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Speech By Mrs Josephine Teo, Minister of State For Finance and Transport, At The Singapore Institute of Directors' Directors Conference 2012

12 Sep 2012

Mr John Lim, Chairman of the Singapore Institute of Directors
Distinguished Guests
Ladies and Gentlemen

1. Good morning and thank you for inviting me to the Directors’ Conference 2012.

2. Let me begin by commending the Institute for your efforts in organising this annual conference, which has become a useful platform for exchanging views on critical issues facing directors.

Positive Feedback on Revised Code of Corporate Governance

3. Earlier this year, the Monetary Authority of Singapore (MAS) issued the revised Code of Corporate Governance. MAS had accepted, with slight modifications, all the recommendations submitted by the Corporate Governance Council. The “Code” is applicable to companies listed on Singapore’s stock exchange and is therefore an important component of Singapore’s corporate governance regime. It adopts a “Comply or Explain” approach which complements the statutory requirements in the Companies Act.

4. Feedback on the revised Code has mostly been positive. Specifically, on the matter of directors’ independence, a balance had to be found when defining substantial shareholders and setting the appropriate look-back period. The revised Code could neither be too stringent to be workable in practice nor too lax as to give inadequate protection to minority shareholders. While there are still differing views on the right balance, most commentators agree that the revised Code is a major step forward in enhancing Singapore’s corporate governance standards without being impractical.

Effective dates provide adequate time for transition

5. However, there has been some confusion on the effective dates, which even after clarification, bear repeating. Compliance with the Code – or explanation of non-compliance – must be reflected in annual reports, beginning with those issued for financial years starting on or after 1 November 2012. If, for example, a listed company starts its financial year on 1 July, the annual report for the financial year July 2013 to June 2014 must be in compliance with the revised Code, or the company will have to explain the reasons for non-compliance.

6. This effective date applies to all revisions except for one, which concerns having independent directors make up at least half of the board if the Chairman is also the CEO or part of the management, if the Chairman and CEO are immediate family members, or if the Chairman is not independent. A much longer transition of five years is accorded to help especially smaller listed companies meet this particular requirement. 

7. Affected companies must make changes to board composition at the annual general meetings held for the financial years starting on or after 1 May 2016. If, for example, a listed company starts its financial year on 1 July, the changes to board composition must take place at the AGMs held for financial year July 2016 to June 2017. In other words, depending on the company’s financial year, the revised requirement kicks in at the earliest on 1 May 2017 and must be complied with by 30 April 2018, failing which the company will be obliged to explain its non-compliance.

8. A very helpful survey conducted by SID has found that about 40% of Singapore listed companies would need to change their board composition to comply with the revised Code. The MAS acknowledges that such changes are not trivial and had therefore decided to grant a longer transition period. Nevertheless, companies that are ready to comply with the revised Code should do so as soon as possible.

9. Another key change in the revised Code is the increased emphasis on the roles and responsibilities of directors. For instance, the Nominating Committee (NC) is now expressly required to assess if a director is independent and adequate in carrying out his duties. The NC will also need to give recommendations on the professional development of the board.

10. In addition, the Code makes clear that the board is ultimately accountable for risk governance even if it sets up a board committee to assist with risk management responsibilities. Therefore, I am glad that the SID intends to further tailor its existing courses and include additional components to better prepare directors for these new responsibilities.

Review of Companies Act Nearly Completed

11. Another important pillar of our corporate governance framework is the Companies Act, a review of which last begun in 1999 and completed in 2002, more than a decade ago. In 2007, the Government appointed a Steering Committee chaired by Professor Walter Woon and including many eminent members to undertake a comprehensive review of the Companies Act. The objective was to further reduce regulatory burden and ease compliance, while retaining an efficient and transparent corporate regulatory framework that supports Singapore’s growth as a global hub for both businesses and investors.

12. After rigorous and intense debate, the Steering Committee submitted 217 recommendations in April 2011. The report of the Steering Committee was published. This was followed by extensive public consultation which closed in September last year. 

13. I am pleased to share with you two observations from the public consultation exercise. First, there was a consistently high level of agreement with the Steering Committee’s recommendations, which suggests that they are relevant and practical. Second, while differing views were in the minority, they provided useful counter-points which sharpened our thinking on a number of recommendations.

14. The Ministry of Finance (MOF) is deeply appreciative of the many individuals and organisations that have studied the recommendations, and provided constructive and well thought-through feedback. In the past year, the Government has been carefully considering the comments and suggestions. The review is nearly done and the Government will soon release a summary of the feedback received. We will also state our decisions on the 217 recommendations, which will form the basis of legislative changes.

