SINGAPORE: A "nine-year rule" that will reassess whether an independent director (ID) still qualifies as independent after nine years in serving on the board has been proposed to be enforced by the Corporate Governance Council.
This is under rule changes suggested by the council on Tuesday (Jan 16), which will apply to companies listed in Singapore.
With the review, the Council is proposing two alternatives on the nine-year rule: to either set a hard limit or put it to an annual two-tier shareholders’ vote.
The council has launched a public consultation on its recommended revisions, which it said are aimed at "supporting sustained corporate performance" and ramping up investor confidence in Singapore's capital markets.
The nine-year rule is one of 12 other "baseline market practices" that the Council wants to add to the SGX Listing Rules - which requires mandatory compliance from all Singapore-listed companies.
Currently, companies are only encouraged to observe these practices under a comply-or-explain regime.
On its proposal to subject a long-serving director to a rigorous review, the council reasoned that the independence of such a director might be compromised given his familiarity with the company's management. It was proposed that the board should explain why the director is considered "independent".
The council said in its consultation paper that corporate governance codes around the world are increasingly emphasising the importance of directors being able to make objective judgments without any "vested interest or undue influence from interested parties".
Under the suggested rule change, shareholding threshold for assessing director independence will be lowered from 10 per cent to 5 per cent.
This will bring Singapore in line with similar thresholds in Hong Kong and Australia.
The council also wants a transition period of three years to be provided to allow sufficient time for companies to adjust their board composition and source for new independent directors.
Another proposed addition to the Listing Rules is for a third of the company's board to be made up of independent directors.
SHORTER AND MORE CONCISE CODE
Mr Chew Choon Seng, the chairman of the council, said the recommendations take into account the changing business environment and the diverse views of various stakeholder groups that the council has engaged.
"The streamlined Code is shorter and concise," he said at the Accounting and Corporate Regulatory Authority-Singapore Exchange-Singapore Institute of Directors (ACRA-SGX-SID) Audit Committee Seminar 2018.
"It seeks to encourage companies to move away from a compliance mindset and adopt thoughtful corporate governance practices that will best support their long-term business objectives."
The council was set up by the Monetary Authority of Singapore (MAS) in February last year to review the Code, which was last revised in 2012, when changes were made to ramp up board independence, as well as to strengthen remuneration practices and disclosures.
Mr Chew said: "Given the rapid pace of change in today's world of business and markets, MAS deemed it timely to take stock of how the Code has fared in practice and to evaluate developments since then in corporate governance in other comparable jurisdictions."
The public consultation will end on Mar 15. The consultation paper can be accessed on MAS’ website.