19 January 2023
On 11 January 2023, Singapore Exchange Regulation (“SGX RegCo”) announced that it will limit to nine years the tenure of independent directors (“IDs”) serving on the boards of issuers listed on Singapore Exchange Securities Trading Limited (“SGX-ST”) (“issuers”) and require issuers to disclose the exact amount and breakdown of remuneration paid to directors and the chief executive officer (“CEO”) in their annual reports.
The new requirements follow a public consultation launched by SGX RegCo on 27 October 2022 (“Consultation”) arising from recommendations made by the Corporate Governance Advisory Committee following a review of listed companies’ disclosures on their compliance with the Code of Corporate Governance (“CG Code”).
The SGX-ST Listing Rules (Mainboard) (“Mainboard Rules”) and the SGX-ST Listing Rules (Catalist) (“Catalist Rules”) (together, “Listing Rules”) were amended on 11 January 2023 to reflect the new requirements.
Hard tenure limit of nine years for IDs
The new requirements impose a hard tenure limit for IDs of nine years, beyond which such directors will no longer be considered independent. However, such directors may continue to be considered independent until the conclusion of the next annual general meeting (“AGM”) of the issuer.
Effective immediately on 11 January 2023, the two-tier vote mechanism for issuers to retain long-serving IDs (“LSIDs”) who have served for more than nine years has been removed. Previously, LSIDs could continue to be deemed independent as long as their appointment was approved by all shareholders, and then by all shareholders excluding the directors and the CEO of the issuer, and associates of these directors and CEO. SGX RegCo noted that this mechanism was widely used by issuers to retain LSIDs, inhibiting board renewal and progress on board diversity.
To provide issuers sufficient time for board appointments, SGX RegCo has established transitional arrangements and will implement the nine-year limit at issuers’ AGMs for the financial year ending on or after 31 December 2023. The transitional arrangements apply between 11 January 2023 and the date of the issuer’s AGM for the financial year ending on or after 31 December 2023 (“Transitional Period”). During the Transitional Period, LSIDs whose tenure exceeds the nine-year limit may continue to be considered independent until the conclusion of the next AGM of the issuer for the financial year ending on or after 31 December 2023.
During the Transitional Period
By way of illustration, if an issuer’s financial year ends on 31 December and if an LSID has served on the board of the issuer for an aggregate period of more than nine years as of 11 January 2023, the LSID will have his or her status as an ID “grandfathered” and may remain as an ID on the board until the issuer’s AGM held in April 2024. Should his or her term expire in April 2023, he or she may be re-elected as an ID at the issuer’s AGM held in April 2023 and the two-tier vote will not apply. However, such LSID must either step down or be redesignated as non-independent no later than the issuer’s AGM held in April 2024.
After the Transitional Period
Looking ahead, using another example to illustrate the operation of the amended Listing Rules after the Transitional Period, where another LSID of the same issuer reaches his or her nine-year term several years later, say, on 30 November 2027, the LSID will have his or her status as an ID “grandfathered” and may remain as an ID on the board until the issuer’s next AGM held in April 2028, where such LSID must either step down or be redesignated as non-independent.
SGX RegCo noted in its response feedback received from the Consultation (“Response”) concerning the potential loss of LSIDs with valuable knowledge and experience. However, SGX RegCo emphasised that the new rules will still allow issuers to retain their LSIDs even though they may be redesignated as non-independent, and it will be up to issuers to decide on the appropriate board size and composition taking into account their circumstances and regulatory requirements. It is therefore important for issuers to be cognisant of and alert to the fact that decisions surrounding succession planning and refreshment of the board composition should be made in advance. Given that the search for suitable candidates to assume the role of ID may take some time, it is imperative for the board not to defer such decisions until the LSID loses his status as an ID.
SGX RegCo also highlighted that in a reverse takeover (“RTO”) scenario, a director’s years served on the issuer’s board prior to the RTO will be included in calculating their tenure length under the new rules. For listings, the director’s years served on the issuer’s board prior to the listing will also be included in calculating their tenure length under the new rules.
Similar to the previous two-tier mechanism, the new requirements imposing a hard tenure limit for IDs of nine years do not apply to real estate investment trusts (“REITs”) and business trusts (“BTs”) given that there are separate requirements under the Securities and Futures Act 2001 and the Business Trusts Act 2004 which substantively address corporate governance requirements under the new rules.
Mandatory disclosure of exact remuneration of directors and CEOs
SGX RegCo will proceed to require issuers to disclose in their annual reports the exact amount and breakdown of remuneration paid to individual directors and the CEO (on a named basis) by the issuer and its subsidiaries. The Listing Rules will require the breakdown of remuneration to include (in percentage terms) base or fixed salary, variable or performance-related income or bonuses, benefits in kind, stock options granted, share-based incentives and awards, and other long-term incentives, in line with Practice Guidance 8 of the CG Code. On whether disclosures of share awards should be based on their value at grant or receipt, SGX RegCo noted that issuers should use the approach that would more clearly reflect how such incentives link with the issuer’s performance for the associated period and long-term value creation.
SGX RegCo believes that the increased transparency will enable investors to assess whether the directors and CEO are appropriately incentivised in line with shareholder interests. While SGX RegCo notes the competitive, sensitivity and privacy concerns raised by some respondents, it is of the view that these considerations are outweighed by the issuer’s fiduciary duty to act in the best interest of the company and its shareholders. Issuers concerned with unfair comparisons may buttress their disclosures with an explanation on why the remuneration is of an appropriate level.
This amendment to the Listing Rules will also apply to REITs and BTs. In its Response, SGX RegCo said that the remuneration information of the directors and CEO of the REIT manager and the BT trustee-manager would be useful for investors to make their evaluations on whether incentive plans are aligned with unitholders’ interests, even if the remuneration is not paid out of the assets of the REIT or BT, particularly as the interests of unitholders are not necessarily the same as that of the manager or trustee-manager.
The Listing Rule amendments on remuneration disclosures will apply to annual reports for issuers’ financial years ending on or after 31 December 2024, to provide time for issuers to prepare for this requirement.
Amendments to CG Code to reflect new requirements
The Monetary Authority of Singapore (“MAS”) also introduced amendments to the CG Code on 11 January 2023 to reflect the changes to the Listing Rules on the tenure of IDs and disclosure of remuneration of directors and CEOs.
MAS will also amend the Notice to All Holders of a Capital Markets Services Licence for Real Estate Investment Trust Management (REIT Managers) (MAS Notice SFA 04-N14) to reflect the change in remuneration disclosure requirements for directors and CEOs of REIT managers to mandatory from comply or explain. The amendments will take effect on 1 January 2025, in alignment with the implementation of the requirement in the Listing Rules.
- SGX: Responses to Comments on Consultation Paper “Board Renewal and Remuneration Disclosures” (11 January 2023) (accessible from this webpage)
- MAS press release: MAS revises the Code of Corporate Governance to reflect independent director tenure limit and mandatory renumeration disclosure for directors and CEOs
- Amendments to Mainboard Rules: Board Renewal and Remuneration Disclosures (effective 11 January 2023)
- Amendments to Catalist Rules: Board Renewal and Remuneration Disclosures (effective 11 January 2023)
- Amendments to Mainboard Rules and Catalist Rules: Practice Guidance 2 and 8 of the Code of Corporate Governance (effective 11 January 2023)
- Code of Corporate Governance (last amended 11 January 2023)
- Practice Guidance (11 January 2023)