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

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

3. Recent International Developments
U.K. –New Combined Code (2003), Directors’ Remuneration Report Regulations (2002)
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)
H.K. – HKEx Listing Rule Amendments; Draft Code on Corporate Governance Practices and Corporate Governance Report (2004)

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

5. Board Matters 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

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

7. Board Matters Board 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. Board Matters Nomination 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.”

9. Board Matters Nomination 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

10. Board Matters Tenure 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 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 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. Board Matters Limits 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.

14. Board Matters 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

15. Remuneration 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 be responsible for appointing remuneration consultants

16. Remuneration 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.

17. Remuneration 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

18. Remuneration Disclosure of remuneration - U.K.:
Directors remuneration report must include:
A forward looking remuneration statement
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 directors’ service contracts
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

19. 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:
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

20. 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

21. Audit and Accountability
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

22. Audit and Accountability
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)

23. Audit and Accountability
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”

24. Audit and Accountability
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

25. Communication with Shareholders
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 AGM
Singapore and Australia: external auditor should attend AGM (proposal in Australia to make this a legal requirement)

26. 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 votes

27. Other Issues Singapore: no provisions in the Code
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

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
Singapore
Malaysia
Thailand
Indonesia*
Sample size 45 50 42
Maximum score
119/140
94/140
75/140
54/160
Minimum score
16/140
44/140
4/140
3/160
Mean
80.58
64.92
37.56
23.05
Standard deviation
28.57
11.85
16.60
11.83
Median
92.00
64.00
35.00
21.50

30. Regional CG Practices: CGFRC-S&P Studies

31. Regional CG Practices: CGFRC-S&P Studies
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. Regional CG Practices: CGFRC-S&P Studies

35. Regional CG Practices: CGFRC-S&P Studies

36. Regional CG Practices: CGFRC-S&P Studies

37. Regional CG Practices: CGFRC-S&P Studies

38. Regional CG Practices: CGFRC-S&P Studies

39. Regional CG Practices: CGFRC-S&P Studies

40. Regional CG Practices: CGFRC-S&P Studies

41. Regional CG Practices: CGFRC-S&P Studies
Disclosure of Director Remuneration
Country
Singapore
Malaysia
Thailand
Indonesia
Executive Directors
Exact Amount
20%
14%
18% 0%
Bands
67%
80%
Non-executive Directors
27%
16%
58%
78%
Top Company Executives

42. Regional CG Practices: CGFRC-S&P Studies

43. Regional CG Practices: CGFRC-S&P Studies

44. CGFRC-JLT Corporate Governance and D&O Liability Survey (Singapore)
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

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. Measures to Improve Corporate Governance
All companies, except one, reported taking some measures to increase their standard of 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. Reasons for D&O liability claims
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 disclosure
73%
Accounting & other fraud
69%
Conflict of interest
67%
Mismanagement leading to poor financial performance
60%
Interested party transactions
57%
Personal trading in shares of company
54%

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…
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