Updated Singapore Code of Corporate Governance (Part 1)

Norman Marks, CRMA, CPA, is a vice president for SAP and has been a chief audit executive and chief risk officer at major global corporations for more than 20 years.


The Monetary Authority of Singapore (MAS) released an updated version of the Singapore Code of Corporate Governance in May. It includes a number of principles, each of which has a number of Guidelines. You may have seen my earlier review of their excellent guide to risk oversight.

In this post, I want to review the principles, those guidelines of particular interest, and provide a few personal comments.

I will leave it to you to decide whether this needs further revision or is one of the better international governance codes. For example, it is interesting to compare the Singapore code with that of its neighbor, Malaysia (see my post on that code).

Principle 1: Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the long-term success of the company. The Board works with Management to achieve this objective and Management remains accountable to the Board.


1.  The Board's role is to:

(a) provide entrepreneurial leadership, set strategic objectives, and ensure that the necessary financial and human resources are in place for the company to meet its objectives;

(b) establish a framework of prudent and effective controls which enables risks to be assessed and managed, including safeguarding of shareholders' interests and the company's assets;

(c) review management performance;

(d) identify the key stakeholder groups and recognise that their perceptions affect the company's reputation;

(e) set the company's values and standards (including ethical standards), and ensure that obligations to shareholders and other stakeholders are understood and met; and

(f) consider sustainability issues, e.g. environmental and social factors, as part of its strategic formulation.

Comment: I like that the code specifically states obligations relative to managing reputation risk and addressing sustainability.

5. Every company should prepare a document with guidelines setting forth:

(a) the matters reserved for the Board's decision; and

(b) clear directions to Management on matters that must be approved by the Board.

The types of material transactions that require board approval under such guidelines should be disclosed in the company's Annual Report.

Comment: This is good practice and interesting to see it spelled out.

6. Incoming directors should receive comprehensive and tailored induction on joining the Board. This should include his duties as a director and how to discharge those duties, and an orientation program to ensure that they are familiar with the company's business and governance practices. The company should provide training for first-time directors in areas such as accounting, legal and industry-specific knowledge as appropriate.

It is equally important that all directors should receive regular training, particularly on relevant new laws, regulations and changing commercial risks, from time to time.

The company should be responsible for arranging and funding the training of directors. The Board should also disclose in the company's Annual Report the induction, orientation and training provided to new and existing directors.

Comment: Again, it is interesting to see such good practices included in the code.

Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from Management and 10% shareholders. No individual or small group of individuals should be allowed to dominate the Board's decision making.


1. There should be a strong and independent element on the Board, with independent directors making up at least one-third of the Board.

Comment: I find it hard to see how one-third of the board will be able to influence a united non-independent body of directors.

2. The independent directors should make up at least half of the Board where:

(a)    the Chairman of the Board (the "Chairman") and the chief executive officer (or equivalent) (the "CEO") is the same person;

(b)   the Chairman and the CEO are immediate family members;

(c)    the Chairman is part of the management team; or

(d)   the Chairman is not an independent director.

4. The independence of any director who has served on the Board beyond nine years from the date of his first appointment should be subject to particularly rigorous review. In doing so, the Board should also take into account the need for progressive refreshing of the Board. The Board should also explain why any such director should be considered independent.

Comment: It is interesting to contrast this provision with the Malaysian code, where after 9 years any director must be considered non-independent.

5. The Board should examine its size and, with a view to determining the impact of the number upon effectiveness, decide on what it considers an appropriate size for the Board, which facilitates effective decision making. The Board should take into account the scope and nature of the operations of the company, the requirements of the business and the need to avoid undue disruptions from changes to the composition of the Board and board committees. The Board should not be so large as to be unwieldy.

6. The Board and its board committees should comprise directors who as a group provide an appropriate balance and diversity of skills, experience, gender and knowledge of the company. They should also provide core competencies such as accounting or finance, business or management experience, industry knowledge, strategic planning experience and customer-based experience or knowledge.

Comment: The last two are refreshing and, if taken seriously, will impact the composition of many boards.

7. Non-executive directors should:

(a) constructively challenge and help develop proposals on strategy; and

(b) review the performance of Management in meeting agreed goals and objectives and monitor the reporting of performance.

Comment: Some guidelines direct members of the board, including non-independent members, to put the interests of the organization and stakeholders first – in other words, acting as independently as they can. Nevertheless, it is useful to see this guidance.

Principle 3: There should be a clear division of responsibilities between the leadership of the Board and the executives responsible for managing the company's business. No one individual should represent a considerable concentration of power.

Principle 4: There should be a formal and transparent process for the appointment and re-appointment of directors to the Board.


4. When a director has multiple board representations, he must ensure that sufficient time and attention is given to the affairs of each company. The [nominating committee] NC should decide if a director is able to and has been adequately carrying out his duties as a director of the company, taking into consideration the director's number of listed company board representations and other principal commitments. Guidelines should be adopted that address the competing time commitments that are faced when directors serve on multiple boards. The Board should determine the maximum number of listed company board representations which any director may hold, and disclose this in the company's Annual Report.

Comment: These are wise words, although I think more guidance should have been given, especially when a director chairs a committee, such as the Audit Committee.

Principle 5: There should be a formal annual assessment of the effectiveness of the Board as a whole and its board committees and the contribution by each director to the effectiveness of the Board.


2. The NC should decide how the Board's performance may be evaluated and propose objective performance criteria. Such performance criteria, which allow for comparison with industry peers, should be approved by the Board and address how the Board has enhanced long-term shareholder value. These performance criteria should not be changed from year to year, and where circumstances deem it necessary for any of the criteria to be changed, the onus should be on the Board to justify this decision.

Comment: It is easy to require objective criteria where performance can be compared to industry peers, but I suspect not so easy in practice.

3. Individual evaluation should aim to assess whether each director continues to contribute effectively and demonstrate commitment to the role (including commitment of time for meetings of the Board and board committees, and any other duties). The Chairman should act on the results of the performance evaluation, and, in consultation with the NC, propose, where appropriate, new members to be appointed to the Board or seek the resignation of directors.

Principle 6: In order to fulfil their responsibilities, directors should be provided with complete, adequate and timely information prior to board meetings and on an on-going basis so as to enable them to make informed decisions to discharge their duties and responsibilities.

The review is continued in the next post.

The Singapore Code of Governance and the Risk Governance Guidance for Listed Boards were produced by Singapore's Corporate Governance Council, which advises the Monetary Authority of Singapore on governance matters. Information about the two organizations is available from the corporate governance section of MAS' website.  

Posted on Jun 10, 2012 by Norman Marks

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