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Revision Of Code Of Corporate Governance & Listing Rules

The revised code will take effect for companies in respect of annual reports covering financial years that commence from 1 January 2019.

Authored By

Mr Chin Chee Choon

Advisory Leader


On 6 Aug 2018, the Corporate Governance Council (“Council”) submitted its recommendations to the Monetary Authority in Singapore (MAS) whereby the authority has accepted all the recommendations and issued a revised Code (“Revised Code”) and accompanying Practice Guidance.

1. Revised code of corporate governance

The original 16 Principles in the Current Code have been condensed into 13 mandatory Principles for the Revised Code.

Principle 2 – Board composition and guidance
Director independence
• “An “independent” director is one who is independent in conduct, character and judgement, and has no relationship with the issuer, 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 issuer.”
• Baseline tests relating to employment have been shifted to the Catalist Rule- CR406(3)(d).
• The shareholding threshold for independent directors (“IDs”) has been revised from 10% to 5%.

Board composition
• At least one third of the board should consist of IDs will be moved to CR406(3)(c) (starting 1 January 2022).
• IDs are to comprise a majority of the board (from “at least half” in the Current Code) where the Chairman is not independent.
• The Board should comprise a majority of non-executive directors.

Board diversity
• The issuer has to disclose in the annual report about its board diversity policy and progress to achieve the board diversity policy and objectives.

Principle 4 – Board membership
• The Board has to take into account the need for the Board’s progressive renewal. In addition to having a formal and transparent process for the appointment and re-appointment of directors.
• If a director holds a significant number of directorships and Principal Commitments, the Nominating Committee (NC) and Board should disclose in the annual report, their reasoned assessment of the director’s ability to diligently discharge his/her duties. This is in addition to the disclosure in the annual report of the directors’ listed company directorship and principal commitments.

Principle 8 – Disclosure on remuneration
• Required to disclose the relationship between remuneration, performance and value creation. Disclosure includes names and remuneration of employees who are substantial shareholders or immediate family of substantial shareholders.
• In addition to employees who are immediate family members of a director or the CEO, where such remuneration exceeds S$100,000 during the year (instead of S$50,000), in bands no wider than S$100,000 (instead of S$50,000).

Principle 9 – Risk management and internal controls
• Board requires and to disclose in the company’s annual report that it has received assurance from:
– The CEO and the CFO that the financial records have been properly maintained and the financial statements give a true and fair view of the company’s operations and finances; and
– The CEO and other key management personnel who are responsible, regarding the adequacy and effectiveness of the company’s risk management and internal control systems.

Principle 10 – Audit committee
Duties of the AC are as listed. Revisions and addition to AC’s duties are indicated accordingly:
a) No change- Reviewing the significant financial reporting issues and judgements so as to ensure the integrity of the financial statements of the issuer and any announcements relating to the issuer’s financial performance;
b) No change- Reviewing at least annually the adequacy and effectiveness of the issuer’s internal controls and risk management systems;
c) New- Reviewing the assurance from the CEO and the CFO on the financial records and financial statements;
d) No change- making recommendations to the Board on: (i) the proposals to the shareholders on the appointment and removal of external auditors; and (ii) the remuneration and terms of engagement of the external auditors;
e) Revised- Reviewing the adequacy, effectiveness, independence, scope and results of the external audit and the issuer’s internal audit function; and
f) New – Reviewing the policy and arrangements for concerns about possible improprieties in financial reporting or other matters to be safely raised, independently investigated and appropriately followed up on. The issuer publicly discloses, and clearly communicates to employees, the existence of a whistle-blowing policy and procedures for raising such concerns.

Principle 11 – Shareholder rights and conduct of general meetings
• Companies should table separate resolutions at general meetings of shareholders on each substantially separate issue unless the issues are interdependent and linked so as to form one significant proposal.
• All directors have to attend the general meetings of shareholders. The external auditors must also be present to address shareholders’ queries about the conduct of audit and the preparation and content of the auditors’ report.
• Companies have to publish minutes of general meetings of shareholders on its corporate website as soon as practicable (instead of upon shareholder request under the current Guideline).

Principle 13 – Engagement with stakeholders
• Engagement with Stakeholders is a new Principle introduced to ensure that companies balance the needs and interests of material stakeholders. The issuer has to:
– Put in place arrangements to identify and engage with its material stakeholder groups to manage its relationships;
– Discloses in its annual report its strategy and key areas of focus in relation to the management of stakeholder; relationships during the reporting period.
– Maintain a current corporate website to communicate and engage with stakeholders.