15. In MOF’s deliberations, we have taken a balanced approach of getting the principles right and avoiding onerous compliance. It is equally important to refer to practices in other leading jurisdictions, to affirm our own thinking and to assess the impact on Singapore’s competitiveness.
16. Of the 217 recommendations, 29 relate to directors and directors’ duties. For today’s conference, I shall highlight some of the arguments for and against four of these recommendations which attracted useful debate. I should add that MOF has not made a final decision on these recommendations. As with all good things in life, we have to be patient and wait a little longer. 

Recommendation: Not to introduce corporate directorships

17. The first recommendation was not to introduce corporate directorships. This means that only a natural person can be appointed as a director, and not a corporation which could choose to have different persons represent it at different meetings. This recommendation was met with some disagreement by several respondents who felt corporate directorships allowed for a more efficient use of talent resources. Also, where subsidiaries are set up purely for asset holding purposes, corporate directorships offer greater flexibility than requiring the subsidiaries to be managed by individuals. On the other hand, it is not inaccurate to say that corporate directorships lack transparency – people are left to wonder who actually controls a company and has ultimate accountability.
18. We note that corporate directorships are disallowed in Australia, Canada, New Zealand, Malaysia and the US. In the UK and HK which have always allowed corporate directorships if at least one director is a natural person, there have also been attempts to remove the provision. In MOF’s view, our final decision must uphold the high level of integrity of Singapore’s corporate regulatory regime. This is an important principle that should not be easily set aside in the name of efficiency.

Recommendation: No need to codify directors’ duties

19. The Steering Committee had also recommended that there was no need to codify directors’ duties in the Companies Act. Some respondents disagreed as they believed that codifying directors’ duties would make the law more accessible to non-experts and allow for greater certainty and consistency in application. However, some respondents argued that in the event directors were sued for breach of duties, the courts should be given full flexibility to exercise judgment and tailor their decisions according to the circumstances of the case.

20. A useful point was raised about the UK which is the only country to exhaustively codify directors’ duties in their legislation. Hong Kong had considered the UK approach and had decided against codification in its recent review. Australia and New Zealand have a lighter form of codification. Importantly, commentators observed that there have not been noticeable changes in the behaviour of directors in the UK and so, recommended further monitoring before Singapore considered a similar move. MOF supports this view. While striving for clarity in the Companies Act, we need also to be mindful about introducing unintended rigidities, particularly in comparison to other jurisdictions.

Recommendation: Retain automatic disqualification regime but allow court application for leave

21. A third recommendation was to retain the automatic disqualification regime for directors convicted of offences involving dishonesty or fraud. However, the Committee also recommended allowing automatically-disqualified directors to apply to the courts for leave to act as directors, as is allowed in Australia. Some respondents disagreed and counter-proposed a regime where directors could only be disqualified through a court order, as is the case in the UK and Hong Kong. This counter-proposal was itself contentious as it was thought to place additional burden on the courts.

22. The Government noted that a likely gap was ambiguity regarding what constitutes “an offence involving dishonesty or fraud”. Therefore, a meaningful improvement could be achieved by providing greater clarity for stakeholders. We could also provide guidance on examples of such offences via other channels instead of hard-coding them in the law.

Recommendation: Extend disclosure requirements to CEOs

23. The last recommendation that I will touch on concerns the extension of existing directors’ disclosure requirements to CEOs. As you know, breach of disclosure requirements, such as non-disclosure of interested party transactions, may attract criminal penalties. Some respondents had disagreed on the basis that it would increase regulatory burden on CEOs and because there should be some distinction of roles and responsibilities between the board and the management. However, other respondents felt that with increasingly important decision-making roles played by key management officers, CEOs of companies should be held to similar standards of conduct as directors.

24. In MOF’s view, directors and key management officers may have different roles but share the common responsibility of company stewardship to the shareholders. In fact, the Securities and Futures Act already imposes the same disclosure requirement on directors and CEOs of listed companies. The CA should likewise promote the same duty of care in both directors and CEOs.

25. The examples I have outlined give you a sense of the deliberations over the recommendations and public feedback relating to directors. There are other recommendations relating to shareholder rights, capital maintenance, accounts, audit and company administration which also attracted lively exchange. As I shared earlier, MOF will take a principled yet pragmatic approach that strives to balance the interests of various stakeholders.


26. In conclusion, let me just say that Singapore has done well in putting in place a pro-business and robust corporate governance ecosystem. There will always be areas we can improve on, areas we can enhance in response to fast-changing circumstances, including greater shareholder activism. In all likelihood, another review will be needed in a few years, but hopefully, not before the ink is dry!

27. As directors of companies, you are well aware of the challenges of discharging your duties effectively. I am confident that today’s conference will provide you with new perspectives and fresh insights into how you can discharge your duties effectively. I wish all of you a fruitful day ahead. Thank you.