Towards a More Principles-Based Approach

The last revision of Singapore’s Code of Corporate Governance (Code) that is applicable to listed companies in Singapore was in 2012. Owing to the evolution of global corporate governance practices and sentiments that there is room for Singapore listed companies to improve on their governance practices and disclosures, Monetary Authority of Singapore (MAS) convened a Corporate Governance Council (Council) in February 2017 to review the Code. On 6 August 2018, MAS accepted the Council’s final recommendations. The revised Code took effect for annual reports with financial years beginning from 1 January 2019.

STRUCTURE OF THE CODE

The 2012 version of the Code had 16 Principles that were supported by 82 Guidelines. The requirements added over the years had resulted in a lengthy Code. The Council also noted that length, coupled with an overly prescriptive Code, could have encouraged a box-ticking mindset and boilerplate disclosures which did not provide meaningful information to stakeholders.

Hence, the main change to the structure of the 2018 Code is streamlining. Fifteen Guidelines in the 2012 Code that replicated Singapore Exchange Listing Rules (SGX LRs), or were overly prescriptive, have been removed. Twelve Guidelines that the Council considered to be important baseline requirements have been shifted to SGX LRs and will require mandatory compliance. Twenty-four of the remaining Guidelines that were overly prescriptive, or were less essential details, were shifted to the Practice Guidance. The 2018 Code now has 13 Principles that are supported by 51 Provisions (Guidelines have been renamed Provisions in the new Code).

In addition, an Introduction has been incorporated in the 2018 Code. This Introduction (i) explains the broad intent of the Code; (ii) references a board’s role in establishing corporate culture, and (iii) clarifies how companies should apply the comply-or-explain regime (this will be elaborated in the following section).

The language in the revised Code has also been re-drafted, departing from a prescriptive style including the use of the word “should”. Overall, the changes to the structure of the Code are implemented to shift companies away from the box-ticking mindset to meaningful engagement with stakeholders.

The comply-or-explain regime is a common approach to the regulation of corporate governance across major jurisdictions. The Council also noted the need for companies to be able to appropriately tailor corporate governance practices to their specific needs. Hence, the 2018 Code continues to apply on a comply-or-explain basis. To clarify any prior misconceptions about this regime, a two-fold approach is adopted – (i) the Introduction to the Code explicitly explains the application of the comply-or-explain approach, and (ii) enhancements have been made to SGX LR 710.

Introduction to Code

The 2018 Code is structured to have Principles, supported by Provisions, and complemented by a Practice Guidance.¹ The Code’s Introduction explicitly states that Principles are broad, core statements of good corporate governance to which compliance is mandatory. On the other hand, Provisions are actionable steps that companies can take to comply with the Principles. It is unequivocally stated in the Introduction that companies are required to describe how their corporate governance practices comply with the Code’s Principles and Provisions. However, variations from the Provisions are acceptable if accompanied by “comprehensive and meaningful” explanations of how alternative practices are consistent with the Principles.

Enhancements to SGX LR

By Chua Wei Hwa And Koh Wei Chern (Singapore)

Chua Wei Hwa and Koh Wei Chern are Associate Professors of Accountancy, School of Business, Singapore University of Social Sciences