A BALANCED SCORECARD APPROACH TO SURVEY CORPORATE

GOVERNANCE PRACTICES IN SINGAPORE’S LISTED COMPANIES: STI

COMPANIES AND GOVERNMENT-LINKED COMPANIES

BY

Lay-Hong, Tan

LL.B (National University of Singapore), LL.M (London)

Nanyang Business School
Nanyang Technological University
S3-01C-83
Nanyang Avenue
Singapore 639798
Fax: (65) 6792-4217, Tel: (65) 6790-4638
atanlh@ntu.edu.sg

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I. INTRODUCTION

Background

This study seeks to examine the level of disclosure of Singapore’s top 50 Straits
Times Indexed companies (STIs) and Government-Linked Companies (GLCs) based on a
scorecard designed according to the Singapore Code of Corporate Governance. GLCs1
are state enterprises established by the Singapore government to assume a more dynamic
entrepreneurial role in key sectors such as manufacturing, finance, trading, transportation,
shipbuilding and services industry.

According to the definition set forth by the Singapore Corporate Governance

Committee, corporate governance refers to “the processes and structure by which the
business and affairs of the company are directed and managed, in order to enhance long
term shareholder value through enhancing corporate performance and accountability,
whilst taking into account the interests of other stakeholders”.

Good corporate governance therefore embodies both enterprise (performance) and

accountability (conformance). The main focus of this study would be to look at the
conformance aspect of good corporate governance to see the level of transparency of
companies in their corporate governance disclosures.

Recent corporate scandals such as Enron and WorldCom have raised public
awareness on the importance of good corporate governance. Very often, the cause of
company failure is attributed to poor corporate governance and over the years, it has
emerged as a global issue. For the past years, Singapore has had its share of major
scandals such as the $117 million fraud by Asia Pacific Breweries’ ex-finance manager to
one of Singapore’s biggest graft cases by Citiraya Industries. These sensational cases
have sparked off urgent public concerns on whether Singapore’s corporate governance
landscape is sound.

With this in mind, this study will assess the level of corporate governance
disclosure in some of Singapore’s top listed companies and GLCs with the use of a
scorecard which is designed according to Singapore’s Code of Corporate Governance,
2001 (the “Code”). In addition, this study will seek to identify some of the major
problems in corporate governance practices amongst Singapore companies.

Sample and Methodology

The top 50 companies linked to the Straits Times Index and a total of 18 GLCs2
were used for the study. As only listed companies are required to comply with the Code,
all chosen samples are companies listed on the Singapore Stock Exchange. These
companies are expected to have significantly improved their corporate governance

1
See Appendix A for definition of GLCs
2
Among all the GLCs, only 18 are listed on the Singapore Stock Exchange as of 31 December 2004.

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practices in tandem with the government’s effort. In particular, the 18 GLCs were chosen
in addition to the top 50 STIs as most people would expect stricter corporate governance
practices in government related entities and their corporate governance practices would
serve as a benchmark for other companies. A complete list of the companies is provided
in Appendix C.

The Code is not prescriptive in nature as it is not laid down to impose corporate
behaviour in detail. However, it would serve as a good guideline to gauge a company’s
corporate governance practices in an informed way.

The latest annual report released by each company was used in the study. A
summary of the financial year-ends and a list of financial year-end reports that was used
for each company are provided in Appendix B and C.

Similar to the Code, the scorecard which consists of 87 items, is divided into four
main sections:
- Board Matters;
- Remuneration Matters;
- Accountability and Audit; and
- Communication with Shareholders.

Companies are given one mark for compliance with each item in the scorecard
and different weightage is allocated to the four sections. A sample of the scorecard can be
found in Appendix D.

II. THE SINGAPORE CODE OF CORPORATE GOVERNANCE

In the opening address by Former Minister for Finance, Dr Richard Hu at the

OECD Third Asian Roundtable on Corporate Governance in 2001, he acknowledged that
there is no ‘one-size-fits-all’ solution. As stated in the report, the Code “is not to
prescribe corporate behavior in detail but to essentially secure sufficient disclosure so
that investors and others can assess a company’s performance and governance practices
in an informed way”. Companies are thus left to implement the principles of the Code in
ways which best suit their particular circumstances and are relevant to investors and
which carry the support of their shareholders.

