuer must provide appropriate explanation for such a deviation.

Changes effective from 1 January 2022

Independent directors to make up one-third of the Board

On or after 1 January 2022, an issuer must ensure that at least one-third of its Board is made up of IDs. To ensure compliance with this requirement, the issuer must ensure that the requisite number of IDs are appointed prior to 1 January 2022.

Two-tier vote on independence of directors serving more than nine years

On or after 1 January 2022, a director who has been a director for an aggregate period of more than nine years (whether before or after listing) will not be considered an ID unless his appointment as an ID is approved in separate resolutions by the majority of: (1) all shareholders; and (2) all shareholders, excluding shareholders who also serve as the directors or chief executive officer (“CEO”) of the issuer (and their associates). The two-tier vote will be valid for a term of the ID appointment (up to three years). The directors and the CEO of the issuer and their respective associates must not accept appointment as proxies unless specific instructions as to voting are given.

To ensure that the independence designation of a director who has served more than nine years as at and from 1 January 2022 is not affected, an issuer should seek and obtain approvals for his continued appointment as an ID prior to 1 January 2022. For example, the issuer may do so at the issuer’s annual general meeting in calendar year 2021.

Prior to 1 January 2022, Guideline 2.4 of the 2012 CG Code continues to apply to an issuer on a comply-or-explain basis. Guideline 2.4 of the 2012 CG Code states that the independence of any director who has served on the Board beyond nine years from the date of his first appointment should be subject to particularly rigorous review.

Reference materials

The following materials are available from the SGX website www.sgx.com:

SGX-ST Listing Rules (Mainboard)

SGX-ST Listing Rules (Catalist)  

 

Download PDF