SGX RegCo to require remuneration disclosure for directors and CEOs, tenure limit for IDs
SGX RegCo will review market feedback before making a decision on whether the hard tenure limit for independent directors will be set at 9 years or some other number.
Singapore Exchange Regulation (SGX RegCo) is planning to make companies disclose exactly how much they pay chief executive officers (CEOs) and directors.
The frontline regulator also said in a statement on Tuesday (Sep 13) that it intends to limit the service of independent directors (IDs), building upon earlier rules that required long-serving IDs to be subject to 2-tier voting.
The proposed changes – which will be detailed in upcoming consultations – are aimed at raising corporate governance standards of companies listed on the Singapore Exchange (SGX).
An independent review of listed companies’ Code of Corporate Governance (CG Code) disclosures, by KPMG in Singapore, found that “improvement is needed” on board renewal and remuneration matters, SGX RegCo said.
Only 35 per cent of companies disclosed director remuneration in dollar value, and just 18 per cent did so for CEOs. The majority of companies disclosed remuneration in salary bands.
Remuneration disclosure provisions for individual directors and CEOs are currently set out in the CG Code, which applies on a “comply or explain” basis.
“What was the tipping point for us, I would say, was the liberal use of competitive reasons for explaining the non-disclosure for both directors as well as key executives,” SGX RegCo chief executive Tan Boon Gin said at a press briefing. “The competitive reasons, we feel, is a much less compelling argument when it comes to directors.”
In a separate statement, the Corporate Governance Advisory Committee (CGAC) recommended SGX consider making such remuneration disclosures mandatory.
“The CGAC believes that currently, inadequate disclosure practices on director and CEO remuneration make it difficult for shareholders to have clear visibility on companies’ remuneration structure and practices,” it said.
CGAC noted that such disclosures are required in jurisdictions such as the United Kingdom, Australia, Hong Kong and Malaysia.
The survey of directors by KPMG suggests that many may be reluctant to disclose more details on remuneration. Nearly half the directors surveyed said their boards are “already disclosing a lot of details” in accordance with and/or beyond the requirements of the CG Code.
Only 8 per cent support disclosing remuneration packages of key personnel and directors in exact numbers and on a named basis.
Companies have also fallen behind on their adherence to a recommended term limit for IDs.
Since the start of this year, IDs who have served 9 years or more would no longer be considered independent unless approval is obtained at 2 tiers of voting: first, from all shareholders; and second, from shareholders excluding directors, the CEO and their associates.
The rule had been consulted on in 2018, with a 3-year transition period.
Tan said: “There were thoughts then that the 2-tier vote would encourage shareholders to weigh in on these long-serving IDs and that companies would use the ample notice period of 3 years as a time for gradual succession planning.”
Instead, listed companies rushed to use the 2-tier vote to retain their long-serving directors: 70 per cent of 391 long-serving ID seats up for re-election were put to the 2-tier vote in 2021 to 2022, according to a Nanyang Business School study.
KPMG’s review found that 48 per cent of boards had at least 1 ID serving beyond 9 years, with 27 per cent having 2 or more such long-serving IDs. The explanations provided for why such directors remained independent were “lengthy but not so meaningful”.
Companies simply mentioned that the board and nominating committee had reviewed the independence of the director in character and judgement, and deemed him or her independent.
“If this is allowed to continue, we may not be able to achieve the renewal and diversity outcomes that we seek,” Tan said, adding that SGX RegCo will have a consultation on this change soon to prevent more companies rushing for the 2-tier vote.
Tan said SGX RegCo will review market feedback before making a decision, including whether the hard tenure limit will be set at 9 years or some other number.
KPMG’s survey of directors found that 57 per cent of respondents felt the current rules on 2-tier voting are appropriate and sufficient, while 24 per cent of respondents felt that the 9-year rule should be hard-coded.
CGAC noted that other jurisdictions such as the UK, France, India and Malaysia have tenure restrictions on IDs. It has recommended a hard tenure limit, with the market to be consulted on an appropriate length, and a transition period.
Stefanie Yuen Thio, joint managing partner at TSMP Law Corporation, believes the hard limit of 9 years should be implemented as it will result in more board renewal and less entrenchment.
“I don’t think it would be a bad thing for IDs who see the position purely as a cushy retirement package to exit the stage,” she said.
She is more conflicted about disclosing the dollar value of executive remuneration.
“While I understand the need for transparency, I also believe companies should be allowed to run commercially; and I think there are significant business competition reasons for not being too explicit with remuneration amounts,” she said. A CEO who is paid less than the company’s top sales performer may not mind this in private, for instance, but may be uncomfortable having it disclosed.
“Strong corporate governance principles should be advanced by the board, and commercial issues that should remain confidential should be handled by that board,” she said.
Professor Lawrence Loh, director for the Centre for Governance and Sustainability at NUS Business School, said the intent to include ID tenure limits and exact remuneration disclosures into the listing rules is timely and necessary.
“The problem now is that companies do not comply and even do not explain,” he said. “Turning to listing rules is one of the last resorts, and it is essential to do so to continue strengthening the governance ecosystem of listed companies.”
Apart from rule changes, TSMP’s Yuen Thio believes SGX should also be given wider and stronger powers to take directors and companies to task where they fall short.
“Their arsenal of enforcement powers should be beefed up so that directors will only take up the role where they are equipped and willing to bear the responsibility of looking out for public stakeholders.”
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