Table 1 below is a brief summary of the Code’s main sections. Each section is
made up of key principles and guidance notes, the latter effectively being the best
practice recommendations.

TABLE 1: SUMMARY OF THE CORPORATE GOVERNANCE CODE

Section Summary
Board Matters At least one-third of the Board should be made up of
independent directors to provide a certain degree of
independence from Management. There should be a clear

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 division of responsibility between the Chairman and CEO of
the company to avoid concentration of power. A Nominating
Committee should be established to provide a formal and
transparent process for the appointment and assessment of
directors.
Remuneration Matters The listed company should set up a Remuneration
Committee to provide greater objectivity, transparency and
independence in setting remuneration. Remuneration should
also be set to provide better reflection on directors’
performance and contributions to the company.
Accountability and Audit The Audit Committee should be made up of a majority of
independent directors with at least two members having
accounting or related financial management expertise or
experience. There should be a sound system of internal
controls and having an internal audit function independent of
activities it audits.
Communication with The Code seeks to encourage companies to maintain regular,
Shareholders effective and fair communication with shareholders. Greater
shareholder participation at general meetings with the
presence of chairman of the committees and external
auditors to answer queries are encouraged.

As Singapore aims to attract more investment, a sound regulatory system would

boost investors’ confidence. Evidently, the government is making tremendous effort to
promote greater transparency and higher disclosure standards in corporate governance
practices in Singapore. Continuous update and review of the Code is essential so that it
remains useful and relevant to the fast-changing capital markets.

Furthermore, in order to foster an efficient market, there is also a need for strong
civic effort to push for higher standards of disclosure and accountability, as enunciated in
Dr Richard Hu’s speech. All stakeholders, as well as market participants should work
together to undertake the task of improving reporting and disclosure standards in
Singapore.

This study would serve to find out if the government’s effort in promoting greater
disclosures as a market mechanism for encouraging good corporate governance has paid
off. The paper will also cover a brief comparison with the research done by Standard &
Poor’s (S&P) and National University of Singapore’s (NUS) Corporate Governance
Reporting Financial Centre in 2004 to see if the corporate governance practices of
Singapore companies have improved since then.

III. THE FINDINGS

Overall, there was a wide variation in the scores obtained by the various
companies. In general, the disclosure level of these companies was quite high with 74%

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of the STIs and 77% of the GLCs companies scoring above 50% (as a percentage of the
total number of questions). Figure 1 below gives the distribution of scores for GLCs and
STIs.
FIGURE 1: DISTRIBUTION OF SCORES

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Number of companies

12
10
8
6
4
2
0
0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-
100
Scores

Number of GLCs Number of STIs

The scores for STIs were clustered between 41% and 90%. The highest
proportion of STIs scored between 81% and 90% while the highest proportion of GLCs
only scored between 51% and 60%. A higher disclosure level was more evident among
STIs as compared to the GLCs.

Table 2 below shows the distribution of scores among the four sections of the
Code. Total scores for each item on the scorecard can be found in Appendix E and F. In
addition, Appendix G shows the total scores obtained by each company in the sample.

For the STIs category, the average score was 62.8% with scores ranging between
9.2% and 93.1%. This was a huge improvement from the average score of 57.85%
(81/140) obtained from the study of the STIs conducted by S&P and NUS Corporate
Governance Reporting Financial Centre (2004). Within the span of about one year, the
STIs have actually shown improvement in their corporate governance disclosures in the
annual reports.

