Presentation is loading. Please wait.

Presentation is loading. Please wait.

A/P Mak Yuen Teen Co-Director, CGFRC, NUS Business School Deputy Chairman, Corporate Governance Committee, ICPAS Corporate Governance: Recent Developments.

Similar presentations


Presentation on theme: "A/P Mak Yuen Teen Co-Director, CGFRC, NUS Business School Deputy Chairman, Corporate Governance Committee, ICPAS Corporate Governance: Recent Developments."— Presentation transcript:

1 A/P Mak Yuen Teen Co-Director, CGFRC, NUS Business School Deputy Chairman, Corporate Governance Committee, ICPAS Corporate Governance: Recent Developments and Regional Practices

2 Recent international CG codes and rules Recent international CG codes and rules Singapore Code versus international benchmarks Singapore Code versus international benchmarks CGFRC-S&P studies of regional CG practices and disclosures (large companies) CGFRC-S&P studies of regional CG practices and disclosures (large companies) CGFRC-JLT survey of corporate governance and directors’ and officers’ liability issues CGFRC-JLT survey of corporate governance and directors’ and officers’ liability issues OUTLINE

3 U.K. –New Combined Code (2003), Directors’ Remuneration Report Regulations (2002)U.K. –New Combined Code (2003), Directors’ Remuneration Report Regulations (2002) U.S. - Sarbanes-Oxley Act (2002), SEC and NYSE Rules ( ) U.S. - Sarbanes-Oxley Act (2002), SEC and NYSE Rules ( ) Australia - ASX Principles of Good Corporate Governance and Best Practice Recommendations (2003); CLERP 9 Reforms (2002/3)Australia - ASX Principles of Good Corporate Governance and Best Practice Recommendations (2003); CLERP 9 Reforms (2002/3) H.K. – HKEx Listing Rule Amendments; Draft Code on Corporate Governance Practices and Corporate Governance Report (2004) H.K. – HKEx Listing Rule Amendments; Draft Code on Corporate Governance Practices and Corporate Governance Report (2004) Recent International Developments

4 Non-prescriptive Balanced Prescriptive U.S. U.K. U.K.Australia Singapore Singapore Hong Kong Major International Developments

5 Board composition Board composition – Singapore: at least one-third independent directors –U.S., U.K. and Australia: At least half/majority of independent directors –H.K.: At least 3 independent directors; recommended best practice, one-third Board Matters

6 Definition of independence Definition of independence – Singapore: independence from management –U.S.: independence from management – U.K., Australia and H.K.: independence from management and significant shareholders Board Matters

7 Board leadershipBoard leadership –Singapore: CEO and Chairman should be separate (and, if related, should be disclosed) –U.K., Australia and H.K.: CEO and Chairman should be separate –U.K.: Chairman should be independent at the time of appointment –U.K. (Australia): Appointment of a senior or lead independent director (if Chairman is not independent) – U.K. and Australia: The CEO should not go on to become Chairman of the same company

8 Nomination committee (NC) compositionNomination committee (NC) composition –Singapore, U.K., Australia and H.K.: majority and NC Chair independent –U.S.: All NC members independent – U.K.: The Chairman of the board should not chair the NC “when it is dealing with the appointment of a successor to the chairmanship.” Board Matters

9 Nomination processNomination process – Singapore: No specific requirement to disclose nomination process –U.S., U.K. and Australia: process for selection of directors should be disclosed –U.K.: explanation if neither external search consultancy nor open advertising is used Board Matters

10 Tenure of directorsTenure of directors – Singapore: re-nomination and re-election at regular intervals but no limit on tenure –U.K., Australia and H.K.: long tenure can affect independence –U.K.: non-executive directors who serve more than nine years should be subject to annual re- election by shareholders and requires explanation from the board for such directors to be deemed to be independent

11 Board Matters Appointment of directorsAppointment of directors –Singapore: no provision on formal appointment letter –U.K. and Australia: formal appointment letter setting out terms and conditions

12 Board Matters Director orientation and on-going trainingDirector orientation and on-going training –Singapore: appropriate training and orientation on first appointment, and ongoing training –also emphasised in U.S., U.K., Australia and H.K. –U.K.: Chairman of the board responsible; Australia: NC responsible – U.K. and Australia codes include guidance on topics to be addressed in induction programmes for new directors

13 Limits on directorshipsLimits on directorships – All countries require disclosure of current and past directorships –U.K.: “No individual should be appointed to a second chairmanship of a FTSE 100 company” – U.K.: A full time executive director should not take on more than one non-executive directorship or chairmanship in a FTSE 100 company. Board Matters

14 Performance evaluation Performance evaluation –Singapore: board and individual director evaluation –UK: evaluation of board, board committees, individual directors, Chairman –Australia: evaluation of board, board committees, individual directors and key executives –U.S.: evaluation of board and board committees –H.K.: to be considered Board Matters

