I. Key findings on independent directors (IDs) and remuneration matters

Singapore Exchange Regulation (SGX RegCo) has stated that it intends to introduce changes relating to board renewal and remuneration matters, with the aim of raising corporate governance standards of companies listed on the Singapore Exchange (SGX). This move follows an independent corporate governance review conducted by KPMG of 585 listed companies whose financial years ended between 1 July 2020 and 30 June 2021, key findings of which included the following:

1. About half the companies disclosed that they had IDs serving beyond nine (9) years.
2. Only 24% of the directors surveyed thought a hard limit of nine (9) years should apply to IDs.
3. Disclosures on why companies considered individual long-serving IDs as independent were often lengthy but not meaningful.
4. Only 35% and 18% of companies disclosed director and CEO remuneration in dollar value respectively.
5. Disclosures on how remuneration was determined were mostly high level, and companies often did not explain how remuneration, performance and value creation were related.

II. Board Renewal

Currently, the SGX Listing Rules provide that a director will be deemed as not being independent if he has been a director for an aggregate period of more than nine (9) years unless his continued appointment as an ID has not been sought and approved in separate resolutions by:

• all shareholders; and
• shareholders, excluding the directors and the CEO of the issuer, and associates of such directors and CEO.

Since there is currently no absolute bar as to the length of time a director can serve as an ID under the SGX Listing Rules currently, it is not uncommon in Singapore to see IDs in their positions for a decade and beyond.

While the 2-tier vote was intended to be used sparingly to retain quality IDs beyond nine (9) years, SGX RegCo has found that the actual outcome was a rush to use the 2-tier vote to retain long-serving directors.

SGX RegCo warns that such a trend may impede the renewal and diversity outcomes that are sought by SGX RegCo.

III. Remuneration disclosures

The KPMG review found that only 35 per cent of companies disclosed director remuneration in dollar value, and just 18 per cent did so for CEOs. The majority of companies disclosed remuneration in salary bands.

Remuneration disclosure provisions for individual directors and CEOs are currently set out in the Corporate Governance Code, which applies on a comply or explain basis. SGXRegco noted that the commonly used competitive reasons for explaining the non-disclosure for both directors as well as key executives” is a much less compelling argument when it comes to directors.

In a separate statement, the Corporate Governance Advisory Committee (CGAC) (established by the Monetary Authority of Singapore) recommended SGXRegco consider making such remuneration disclosures mandatory so as to enable shareholders to have clear visibility on companies’ remuneration structure and practices. CGAC also noted that such disclosures are required in jurisdictions such as the United Kingdom, Australia, Hong Kong and Malaysia.

SGCRegco’s stance is that remuneration details of directors and CEOs are important for understanding the link between business performance and financial rewards, and should be more transparent as the fiduciary duties owed by these officers to their companies should outweigh the importance of keeping their remuneration details vague for competitive reasons.

IV. Concluding thoughts

SGX RegCo will be conducting public consultations on the codification of the nine (9) year limit for IDs as well as whether the disclosure of the actual remuneration of directors and CEOs should be made mandatory. It would certainly be interesting to see the outcome of these public consultations, and the changes SGXRegco will implement thereafter as part of its continuing measures to enhance board independence, increase transparency and improve corporate governance as a whole amongst Singapore listed companies.