Corporate Governance Part 2 PDF

CORPORATE & COMMERICAL PRACTICE CORPORATE GOVERNANCE PART II ADRIAN CHAN Content Disclosure Requirements Board diversity policy Sustainability reporting 2 Disclosure Requirements Key obligation is...

CORPORATE & COMMERICAL PRACTICE CORPORATE GOVERNANCE PART II ADRIAN CHAN Content Disclosure Requirements Board diversity policy Sustainability reporting 2 Disclosure Requirements Key obligation is to ensure disclosure of material information as and when it arises General principle in Listing Rule 703 requires immediate announcement of: information on issuer/ subsidiaries/ associated companies that is necessary to avoid the establishment of a false market, or would be likely to materially affect the price or value of its securities 3 Disclosure Requirements In the case of Madhavan Peter v PP SGHC 153, Chan Sek Keong CJ held that the test in Listing Rule 703 must necessarily refer to information that is “likely to effect a significant change in the price or value of a issuer’s securities” 4 Disclosure Requirements Examples of material information to be disclosed are found in paragraph 4 of the Corporate Disclosure Policy in Appendix 7.1 of the Listing Rules: property, assets, business, financial condition and prospects mergers and acquisitions dealings with employees, suppliers and customers material contracts or development projects significant change in ownership of shares owned by insiders any developments that affect materially the present or potential rights or interests of shareholders 5 Disclosure Requirements Specific events to be immediately disclosed under Rule 704: Appointments/ resignations of directors, general managers or other equivalent executive officers Qualifications by auditors See Rule 704 for more details Events likely to require immediate disclosure under Rule 703: Joint venture, merger or acquisition Firm evidence of significant change in near-team earnings prospects Acquisition or loss of significant contract Purchase or sale of significant assets Significant litigation or disputes 6 Disclosure Requirements Three conditions for withholding of disclosure under Listing Rule 703(3): a reasonable person would not expect information to be disclosed; the information is confidential; and the information:- concerns an incomplete proposal or negotiation; comprises matters of supposition or is insufficiently definite to warrant disclosure; is generated for internal management purposes; or is a trade secret. If any of the conditions ceases to be satisfied, information must be disclosed immediately. 7 Disclosure Requirements Announcements Through SGXNET first or simultaneously with disclosure through other media No waiver for requirements for disclosure of Material Information under Listing Rule 703 Fact that information is generally available is not a reason for failure to disclose (see Listing Rules 702 & 703, Appendix 7.1 Paragraph 5) 8 Disclosure Requirements Rumors or reports, especially if resulting in unusual trading activity, should be clarified, confirmed or explained If information is materially price-sensitive, a trading halt or suspension in trading may be required so that information can be properly disseminated prior to resumption of trading 9 Disclosure Requirements Periodic Reports Sustainability Financial Statements Annual Report Report Announced Issued at least 14 Issued no later than quarterly or half days before AGM 4 months after FY yearly Issued to Where issuer has Q1-Q3: 45-day shareholders and conducted external reporting deadline SGX assurance: no later Q4 & FY: 60-day Date of AGM than 5 months after reporting deadline cannot exceed 4 FY months from the end of FY 10  Disclosure Requirements Profit guidance required if issuer is unlikely to meet its performance targets as previously publicly disclosed No selective disclosure of information, e.g. to certain media/ analysts/ shareholders, as paragraph 7 of Appendix 7.1 of the Listing Rules disallows the divulging of information to any person outside the issuer to place him/her in a privileged dealing position 11  Disclosure Requirements Listing Rule 705(2) on quarterly reporting - In 2020, SGX announced that quarterly reporting was no longer required for listed companies unless they are associated with higher risks. - Under the current risk-based approach, a company will have to report its financials on a quarterly basis if its auditors have issued an adverse opinion, a qualified opinion or a disclaimer of opinion on the issuer's latest financial statements or its auditors have stated that a material uncertainty relating to going concern exists in the issuer's latest financial statements. 12 Disclosure Requirements SGX publishes a list of companies required to do quarterly reporting on its website. All other companies need only do semi-annual/ half-yearly reporting although they are encouraged to consider providing voluntary business updates to shareholders in between their half- yearly financial reports. Issuers should consider their investors’ expectations, their competitive environment and their long-term business strategy when deciding whether to provide these voluntary updates. 13  Board diversity policy Having a diverse board with a broad set of perspectives will better enable companies to anticipate and face financial and governance challenges amidst uncertainties and to deal with the complexities of today’s operating environment. In 2022, SGX made it mandatory for all issuers to set a policy with specific disclosures around board diversity. 14 Board diversity policy Listing Rule 710A requires issuers to maintain a board diversity policy that addresses gender, skills and experience, and any other relevant aspects of diversity An issuer must describe in its annual report its board diversity policy, including the following: (a) its targets to achieve diversity on its board; (b) its accompanying plans and timelines for achieving the targets; (c) its progress towards achieving the targets within the timelines; and (d) a description of how the combination of skills, talents, experience and diversity of its directors serves its needs and plans 15 Sustainability Reporting The Code of Corporate Governance states that companies that embrace the tenets of good governance, including accountability, transparency and sustainability, are more likely to engender investor confidence and achieve long-term sustainable business performance. The Board is collectively responsible for the long-term success of the issuer, and the Board's role includes setting strategic objectives which should include appropriate focus on sustainability. 16 Sustainability Reporting The Board bears ultimate responsibility for the issuer's sustainability reporting, and should determine the environmental, social and governance factors identified as material to the issuer’s business and see to it that they are monitored and managed. All directors are required to undergo a one-time training on sustainability matters. If the nominating committee is of the view that training is not required because the director has expertise in sustainability matters, the basis of its assessment must be disclosed. 17 Sustainability Reporting Listing Rule 711A requires every issuer to prepare an annual sustainability report, which must describe the issuer's sustainability practices with reference to the primary components set out in Listing Rule 711B on a 'comply or explain' basis (other than as required under Listing Rule 711B(2)). The issuer’s sustainability reporting process must be subject to internal review. The issuer may additionally commission an independent external assurance on the sustainability report. See Practice Note 7.6 for more details. 18 Sustainability Reporting Under Listing Rule 711B(1), the sustainability report must describe the sustainability practices with reference to the following primary components: (a) material environmental, social and governance factors; (aa) climate-related disclosures consistent with the recommendations of the Task Force on Climate-related Financial Disclosures; (b) policies, practices and performance; (c) targets; (d) sustainability reporting framework; and (e) Board statement and associated governance structure for sustainability practices. If the issuer excludes any primary component, it must disclose such exclusion and describe what it does instead, with reasons for doing so. 19 Sustainability Reporting However, an issuer in any of these industries may not exclude the primary component in Rule 711B(1)(aa): For All Financial Years Industry (as identified by TCFD*) Commencing 1 January 2023 Financial Agriculture, Food and Forest Products Energy 1 January 2024 Materials and Buildings Transportation *TCFD refers to the Task Force on Climate-related Financial Disclosures 20 Notice Copyright © 2024, Singapore Institute of Legal Education. All rights reserved. The Course materials are developed by the Singapore Institute of Legal Education, based on the content, syllabus, and guidance provided by the Chief and Principal Examiners and their teams. No direct or indirect reproduction, publication, communication to the public, adaptation or any other use (that is prohibited and/or proscribed by copyright laws) of the Course materials in whole or in part in any form or medium is allowed without the written permission of the Singapore Institute of Legal Education. Part B Candidates should refer to the Code of Conduct for more information, particularly, the sections on conduct and behaviour, and the use of SILE resources. 21