A new spin to Corporate Governance in Singapore - 2018

With the proliferation of new regulations, the onslaught of IT and the explosive pace of work, corporations across all sectors are under pressure to address governance, risk and compliance effectively. Boards and management teams need an operative governance framework to delegate duties, focus on critical areas of risk and provide a system of oversight. However, most of the compliance today falls on the shoulders of a few designated "compliance officers".

In January 2018, the Singapore Corporate Governance Council (Council) released a consultation paper on its recommendations to revise the Code of Corporate Governance (Code). The Code, applicable to listed companies in Singapore on a comply-or-explain basis, and routinely used as a guide for good practice for non-listed companies, was last revised in 2012.
The 2018 recommendations provide a more robust approach to support sustained corporate performance and innovation, and to strengthen investor confidence in Singapore's capital markets.

Independent Directors

Independent directors are non-executive directors generally appointed to improving governance standards and oftentimes, to prevent crony policies. The Council recommended lowering the shareholding threshold in relation to determining director independence from 10% to 5%. This will bring Singapore in line with similar thresholds in Hong Kong and Australia and also align with the definition of “substantial shareholder” in the Companies Act and the Securities and Futures Act. The Council also recommended imposing a 9-year limit on such directorship, or alternatively, subjecting the appointment of independent directors who have served beyond 9 years to an annual vote to be approved by the majority of all shareholders and the majority of non-controlling shareholders


The Council noted that remuneration practices have been cited as one of the key factors contributing to the global financial crisis. US, UK and Australia have introduced laws to provide shareholders with an advisory or binding vote on the remuneration of directors and key executives (“say-on-pay”). However, no "say-on-pay" is recommended for Singapore for now. 

Instead, companies should provide meaningful disclosures so that stakeholders can understand the alignment in the level and structure of remuneration to the companies’ long-term objectives, business strategy and performance. The Council recommended a revision to the Code for companies to disclose the relationship between remuneration and value creation. 

The Council also recommended a revision to the Code for companies to disclose the names and remuneration of employees who are substantial shareholders or immediate family of substantial shareholders, where such remuneration exceeds S$100,000 in bands no wider than S$100,000.

In a KPMG review on corporate governance commissioned by SGX, it was observed that disclosures on remuneration have most room for improvement. However, companies were not forthcoming with disclosure on remuneration of key management executives, with many citing generic concerns on confidentiality or fear of poaching. The report suggested that companies could provide a more extensive explanation on how poaching is a real threat in their business, and disclose performance measures on key executives and the links between performance and remuneration instead.

Stakeholder Engagement 

The long-term success of a company is influenced by its ability to sustain effective relationships with not just shareholders but also other stakeholders such as employees, customers, suppliers, creditors, regulators, and the broader community.  As such, a company's governance frameworks should give due regard to the interests of its stakeholders. 

The Council recommended the introduction of new principles for companies to balance the needs and interests of material stakeholders:
a) implement arrangements to identify and manage relationships with material stakeholder groups; 

b) disclose key focus areas in relation to their management of stakeholder relationships; and 

c) maintain a current corporate website to provide material updates for all stakeholders in a timely manner. 

The consultation on the Code will close on 15 March 2018.  The feedback and responses received will help to shape the governance framework in Singapore as corporations rise to meet the business challenges of the day.

This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please contact our lawyers if you have any specific queries.

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