A Heads Up on the Changes to the Code of Corporate Governance

Author: Vanessa Ng & Irving Seah


Earlier in August 2018, the Monetary Authority of Singapore (“MAS”) issued an updated Code of Corporate Governance (the “Code”), and some of the key objectives of the amendments are to encourage board renewal and strengthen board independence. The amended Code will take effect for annual reports in respect of financial years which start from 1 January 2019.


Some of the key changes are geared to strengthen director independence. For example, the test of independence has been rationalised and is now determined by a shareholding threshold of five per cent (5%), as opposed to ten per cent (10%) previously. This amendment aligns with the definition of “substantial shareholders” in the Companies Act and Securities and Futures Act. Further, the appointment of independent directors who have served beyond nine (9) years will be subject to a two-tier vote to be approved by the majority of (i) all shareholders; and (ii) all shareholders excluding shareholders who also serve as directors or the Chief Executive Officer (“CEO”) (and their associates). This amendment will be reflected in the Singapore Exchange (“SGX”) Listing Rules.


Other key changes aim to enhance board composition and diversity. Where the chairman of the board is not independent, the Code prescribes that the majority of the board must consist of independent directors. Additionally, listed companies must also disclose their board diversity policy and progress made in achieving the board diversity policy (including any objectives set by the listed companies).


The Code has also been amended to bring about more transparency in the remuneration practices of listed companies. Listed companies must disclose the names and remuneration of employees who are substantial shareholders of the company, or are immediate family members of a director, the CEO or a substantial shareholder of the company, and whose remuneration exceeds S$100,000 during the year, in bands no wider than S$100,000, in its annual report. The disclosure must state clearly the employee’s relationship with the relevant director or the CEO or substantial shareholder.


The abovementioned key changes go hand-in-hand with the proposed amendment to the SGX Listing Rules which will clarify the expectations under the comply-or-explain regime. The overarching objective is to strengthen the emphasis on thoughtful and meaningful communication between companies and their stakeholders. Firstly, MAS clarifies that compliance with the Principles in the Code is mandatory. Further, listed companies must describe their corporate governance practices with reference to both the Principles and the provisions underpinning each Principle. Lastly, variations from the provisions of the Code are acceptable to the extent that listed companies explicitly state and explain how their practices are consistent with the intent of the relevant Principle.


In summary, the abovementioned changes are timely, and they are the Government’s latest measures to push Singapore to the next level in terms of its standing as a reputable and sound financial and business hub.


Written by: Vanessa Ng & Irving Seah