15 Remuneration committee (RC) Remuneration committee (RC) – Singapore and Australia: majority of independent directors with independent Chair – H.K: majority independent – U.K. and U.S.: RC should include only independent non-executive directors RC should include only independent non-executive directors RC should be responsible for appointing remuneration consultants RC should be responsible for appointing remuneration consultants Remuneration

16 Use of share options for NEDs Use of share options for NEDs – Singapore: endorsement of use of share options for directors –U.K. and Australia: NEDs should generally not be awarded share options. –U.K.: in exceptional cases where share options are to be given, shareholder approval is required, any shares acquired should be held until at least one year after the NED leaves the board, and holding of share options could be relevant in determining whether a director is independent. Remuneration

17 Disclosure of remuneration - Singapore: Disclosure of remuneration - Singapore: –Remuneration of directors and at least top 5 key executives (who are not directors), including names, within bands of $250,000 – Breakdown in percentage terms of each director’s remuneration into components – Disclosure of remuneration details of related employees earning more than $150,000 on no- name basis Remuneration

18 Disclosure of remuneration - U.K.: Disclosure of remuneration - U.K.: –Directors remuneration report must include: A forward looking remuneration statement A forward looking remuneration statement A performance graph of the company’s shareholder return for the past 5 years against a market index A performance graph of the company’s shareholder return for the past 5 years against a market index Details of RC members and external remuneration consultants Details of RC members and external remuneration consultants Details of directors’ service contracts Details of directors’ service contracts Detailed disclosure of individual remuneration (audited) for each director Detailed disclosure of individual remuneration (audited) for each director – Remuneration report to be approved by the board and subject to non-binding resolution by shareholders Remuneration

19 Disclosure of remuneration - U.S.: Disclosure of remuneration - U.S.: –Detailed disclosure of compensation of directors and top 5 highest-paid executives in the company in exact amount. Disclosure of remuneration – Australia:Disclosure of remuneration – Australia: –annual disclosure of details of nature and amount of each element of the fee and salary of each individual director and each of the five highest-paid officers of the company Remuneration

20 Disclosure of remuneration – H.K.: Disclosure of remuneration – H.K.: –Under Listing Rules, directors’ fees and any other reimbursement or emolument payable to a director must be disclosed on an individual and named basis Remuneration

21 Audit committee (AC) Audit committee (AC) –Singapore: All non-executive, majority independent; independent Chair; at least two members should have accounting or related financial management expertise or experience –U.K. and U.S.: AC members should all be independent – U.K.: at least one member have recent and relevant financial experience – U.S.: all should be financially literate, with at least one “audit committee financial expert” as defined by SEC rules, with disclosure if there is no such expert Audit and Accountability

22 Audit committee (AC) Audit committee (AC) –Australia: all non-executive, majority independent; independent Chair other than board Chairman; all financially literate with one with financial expertise – H.K.: all non-executive, majority independent; independent Chair; one independent director with appropriate professional qualifications or accounting or related financial management expertise (Listing Rule) Audit and Accountability

23 Internal audit Internal audit –Singapore: internal audit function should be established –U.S.: mandatory under new NYSE rules, but not under NASDAQ rules –H.K. (U.K.): companies without internal audit should annually consider whether there is need for an internal audit function (and explain the absence of such a function). –Australia: “a company, especially a substantial company, is encouraged to have an internal audit function” Audit and Accountability

24 Certification of financial reports Certification of financial reports –U.S.: the Sarbanes-Oxley Act requires both the CEO and CFO to certify the companies’ quarterly and annual financial reports. –Australia: the CEO and CFO should be required “to state in writing to the board that the company’s financial reports present a true and fair view” of the company’s financial conditions. There is a proposal to amend Corporations Act to require the CEO and CFO to sign off the accounts to the Board Audit and Accountability

25 U.K. Code encourages contact between major shareholders and Chairman/NEDs U.K. Code encourages contact between major shareholders and Chairman/NEDs Singapore, U.K. and H.K.: chairmen of AC, NC and RC should attend AGMSingapore, U.K. and H.K.: chairmen of AC, NC and RC should attend AGM Singapore and Australia: external auditor should attend AGM (proposal in Australia to make this a legal requirement)Singapore and Australia: external auditor should attend AGM (proposal in Australia to make this a legal requirement) Communication with Shareholders

26 Singapore: no provisions relating to role of institutional shareholders Singapore: no provisions relating to role of institutional shareholders U.K.: institutional shareholders should enter into dialogue with companies, carefully evaluate explanations for departures from Code, and make considered use of their votesU.K.: institutional shareholders should enter into dialogue with companies, carefully evaluate explanations for departures from Code, and make considered use of their votes Role of Institutional Shareholders

