SINGAPORE (Jan 16): The Corporate Governance Council is calling for public feedback on a simplified set of recommendations on how listed companies here can practise good corporate governance.

The Council, which was formed last February, wants the Code of Corporate Governance to be more user friendly for company boards to adhere to.

For one, the total word count of the Code will be halved and number of principles and provisions will see a net reduction.

“Given the rapid pace of change in today’s world of business and markets, MAS deemed it timely to take stock of how the Code has fared in practice and to evaluate developments since then in corporate governance in other comparable jurisdictions,” says Chew, who is the former chairman of Singapore Exchange (SGX) and former CEO of Singapore Airlines.

Norms and rules of behaviour for Singapore listed companies come under three tiers: SGX’s Listing Rules, with its mandatory and prescriptive nature, sits at the top. The SGX Listing Rules are then followed by the Code of Corporate Governance, a set of recommendations – and not obligations – which allows companies which are not able to comply with listing rules to explain why. Last but not least, the set of Practice Guidance which elaborates on what can be done in specific areas.

Chew was speaking on 16 Jan at the ACRA-SGX-SID Audit Committee seminar organised jointly by these three bodies: the Accounting and Corporate Regulatory Authority; the SGX and the Singapore Institute of Directors.

MAS says it “welcomes” the recommendations put forward by the Council, which will be open for public consultation for two months. The revisions will be implemented in the second half of this year.

The Council’s proposed revision comes just a week after SGX launched a public consultation to see if mandatory quarterly reporting – which applies to companies with a market value when listed of $75 million – should have this threshold doubled to $150 million.

The exchange cited disproportionate costs of doing so incurred by smaller companies, and also parallel revisions of disclosure rules, as well as broader shifts in other jurisdictions, as reasons why SGX is mulling so.

This slew of revisions to corporate governance norms and standards this early in the year comes less than a month after Keppel Corp, one of the largest government-linked companies, was fined US$422 million ($557 million) for bribing its client in Brazil.

“Have coffee”
Tan Boon Gin, chief regulatory officer of SGX, says that while revisions and tweaks are proposed, the underlying principle of Singapore’s disclosure-based regime remains – that is, to ensure timely disclosure by listed companies on material developments.

“Periodic disclosure, whether through quarterly or half-yearly reporting, is one way of achieving this, but it is only one of a clockwork of rules that needs to click together in order to work,” says Tan at the same event as Chew.

“Another is to ensure that the scope of material information that needs to be disclosed is wide enough to keep the market sufficiently informed,” he adds.

As for the Corporate Governance Code, the “comply-or-explain” model remains, but companies are to be given more latitude in explaining why they are not following certain items of the Code, such as disclosing the salaries of top executives.

“The intention is to move companies away from a mindset of compliance – manifested in many cases as a “tick the box” approach, with explanations for non-compliance by way of platitudes with little illumination – to one of thoughtful application of the Principles to their own business missions, objectives and circumstances,” says Chew, chairman of the Council.

The proposed revision to the Code does not suggest that requirements are being relaxed. There are certain items which the Council wants to shift from the Code to SGX Listing Rules. “Failure to comply will provide you an opportunity to have coffee with Mr Tan Boon Gin,” quips June Sim, SGX’s head of listing compliance.

“It will also invite an opportunity to contribute to SGX’s investor education fund,” she adds.

For example, at least one-third of the board is to be made up of independent directors. Also, the definition of an “independent director” will see some changes. Specifically, if a director owns just 5% of the company’s shares, he or she will be deemed non-independent. This will be in line with SGX’s definition of a “substantial shareholder” whose threshold is currently set at 10%.

In addition, the Council is suggesting that independent directors serve more than nine years on the same board should be defined differently although the board is free to expand and to appoint more independent directors so that the one-third proportion can be met.            

According to SGX’s Sim, vast majority of companies have already met this guideline. She notes that 98% of all mainboard companies, and 96% of all SGX-listed companies, already have boards with more than one-third independent. “For the remaining few percent, remember the Nike slogan: ‘Just Do It’,” she says.

Chew says that at the end of the day, good governance can be codified. However, it will still be up to the company boards and leaders to manage.

“The imperative is for companies to recognise that good corporate governance helps in accomplishing their business mission and objectives and is therefore in their own best interests. The hope is for good corporate governance to become second nature,” he says.