Tuesday, June 28, 2011

In Light of Financial Crisis, Singapore Proposes Revisions to Corporate Governance Code

The Singapore Corporate Governance Council has proposed significant changes to the Corporate Governance Code that would enhance the areas of executive compensation, the role of independent directors, and risk management. One revision to the Code would include a provision that the compensation committee should ensure that existing key relationships between the company and its appointed compensation consultants will not affect the independence and objectivity of the consultants. The Code would also include additional guidance that companies should disclose more information on the link between compensation and the performance of directors, CEOs and key management personnel.

Also, companies should fully disclose the compensation of each individual director and the CEO on a named basis. Companies should disclose in aggregate the total remuneration paid to the top five key management personnel who are not directors or the CEO.

Global events over the past two years have underscored the importance of companies taking an integrated, firm-wide perspective of their risk exposure, and increased the focus on the governance of risk management. Thus, the Council proposes a new Code principle on risk management under which the Board would be responsible for the risk governance of the company and would determine the nature and extent of risks which the company may undertake. The Board would also ensure the maintenance of a sound system of risk management and internal controls.

The Council also recommends a separate Board risk committee. Further, to enhance management’s accountability for the company’s risk management, the Council also proposes that the Board comment on whether it received assurance from the CEO or the CFO regarding the company’s risk management system.

There is growing recognition that a company’s corporate governance framework should involve shareholders and other stakeholders. International corporate governance practices have evolved to provide for shareholder rights to be recognized and facilitated, and for company boards to engage with their shareholders. In Singapore, the legal rights of shareholders are set out in legislation or embodied in common law principles. The Council recommends a new Code principle, and accompanying guidelines on Shareholder Rights to guide companies in their engagement with shareholders.

Internationally, the proportion of independent directors on the board of a listed company ranges from one-third in Hong Kong to half or majority in Australia, the UK and the US. The current Code requires independent directors to make up at least one-third of the board of a listed company. The Council proposes that independent directors should make up at least half of the Board when the Chair and the CEO is the same person, immediate family members or part of the same management team, or the Chair is not independent.