27 Code of conduct and ethics/Whistleblowing Code of conduct and ethics/Whistleblowing –Singapore: no provisions in the Code –Australia: code of conduct, which enables employees to whistleblow –U.K.: AC should review arrangements by which staff may confidentially raise concerns about possible improprieties in financial reporting and other matters – U.S.: code of business conduct and ethics with disclosure of waivers; whistleblowing provisions in Sarbanes-Oxley Other Issues

28 Regional CG Practices: CGFRC-S&P Studies Countries covered: Singapore, Malaysia, Thailand and Indonesia Top 50 companies by market capitalisation or all companies included in country’s major stock market index. The latest annual reports published by 2004 used. Corporate governance disclosure scorecard developed by Standard & Poor’s The scorecard items reflect best practices embodied in international corporate governance codes

29 Regional CG Practices: CGFRC- S&P Studies Item SingaporeMalaysiaThailandIndonesia* Sample size Maximum score119/14094/140 75/140 54/160 Minimum score16/14044/140 4/140 3/160 Mean Standard deviation Median

30 Regional CG Practices: CGFRC-S&P Studies

31 Note that definition of independent directors differs across countries

32 Regional CG Practices: CGFRC-S&P Studies * May or may not be related

33 Regional CG Practices: CGFRC-S&P Studies

34

35

36

37

38

39

40

41 Disclosure of Director Remuneration Country SingaporeMalaysiaThailandIndonesia Executive Directors Exact Amount20%14%18%0% Bands67%80%0% Non-executive Directors Exact Amount27%16%20%0% Bands58%78%0% Top Company Executives Exact Amount0% Bands67%0%

42 Regional CG Practices: CGFRC-S&P Studies

43

44 A survey: to assess the awareness of corporate governance and D&O liability issues in Singapore -Questionnaire sent to 472 companies listed on SGX -Response rate of 22% (105 companies) -14 respondents did not disclose their identity CGFRC-JLT Corporate Governance and D&O Liability Survey (Singapore)

45 Perceptions of Corporate Governance Some key findings: –56% agreed that the standard of corporate governance in Singapore is comparable to those of the USA and UK while only 10% disagreed –92% agreed that the standard of corporate governance in Singapore is high among Asian countries –However, 66% agreed that there is substantial diversity in the standards of corporate governance amongst companies in Singapore and only 9% disagreed

46 Perceptions of Corporate Governance –84% agreed that the companies could be doing more to improve corporate governance and only 2% disagreed –About equal percentage of respondents agreed and disagreed with the view that minority shareholders in family-controlled companies are equitably treated by controlling shareholders –60% agreed that minority shareholders’ interests are adequately protected and only 16% disagreed –63% agreed that market manipulation/malpractices is not a significant problem and only 11% disagreed

47 Perceptions of Corporate Governance –48% agreed that good corporate governance has a beneficial effect on a company’s financial performance (e.g., higher share price or lower cost of capital) and 9% disagreed –over half the companies agreed that majority of directors on the board should be independent though nearly 30% disagreed –almost all respondents agreed that independent directors should be independent of management as well as controlling shareholders

48 Perceptions of Corporate Governance –nearly three-quarters of the respondents agreed that the audit committee should comprise entirely of independent directors whereas only half the respondents held the same views for remuneration committee and the nominating committee –nearly 20% of the respondents disagreed that the CEO and Chairman positions should be held by different persons while over a half agreed with the view that separate individuals should hold these positions

49 Perceptions of Corporate Governance –only a third of the companies agreed that the Chairman’s position should be held by an independent director and another third disagreed –about three-quarters of the respondents also felt that the Code of Corporate Governance should have different guidelines for companies of different sizes and only 12% disagreed with this view –more than 80% agreed that there should be a limit on number of directorships

50 All companies, except one, reported taking some measures to increase their standard of corporate governance. Measures to Improve Corporate Governance Data for Hong Kong (used in this entire presentation) is obtained from the “Corporate Governance and Directors’ & Officers’ Liability Survey of Listed Companies in Hong Kong”, 2003 commissioned by Jardine Lloyd Thompson Limited and conducted by Policy 21 Ltd., The University of Hong Kong

51 D & O Liability Inadequate or inaccurate disclosure of information and accounting and other fraud were the top two reasons for D&O liability claims. Reasons for D&O liability claims Inadequate/inaccurate disclosure73% Accounting & other fraud69% Conflict of interest67% Mismanagement leading to poor financial performance60% Interested party transactions57% Personal trading in shares of company54%

52 D & O Liability Many see an increasing threat of claims against directors and officers

53 D & O Liability Over three-quarters of the respondents provide insurance cover against D&O liability claims, however, high coverage amounts are very rare. In the Hong Kong survey, 41.5% of the companies did not have D&O liability insurance while in Singapore, the figure is 21%.

54 Thank You… website:


Download ppt "A/P Mak Yuen Teen Co-Director, CGFRC, NUS Business School Deputy Chairman, Corporate Governance Committee, ICPAS Corporate Governance: Recent Developments."

Similar presentations


Ads by Google