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SGX RegCo to limit tenure of independent directors and enhance remuneration disclosures

Felicia Tan
Felicia Tan1/11/2023 05:00 AM GMT+08  • 5 min read
SGX RegCo to limit tenure of independent directors and enhance remuneration disclosures
The market regulator has given listed issuers some time to effect these changes. Photo: Albert Chua/The Edge Singapore
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Singapore Exchange Regulation (SGX RegCo) says it will limit the tenure of independent directors (IDs) serving on the boards of listed issuers to nine years.

The two-tier vote mechanism for companies to retain long-serving IDs who have been on the boards for more than nine years will be removed with immediate effect.

Previously, long-serving IDs could continue to be deemed as independent as long as their appointment was approved by the company’s shareholders. The shareholders don’t include the directors and the CEO of the issuer, as well as the associates of these directors and CEO.

This mechanism was widely used by issuers to retain hundreds of long-serving IDs, inhibiting board renewal and progress on board diversity, says the market regulator in its Jan 11 statement.

According to SGX RegCo, the proposal to cap the tenure of IDs stemmed from recommendations by the Corporate Governance Advisory Committee (CGAC) and received “broad market support” during a public consultation process.

To ease the transition process, SGX RegCo notes that IDs, whose tenures exceed the nine-year limit, can continue to be deemed independent until the issuer’s annual general meeting (AGM) is held for the financial year ending on or after Dec 31 this year. This effectively gives affected issuers more than a year to search for new IDs, says the market regulator.

See also: SGX RegCo launches public consultation on nine-year independent director terms, explicit salary disclosures

Enhanced remuneration disclosures

At the same time, SGX RegCo will require listed issuers to disclose the exact amount and the breakdown of remuneration paid to directors and CEOs in their annual reports.

The proposal, which stemmed from recommendations by the CGAC, saw concerns about competition, sensitivity and privacy being raised during the consultation. However, market participants were said to have “largely supported” the proposal.

See also: SGX RegCo moots caps on independent director terms, salary declarations

The new rule will take effect for annual reports prepared for the financial years ending on or after Dec 31, 2024.

The market regulator, in its statement, says that the “increased transparency will enable investors to assess whether the directors and CEO are appropriately incentivised”.

“Information to be disclosed must include 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,” adds the statement.

Tan Boon Gin, CEO of SGX RegCo, thanked the CGAG and the market for supporting the rules, saying that the changes “provide an opportunity for companies to inject new skills, experience and knowledge into their boards, all of which will be invaluable in guiding the business for the long term”.

“Various participants within the market community have indicated they are ready to support companies in meeting these requirements so we encourage companies to tap them when making the necessary changes,” he adds.

Masagos Zulkifli, Minister for Social and Family Development, called the move an “important” one that will “promote good governance, as well as greater diversity that strengthens boards’ decision-making process”.

“This also is in line with our action plans in the White Paper on Singapore Women’s Development, to increase the representation of women on boards. I encourage companies to use this opportunity to think actively about succession planning and refresh their boards with the right mix of board directors to best chart their path forward,” he adds.

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To David Gerald, president and CEO of Securities Investors Association (Singapore) or SIAS, the new ruling is a positive move.

“Shareholders rely on independent directors to ask the necessary questions and shape the business strategy towards the best outcome for investors and the company. Making clear how IDs and executive directors including the CEO are rewarded when doing so also informs investors’ decision-making. We hope companies will embrace these new rules wholeheartedly so as to elevate their own governance and improve overall market standards," he says.

Wong Su-Yen, FSID, chairperson, Singapore Institute of Directors, agrees. “The rapidly evolving environment companies are operating in requires boards to draw on a broader range of backgrounds and expertise than ever before. The rules on board renewal released by SGX RegCo serve as a catalyst for boards and nominating committees to take stock of the capabilities required to propel growth for the future, and identify new directors with complementary experience and skills."

"SID’s board appointment services provide access to an extensive directory of directors who are qualified and ready to serve as IDs. Boards who leverage this pool of directors will invariably widen their reach, be it in terms of gender, age, ethnicity, industry background, functional expertise, or geographical exposure," she adds.

The CGAC also welcomed the amendments, noting that there is "there is general support for the Listing Rule amendments as expressed in the responses to SGX’s consultation, and that the changes are also similar to the practices of other major listing jurisdictions".

"In light of the listing rule amendments, the CGAC has further recommended to the Monetary Authority of Singapore (MAS) consequential changes to the Code of Corporate Governance. The CGAC will also be making consequential changes to the practice guidance," it adds.

Lim Tuang Lee, assistant managing director (Capital Markets) at MAS, says, “High standards of corporate governance, characterised by strong accountability and transparency, are critical in upholding investor confidence in our capital markets. The latest enhancements, which are in line with global best practices, are important steps to further strengthen director independence, encourage board renewal and improve market transparency.”

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