TABLE 2: CORPORATE GOVERNANCE SCORES ACHIEVED

1. STIs
Corporate Governance Score
Section allocated Weightage MIN MAX MEAN MEDIAN
Board Matters 30 35% 13.3% 96.7% 61.9% 63.3%
Remuneration Matters 29 33% 3.4% 89.7% 49.2% 51.7%
Accountability and Audit 21 24% 0.0% 100.0% 78.7% 85.7%
Communication with
Shareholders 7 8% 0.0% 100.0% 74.9% 85.7%

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 Total 87 100% 9.2% 93.1% 62.8% 64.9%

2. GLCs
Corporate Governance Score
Section allocated Weightage MIN MAX MEAN MEDIAN
Board Matters 30 35% 6.7% 96.7% 62.0% 58.3%
Remuneration Matters 29 33% 6.9% 82.8% 50.8% 48.3%
Accountability and Audit 21 24% 0.0% 95.2% 71.4% 76.2%
Communication with
Shareholders 7 8% 0.0% 100.0% 75.4% 85.7%
Total 87 100% 4.6% 90.8% 61.6% 60.9%

As for the GLCs category, the average score of the companies was 61.6%, with a
range from 4.6% to 90.8%. This goes to show that generally the corporate governance
practices of GLCs and STIs were quite similar. Even though it was expected that GLCs
would score much higher than the STIs, the findings have proven otherwise.

Across the four sections of the Code, companies generally scored better in the
“Accountability and Audit” and “Communication with Shareholders” sections. This
paper will next look at more details of the disclosure level for the four sections in the
Code and analyse the areas where companies are lacking in corporate governance best
practices.

Board Matters

This section of the Code contains several guidelines and best practices
recommendations which assert that the Board should assume responsibility to lead and
control the company. In addition, it also emphasizes the distinction between board
responsibilities and management responsibilities, requiring a separation of roles between
Chairman of the Board and the Chief Executive Officer (CEO).

Other issues that are covered in this section include the Board’s conduct of its
affair, board composition and balance, board membership as well as board’s access to
information provided by the management.

In the scorecard, Board Matters carried a weightage of 35% of the total score (see
Table 2). From the scorecard results, the boards of the companies seemed to exhibit
features of an active board. However, there were still some areas where companies scored
badly in their disclosure practices.

Board’s Conduct of its Affair

Companies had done well in disclosing information such as attendance and

frequency of board meetings. Such information reveals the level of commitment by
directors in performing their roles. The figures below illustrate the number of board

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meetings held as well as the attendance at the board meetings.
FIGURE 2: NUMBER OF BOARD MEETINGS

Not Not
Disclosed 9 or more Disclosed
9 or more
16% 17% 6%
20%

7-8
8% 7-8 1-4
1-4 17% 38%
30%
5-6 5-6
26% 22%

STIs GLCs

FIGURE 3: ATTENDANCE AT BOARD MEETINGS

100% Not 100%

2% Disclosed 0% Not
28% Disclosed
33%

81% - 99%
60% or less
81% - 99% 50% 60% or less
0%
58% 0%
61% - 80%
12% 61% - 80%
17%

STI s GLCs

16% of the STIs did not disclose the number of board meetings held in a year
while only 6% of the GLCs failed to do so. There is no stated rule that specifies the
number of board meetings a company should hold each year as circumstances that
warrant a meeting differs for each company. 60% of the GLCs met at least five times in a
year as compared to 56% for the STIs. Overall, the results show that the STI and GLC
boards are active.

28% of the STIs and 33% of the GLCs failed to disclose the attendance of each
director at the board meetings. On average, about half of the companies had around 81%
to 99% of its directors attending each board meeting. This high percentage of attendance
reflects the seriousness with which Singapore directors execute their duties.

However, it was observed that where the Code requires companies to give details
and explanations, it was usually not done adequately. For instance, companies were
lacking in their disclosures as to the type of material transactions that required approval
by the board. Only 22% of the STIs and 33.3% of the GLCs made this disclosure. The
remaining companies only made vague statements without giving details on the exact

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type of transactions in question. This is probably due to the companies’ unwillingness to
reveal proprietary information.

In addition, many companies did not seem to provide adequate training

programmes for their new and existing directors. This was especially evident in STIs with
only 46% of the companies indicating the existence of training programmes for all their
directors. On top of that, companies also failed to supply details of the training
programmes offered to their directors. In a research paper done by Nottingham
University Business School in 2002 on the level of disclosure of training programmes in
100 randomly selected listed companies in Singapore, it was found that companies scored
zero in this area [CEABUR, 2002]. This goes to show that the companies had not made
much improvement in this area since then.

