29 September 2022

On 13 September 2022, Singapore Exchange Regulation (“SGX RegCo”) announced that it will be consulting on proposals to hard code the nine-year limit for independent directors (“IDs”) and to require the actual remuneration of directors and CEOs to be disclosed.

Following the publication of the SGX Corporate Governance Code Disclosure Survey Report dated June 2022, SGX RegCo said that board renewal and remuneration matters remain areas where improvement is needed. In the disclosure review, KPMG in Singapore evaluated information in annual reports and company websites based on the 2018 Code of Corporate Governance. Annual reports of 585 listed companies whose financial years ended between 1 July 2020 and 30 June 2021 (both dates inclusive) were reviewed.

Nine-year limit for independence directors 

The study found that about half of the companies disclosed that they had IDs serving beyond nine years, and that 24% of directors surveyed thought a hard limit of nine years should apply to IDs. The study also found that disclosures on why companies considered individual long-serving IDs as independent were often lengthy but “not so meaningful”.

Commenting on the findings, SGX RegCo CEO Tan Boon Gin said that board renewal and disclosure of directors’ and CEOs’ remuneration are important for board independence, effectiveness and accountability, which in turn contribute to the sustainability of companies. SGX RegCo had expected companies to use the two-tier vote sparingly to retain quality independent directors beyond nine years. Instead, companies rushed to use the two-tier vote to retain long-serving directors despite SGX RegCo cautioning against this. Based on a study by Associate Professor Victor Yeo of Nanyang Business School, 70% of 391 long-serving IDs seats up for re-election were put to the two-tier vote. Even for the 172 long-serving ID seats not due for re-election, 73% were put up for re-election via the two-tier vote. Were this to continue, the renewal and diversity outcomes being sought may not be achieved. SGX RegCo will therefore consult on hard coding the nine-year limit for independent directors.

Disclosure of directors’ and CEO remuneration

The study found that most companies continued to report remuneration of directors, CEOs and key management personnel in bands. In addition, disclosures on how remuneration was determined were mostly high level, and companies often did not explain how remuneration, performance and value creation were related.

Mr Tan said that the review showed that remuneration disclosures remain poor. Addressing the argument that remuneration details should be kept vague for competitive reasons, Mr Tan said that the information is important for understanding the link between business performance and financial rewards. SGX RegCo is of the view that remuneration details of directors and the CEOs should be transparent as they have a fiduciary duty and the question of competition is less of a concern. SGX RegCo will therefore be consulting on requiring the actual remuneration of directors and CEOs to be disclosed.

Reference materials 

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