31 January 2018

On 16 January 2018, the Corporate Governance Council (“Council”) released a consultation paper setting out its recommendations to enhance the Code of Corporate Governance (“Consultation Paper”). The Code of Corporate Governance (“Code”) was last revised in 2012.

In February 2017, the Monetary Authority of Singapore established the Council to review the Code. In arriving at the recommendations set out in the Consultation Paper, the Council took into account views from a range of stakeholders, including investors, the business community, industry organisations and professionals who work closely with listed issuers. The key focus of the recommendations is to, among other things, reinforce competencies of the board of directors of issuers listed on the Singapore Exchange Securities Trading Limited through encouraging board renewal, strengthening director independence and enhancing board diversity.

Comments on the Consultation Paper must be submitted to the Council by 15 March 2018.

Streamlining the Code

The Council considered how the “comply-or-explain” regime under the Code can be enhanced and recommends streamlining the Code to focus on key tenets of corporate governance and for more thoughtful and meaningful application.

 Certain Guidelines in the Code which the Council has identified as important requirements or baseline market practices are recommended to be shifted to the SGX-ST Listing Rules (Mainboard) and Listing Rules (Catalist) (collectively, “SGX-ST Listing Rules”) for mandatory compliance.

In reviewing and re-drafting the remaining provisions of the Code, the Council has also proposed new requirements, all of which will continue to apply on a “comply-or-explain” basis.

Important requirements recommended for mandatory compliance

The requirements in the Code that the Council proposes to shift to the SGX-ST Listing Rules for mandatory compliance include the following:

  • Independent directors to make up at least one-third of the Board: An issuer will be required to ensure that at least one-third of its board of directors (“Board”) is comprised of independent directors (“IDs”).
  • Four circumstances where directors are deemed not to be ID to be prescribed in SGX-ST Listing Rules: Issuers are required to apply the following objective and baseline tests which deem a director not to be independent:
    • Director who was employed by the issuer or its related corporations for the current or any of the past three financial years;
    • Director whose family member was employed by the issuer or its related corporations for the current or any of the past three financial years, with the family member’s remuneration determined by the remuneration committee;
    • Director who is, or has an immediate family member who is, a substantial shareholder of the issuer (“Substantial Shareholder Rule”); and/or
    • Director who has served on the Board for more than nine years since the date of the director’s first appointment (“Nine-year Rule”).
  • Requirements for Nine-year Rule to be prescribed in SGX-ST Listing Rules: The requirements of the Nine-year Rule will be prescribed in the SGX-ST Listing Rules. The Consultation Paper proposes two options for the Nine-year Rule, namely:
    • Option 1: To incorporate the Nine-year Rule as a hard limit; or
    • Option 2: To subject the appointment of IDs who have served more than nine years to a two-tier vote which must be approved by the majority of (a) all shareholders; and (b) non-controlling shareholders in separate resolutions.
  • Lowering shareholding threshold for assessing IDs - Substantial Shareholder Rule: Currently, the Code deems, among others, a director who is, or has an immediately family member who is, a 10% shareholder of the issuer to be not independent. The Council proposes to lower the 10% threshold to 5%, aligning it with the definition of “substantial shareholder” in the Securities and Futures Act.

Draft revised Code under the “comply-or-explain” regime

The Council proposes that the Code will continue to apply on a “comply-or-explain” basis. The draft revised Code proposed by the Council consists of Principles and Provisions. The Principles are overarching and non-disputable statements which embody the fundamentals of good corporate governance. The Provisions are actionable steps that guide an issuer in complying with the substance of the Principles.

It is proposed that the SGX-ST Listing Rules will provide that issuers must comply with the Code Principles. An issuer’s practices may vary from the Code Provisions. However, the issuer must explicitly state, in its Annual Report, the Code Provision from which it has varied, explain the reason for variation, and explain how the practices it had adopted are consistent with the intent of the relevant Code Principle.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg:


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