Corporate Governance Part 4 PDF

CORPORATE & COMMERICAL PRACTICE CORPORATE GOVERNANCE PART IV ADRIAN CHAN Content Content of Code of Corporate Governance Independent Directors Board Composition Board Committees Enhanced disclosure of remuneration of directors...

CORPORATE & COMMERICAL PRACTICE CORPORATE GOVERNANCE PART IV ADRIAN CHAN Content Content of Code of Corporate Governance Independent Directors Board Composition Board Committees Enhanced disclosure of remuneration of directors and CEO 2 Content of Code of Corporate Governance Table of Contents Preamble / Introduction Accountability and Audit Board Matters 9. Risk Management and Internal Controls 1. The Board’s Conduct of Affairs 10. Audit Committee 2. Board Composition and Guidance Shareholder Rights and Engagement 3. Chairman and CEO 11. Shareholder Rights and Conduct of General Meetings 4. Board Membership 12. Engagement with Shareholders 5. Board Performance Remuneration Matters Managing Stakeholder Relationships 13. Engagement with Stakeholders 6. Procedures for Developing Remuneration Policies 7. Level and Mix of Remuneration 8. Disclosure on Remuneration Independent Directors Provision 2.1 of the Code contains the main definition of an “independent” director: one who is independent in conduct, character and judgement, and has no relationship with the company, 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 judgment in the best interests of the company 4 Independent Directors Listing Rule 210(5)(d) sets out certain baseline objective tests that disqualify a director from being independent if he: is employed or has been employed by the issuer or a related company within the current or the last 3 financial years, or has an immediate family member similarly employed whose remuneration is determined by the Remuneration Committee, or has been a director of the issuer for an aggregate period of more than 9 years. Such director may continue to be considered independent until the conclusion of the next annual general meeting of the issuer. These tests of independence in Listing Rule 210(5)(d) are mandatory in nature, unlike the further tests of independence set out in the Practice Guidance 5 Board Composition Composition Requirement Where Found Minimum Non-Executive Provision 2.3 of the Majority Directors Code Minimum IDs Regular board At least 2, and 1/3 of Listing Rule 210(5)(c) board If chairman is not Majority of board Provision 2.2 of the independent Code Where chairman is not Appointment of Lead ID Provision 3.3 of the independent Code 6 Board Composition Listing Rule 210(5)(a) requires a director who has no prior experience as a director of a listed issuer to undergo mandatory training in the roles and responsibilities of a director as prescribed under Practice Note 2.3 Listing Rule 720(5) requires all directors to submit themselves for re-nomination and re-appointment at least once every 3 years 7 Board Committees The Audit Committee (“AC”) is the only committee prescribed by law (Section 201B of the Companies Act) Listing Rule 210(5)(e) now requires the establishment of one or more board committees to perform the functions of an AC, a nominating committee (“NC”) and a remuneration committee (“RC”), with written terms of reference setting out the authority and duties of the committees 8 Board Committees The AC comprises at least 3 directors, all of whom are non-executive and the majority of whom, including the AC Chairman, are independent (Provision 10.2 of the Code) At least 2 members, including the AC Chairman, should have recent and relevant accounting or related financial management expertise or experience (Provision 10.2 of the Code) 9 Board Committees The AC’s duties under Provision 10.1 of the Code include: − reviewing the adequacy, effectiveness, independence, scope and results of the external audit and the internal audit function − reviewing significant financial reporting issues − reviewing adequacy and effectiveness of internal controls and risk management systems − reviewing whistle-blowing policy and arrangements In addition, Listing Rule 719(3) now requires the issuer to establish and maintain an effective internal audit function 10 Board Committees The RC’s duties under Provision 6.1 of the Code include: − recommending to the Board a general framework of remuneration for the Board and key management personnel − recommending to the Board the specific remuneration packages for each director and key management personnel − considering all aspects of remuneration, including termination terms, to ensure they are fair The RC comprises at least 3 directors, all of whom are non- executive and the majority of whom, including the RC Chairman, are independent (Provision 6.2 of the Code) 11 Board Committees The NC comprises at least 3 directors, the majority of whom, including the NC Chairman, are independent (Provisions 4.2 of the Code) The NC, unlike the AC and the RC, need not comprise all non-executive directors, and the CEO or another executive director may be a member The lead ID, if any, should be a member of the NC (Provision 4.2 of the Code) 12 Board Committees The NC’s duties under Provisions 4.1 and 4.4 of the Code include: − making recommendations to the Board on all Board appointments and re-appointments − determining annually if a director is independent − reviewing the process and criteria for evaluation of the performance of the Board, Board committees and directors − reviewing the succession plans for directors − reviewing the training and professional development programmes for the Board 13 Board Committees Provision 9.1 of the Code requires the Board to consider establishing a Board Risk Committee to assist in determining the nature and extent of the significant risks which the issuer is willing to take in achieving its strategic objectives and value creation Listing Rule 1207(10) also requires the Board to comment in the Annual Report on the adequacy and effectiveness of the issuer’s risk management and internal control systems with the concurrence of the AC in accordance with Practice Note 12.2 14 Enhanced Disclosure Remuneration Principle 8 of the Code of Corporate Governance states that the company is transparent on its remuneration policies, level and mix of remuneration, the procedure for setting remuneration, and the relationships between remuneration, performance and value creation. Provision 8.1 of the Code of Corporate Governance states that the company discloses in its annual report the policy and criteria for setting remuneration, as well as names, amounts and breakdown of remuneration of at least the top five key management personnel (who are not directors or the CEO) in bands no wider than S$250,000 and in aggregate the total remuneration paid to these key management personnel. - Note that Provision 8.1 applies on a “comply-or-explain” basis. 15 Enhanced Disclosure Remuneration Now Listing Rule 1207(10D) requires mandatory disclosure of the names, amounts and breakdown of remuneration paid to each individual director and the CEO by the issuer and its subsidiaries. - Such breakdown must include (in percentage terms) 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 Listing Rule 1207(10D) takes effect for annual reports prepared for the financial years ending on or after 31 December 2024. 16 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. 17