Practice Guidance 2: Board Composition and Guidance

Director Independence

There should be a strong and independent element on the Board.

An independent director (ID) should have no relationship (whether familial, business, financial, employment, or otherwise) with the company, its related corporations, substantial shareholders1 or officers, which could interfere or be perceived to interfere with the director's independent judgment.

Rule 210(5)(d) of the SGX Listing Rules (Mainboard)/ Rule 406(3)(d) of the SGX Listing Rules (Catalist) sets out the following specific circumstances in which a director should be deemed to be non-independent:

(a) a director who is being employed by the company or any of its related corporations for the current or any of the past three financial years;
(b) a director who has an immediate family member who is, or has been in any of the past three financial years, employed by the company or any of its related corporations and whose remuneration is determined by the Remuneration Committee (RC);
(c) a director who has been a director on the Board for an aggregate period of more than nine years (whether before or after listing) and whose continued appointment as an independent director has not been sought and approved in separate resolutions by (i) all shareholders and (ii) all shareholders excluding shareholders who also serve as the directors or chief executive officer (and their associates).

In addition to these, the Nominating Committee (NC) and Board should consider the following circumstances in which a director should also be deemed to be non-independent:

(a) a director, or a director whose immediate family member, in the current or immediate past financial year, provided to or received from the company or any of its subsidiaries any significant payments or material services (which may include auditing, banking, consulting and legal services), other than compensation for board service. The amount and nature of the service, and whether it is provided on a one-off or recurring basis, are relevant in determining whether the service provided is material. As a guide, payments aggregated over any financial year in excess of S$50,000 should generally be deemed significant;
(b) a director, or a director whose immediate family member, in the current or immediate past financial year, is or was, a substantial shareholder or a partner in (with 5% or more stake), or an executive officer of, or a director of, any organisation which provided to or received from the company or any of its subsidiaries any significant payments or material services (which may include auditing, banking, consulting and legal services). The amount and nature of the service, and whether it is provided on a one-off or recurring basis, are relevant in determining whether the service provided is material. As a guide, payments2 aggregated over any financial year in excess of S$200,000 should generally be deemed significant irrespective of whether they constitute a significant portion of the revenue of the organisation in question; or
(c) a director who is or has been directly associated3 with a substantial shareholder of the company, in the current or immediate past financial year.

The above examples are not exhaustive and the NC and Board should determine whether there is any circumstance or relationship which might impact a director's independence, or the perception of his or her independence. Other than the circumstances set out in the SGX Listing Rules, these examples are meant to illustrate situations of likely non-independence and the NC and Board can still consider a director to be independent notwithstanding the existence of any of the above-mentioned situations. However, if the Board, having taking into account the view of the NC, does so, it has to fully disclose the nature of the director's relationship, and why the Board has determined the director to be independent.

Proportion of Non-Executive Directors

A key duty of the Board is to set objectives and goals for Management, monitor the results, and assess and remunerate Management on its performance. Executive directors who are part of Management may face conflicts of interest in these areas. To avoid undue influence of Management over the Board and ensure that appropriate checks and balances are in place, non-executive directors should comprise at least a majority of the Board.

Role of the Lead Independent Director

The lead independent director (Lead ID) plays an additional facilitative role within the Board, and where necessary, he or she may also facilitate communication between the Board and shareholders or other stakeholders of the company. The company should clearly communicate to shareholders and other stakeholders on how the Lead ID can be contacted.

The role of the Lead ID may include chairing Board meetings in the absence of the Chairman, working with the Chairman in leading the Board, and providing a channel to non-executive directors for confidential discussions on any concerns and to resolve conflicts of interest as and when necessary. In addition, the Lead ID may also help the NC conduct annual performance evaluation and develop succession plans for the Chairman and CEO and help the RC design and assess the Chairman's remuneration.

Board Diversity Policy

The Board is responsible for setting the board diversity policy, including qualitative and measurable quantitative objectives (where appropriate). It may charge an appropriate committee (such as the NC) with the task of setting these objectives for achieving board diversity, and reviewing the company's progress towards achieving these objectives.


1 A "substantial shareholder" is a shareholder who has an interest or interests in one or more voting shares (excluding treasury shares) in the company and the total votes attached to that share, or those shares, is not less than 5% of the total votes attached to all voting shares (excluding treasury shares) in the company, in line with the definition set out in section 2 of the Securities and Futures Act (Chapter 289) of Singapore.

2 Payments for transactions involving standard services with published rates or routine and retail transactions and relationships (for instance credit card or bank or brokerage or mortgage or insurance accounts or transactions) will not be taken into account, unless special or favourable treatment is accorded.

3 A director is considered "directly associated" with a substantial shareholder when he is accustomed or under the obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of the substantial shareholder in relation to the corporate affairs of the company. A director will not be considered "directly associated" with a substantial shareholder by reason only of his or her appointment having been proposed by that substantial shareholder.