New Corporate Governance Codes To Shake Up Singapore's Boardrooms

A new set of proposals to tighten corporate governance structure in Singapore could require some of the nation’s businesses to increase the number of independent directors that serve on their boards.

The Corporate Governance Council, a panel appointed by the Monetary Authority of Singapore (MAS) last year, recently proposed new rules that would require that the majority of a company’s board be made up of independent directors even when the chairman and CEO is the same person or an immediate family member. Also, the new rules say a director cannot be considered independent after serving on a board for more than nine years; and that the board must be responsible for risk management and internal controls. Another proposal would realign directors’ remuneration with the long-term interests and risk policies of the company.

‘It is a good idea to have at least half of the board to be made up of independent directors because that will allow independent directors to have more influence in key board decisions, which will improve the oversight and management,’ says Mak Yuen Teen, an associate professor, who specialises in corporate governance at the National University of Singapore Business School. ‘Many of our companies have controlling shareholders, who are also often involved in management and the key is that these independent directors must be truly independent, competent and ethical.’

Over the years, Singapore’s economy has evolved and the nation is now seen as a place for global business and innovation. These new codes are expected to bolster Singapore’s attractiveness to foreign business leaders and restore investor confidence.

However, according to analysts, there may be other issues that emerge from the proposed guidelines, such as a rapid increase in director fees. ‘This will be due to the number of independent directors and the increased expectations of independent directors,’ says Teen. ‘[But] I don’t see this as a negative if these independent directors are able to improve the long-term performance of companies and accountability to shareholders and other stakeholders.’

The last review of the corporate governance code took place in 2005. That year, the Ministry of Finance rejected two proposals that were further revised this year: disclosing directors’ exact remuneration and redefining the title of independent director.

‘These are some of the issues we have always urged Singapore to address because it would tighten up a lot of the loose areas,’ says Sharmila Gopinath, program and research expert at the Hong Kong-based Asian Corporate Governance Association (ACGA). ‘Hong Kong is also planning to amend its code of corporate governance and set new proposals by the end of this year or early next year.’

Singapore’s action comes at a time when corporate governance reform remains a critical issue throughout the Asian continent. ‘The corporate governance code was due for a revision and while the S-chips scandals [corporate scandals surrounding Chinese companies listed on the Singapore Stock Exchange] had a part to play, auditing issues were coming to light back in 2008,’ says Gopinath.

ACGA has also identified governance issues in Taiwan. In February, the organisation made recommendations on how Taiwan can improve its governance, which– according to the ACGA– lags behind Singapore, Hong Kong and Japan. Taiwan has begun to consider making some adjustments to its governance codes.

‘It seems that there is movement of one sort or another in different jurisdictions on corporate governance,’ says Gopinath. ‘The ACGA has been waiting for some time for these new proposals and Singapore is starting to make some moves.’

[Article by Aarti Maharaj, Corporate Secretary]

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