2. Revised Catalist Rules (“CR”)

SGX amended its Listing Rules following the MAS acceptance of the Revised Code. The amended listing rules will take effect on 1 January 2019, except for (b) and (d).

a) Training for first-time directors
• Directors who has no prior experience as a director of a listed issuer on SGX (a “First-Time Director”) will have to go through training in the roles and responsibilities of a director of a listed issuer.
• The issuer must ensure that the First-Time Director has gone through trainings prescribed by the SGX.
• If the NC is of the view that training is not required because the director has other relevant experience, the basis of its assessment must be disclosed.
• However, SGX has the authority to direct a First-time Director to attend the prescribed trainings in the Singapore Institute of Directors (SID) within one year from the date of appointment to the board or listing. List of trainings required include LED 1-4.
• First-Time Director must also attend modules (LED5-8) that are relevant to his/her appointment on the Board.

b) IDs to make up at least one-third of the Board
• IDs are to make up at least one-third of the board, starting 1 January 2022. This applies to listing aspirants and listed companies on an on-going basis.
• After the new requirement takes effect, if an ID retires or resigns and the issuer is unable to meet the Board composition requirement, a grace period of no more than 3-months will be provided for the issuer to fill the vacancy.
• Prior to 1 January 2022, the corresponding Guideline 2.1 from the current CG Code (2012) will continue to apply, which similarly requires IDs making up at least 1/3 of the Board.

c) Tests of director independence
Test of director independence has been rationalised in the Code and Listing Rules by:
• Shifting objective and baseline test relating to employment to the Listing Rules, CR406(3)(d), to reflect that companies should apply these without exceptions.
• Revised Code (Provision 2.1). Setting out an overarching principle-based definition of director independence in the Code and placing the onus on the NC to determine if a director is independent bearing in mind this definition and any other salient factors.
• Non-binding Practice Guidance. Shifting the remaining tests of director independence, to provide companies with flexibility in applying these tests while adhering to the overarching principle-based test in the Code.

d) Term of an ID to be limited to 9-years (effective 1 Jan 2022)
• IDs who have served beyond nine years are subjected to a two-tier vote to be approved by the majority of (i) all shareholders; and (ii) all shareholders excluding shareholders who also serve as directors or the CEO (and their associates).

e) Disclosure of relationship between Chairman and CEO
• The relationship between the chairman and chief executive officer of the issuer must be disclosed if they are “immediate” family members in the annual report.

f) Establishment of Board Committees
• Issuers are required to establish committees to perform the functions of an Audit Committee, Nominating Committee and Remuneration Committee. This obligation is required on an on-going basis under CR720(1).

g) Re-nomination and re-appointment of directors at least once every three years
• Issuers must ensure that all directors submit themselves for re-nomination and re-appointment at least once every 3 years.
• When a candidate is proposed to be appointed for the first time or re-elected to the board at a general meeting, the issuer shall provide the information relating to the candidate as set out in Appendix 7F of the Catalist Rules in the Notice of meeting, Annual report or relevant Circular distributed to shareholders prior to the general meeting.
• Thereafter, the issuer must announce the outcome of the shareholder vote in accordance with CR704(15).

h) Key information regarding directors
• CR720(5) and Appendix 7F- relates to the Announcement of Appointment.
• The baseline of information prescribed in Appendix 7F has to be announced in the notice of meeting, annual report or relevant circular (which are distributed prior to the general meeting) for
(i) candidates proposed to be appointed for the first time, or;
(ii) directors re-elected to the board, at a general meeting.

• Under the new Appendix 7F, new insertions include:
(i) Date of last re-appointment (if applicable);
(ii) Professional qualifications;
(iii) Any relationship (including immediate family relationships) with any existing director, existing executive officer, the issuer and/or substantial shareholder of the listed issuer or of any of its principal subsidiaries;
(iv) Other Principal Commitments including Directorships. Principal Commitments which is defined under the CG Code: includes all commitments which involve significant time commitment.

i) Adequacy and effectiveness of internal controls and risk management systems
• Disclosure must be made in the offer document whereas Rule 1204(10) requires the disclosure to be in the annual reports. Under the new amendments, both rules require the following:
i. The Board must comment on the adequacy and effectiveness of the issuer’s internal controls (including financial, operation, compliance and information technology controls) and risk management systems. A statement is required from the AC on whether it concurs with the Board’s comment.
ii. Where material weaknesses are identified by the board or audit committee, they must be disclosed together with the steps to address them.

j) Internal audit function
• An issuer must establish and maintain on an ongoing basis, an effective internal audit function that is adequately resourced and independent of the activities it audits.
• Issuers may outsource internal auditors to third party firms.
• The AC must comment on whether the internal audit function is independent, effective and adequately resourced.

k) Disclosure on reasons for not paying dividends
• The issuer is required to disclose reasons should directors decide not to declare or recommend a dividend.
• Dividend payment is not compulsory. The disclosure requirement serves as a starting point for companies to communicate with their shareholders on their strategy and performance to align expectations.

l) Comply-or-explain regime
• An issuer must describe in its annual report its corporate governance practices with specific reference to the principles and provisions of the Code. An issuer must comply with the principles of the Code.
• If an issuer’s practices vary from any provisions of the Code, it must clearly state, in its annual report, the provision from which it has varied, explain the reason for the variation, and explain how the practices it had adopted are consistent with the intent of the relevant principle.

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