4 November 2022

Singapore Exchange Regulation’s Consultation Paper on Board Renewal and Remuneration Disclosure

On 27 October 2022, Singapore Exchange Regulation (“SGX RegCo”) released a consultation paper seeking feedback on:

  1. the proposed hard nine-year limit on the tenure of independent board directors (“IDs”); and
  2. the proposed mandatory remuneration disclosure for each director and the Chief Executive Officer (“CEO”).

The public consultation will close on 17 November 2022. To access the consultation documents, please click here.

Proposed hard nine-year limit on the tenure of IDs

Currently, under relevant Mainboard Rule, a director of a listed company is no longer independent after a nine-year tenure, unless his or her appointment as an ID has been approved in two separate resolutions (“Two-Tier Vote”) by: (a) all shareholders; and (b) shareholders that exclude the directors and the CEO and their associates.

The current rule, which was introduced in 2018, aims to strike a balance between promoting board independence and providing companies with the flexibility to retain quality IDs. Some studies have shown that a significant number of IDs have been put through the Two-Tier Vote, with 97% of said IDs being re-appointed.

The current market practice carries a risk that companies’ boards might grow stale and their independence compromised. To accelerate board renewal and promote board independence, the SGX RegCo has proposed that the Listing Rules be amended to require a hard tenure limit for IDs beyond which such directors will no longer be considered independent. Directors who serve beyond the tenure limit may be appointed for future terms, but must be designated non-independent.

Proposed mandatory remuneration disclosure for each director and the CEO

Provision 8.1(a) of the Code of Corporate Governance (the “Code”) requires listed companies to disclose in their annual report the policy and criteria for setting remuneration, as well as names, amounts and breakdown of remuneration of each individual director and the CEO.

However, a review of companies’ disclosures indicates that only 5% of companies fully complied with Provision 8.1(a) of the Code. Further, companies mostly provided boilerplate explanations that their non-compliance was due to competitive, sensitivity and confidentiality concerns.

While the SGX RegCo acknowledges companies’ concerns on sensitivity and confidentiality, it believes that these considerations are outweighed by the fiduciary duty owed to shareholders to provide transparency. Transparency on remuneration is especially pertinent when business performance falls below expectations, or amid an uncertain business environment. The SGX RegCo is also of the view that full transparency on the remuneration of each director and the CEO is necessary for investors to make informed assessments on whether there is alignment with their interests on these matters.

As such, the SGX RegCo has proposed the introduction of Mainboard Rule 1207(10D) and Catalist Rule 1204(10D) to require listed companies to disclose the names, amounts, and breakdown of remuneration of each individual director and the CEO.

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