Board’s Composition and Balance

The principle of disclosing this information is to ensure that companies have a

strong and independent element on their boards with no individuals dominating the
Board’s decision-making [The Code]. 72% of the STIs and 55.6% of the GLCs disclosed
that they deemed their board to be of the appropriate size to make decisions. This
percentage was significantly higher as compared to the Nottingham University Business
School research which found that no company actually made this kind of disclosure
[CEABUR, 2002].

As can be seen from Figure 4 below, 78% of the STIs and 89% of GLCs had
independent directors made up more than one-third of the Boards. A study conducted by
S&P and NUS also found 50% of the STIs having at least one-third of the boards
comprise of independent directors, which implies that the high level of independence on
the boards of STIs was still maintained. Thus, on the surface there appears to be a strong
element of independence in the boards of the STIs and GLCs.

FIGURE 4: PROPORTION OF INDEPENDENT DIRECTORS

Not
Disclosed
More than 20% Not
More than
1/2 Disclosed
Less than 1/2
40% 11%
1/3 72%
2% Less than
1/3
0%
1/3 to 1/2
38% 1/3 to 1/2
17%
STIs GLCs

On the other hand, however, many companies failed to disclose the directors’

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relationship with the companies and why they should or should not be considered
independent. 40% of the STIs made this form of disclosure while only a mere 27.8% of
the GLCs managed to do so. Thus the true independence of the STI and GLC boards may
be in question.

Chairman and CEO

The Code recommends that a dual leadership structure, ie where there is a

separate CEO and Chairman of the board, is essential to ensure an appropriate balance
between power and accountability. Separation of the roles of CEO and Chairman would
also enhance the board’s independence in monitoring the management.

Figure 5 shows the statistics for STIs. Similar to the S&P and NUS study, the
proportion of STIs having the same individual holding the two positions was 20%. The
proportion of companies with separate individuals holding the two positions showed a
slight improvement from 73% in the S&P and NUS study to 78% in our study. As for the
GLCs, all of them had separate individuals holding the positions of CEO and Chairman.
This shows a high level of compliance by the STIs and GLCs with the Code’s
recommendation of having a dual leadership.

FIGURE 5: CEO AND CHAIRMAN SEPARATION IN STIs

2%
20%

78%

Held by separate person Held by same person No Chairman/CEO

Board Performance

Companies scored badly in the area of board performance assessment. 52% of the
STIs and only 44.4% of the GLCs disclosed that they had established some criteria for
assessing the board’s performance. Details of the criteria are, however, often not
disclosed. The majority of the companies did not disclose the process carried out in the
assessment of the board’s performance as well as the need to seek approval from the
board when changes to the criteria are made. There is cause for concern for this low
disclosure level as this is the most direct manner in which investors could be appraised of
the board’s performance.

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Access to information

Companies generally provided their board with timely information. However,

explanations of variations between projections and results were usually not presented to
the board with only 27.8% of the GLCs and 36% of the STIs making such disclosure.
This could mean that the boards were often not given adequate and complete information
for them to decide if the management had performed up to scratch.

Remuneration Matters

The principal objectives of the Code’s recommendations on remuneration matters

are to facilitate appropriateness, transparency and accountability on the issue of executive
remuneration [The Code]. The recommendations cover areas such as procedures for
developing remuneration policies, level and mix of remuneration as well as disclosure on
remuneration.

In the scorecard, Remuneration Matters carried a high weightage of 33% of the

total score (see Table 1). However, it was rather disappointing to discover that the level
of disclosure was lowest among the four sections prescribed by the Code, with a mere
49.2% and 50.8% of disclosure for STIs and GLCs respectively. The minimum disclosure
rate was as low as 3.4% for STIs and 6.9% for GLCs.

Procedures for Developing Remuneration

The underlying principle for this sub-section is that companies should have a
formal and transparent procedure for fixing the remuneration packages of individual
directors, and no directors should be involved in deciding his own remuneration. In
seeking to provide a greater degree of independence, impartiality and transparency in
remuneration-setting, companies are advised to set up a Remuneration Committee (RC)
comprising a majority of independent non-executive directors who play an advisory role
in the remuneration-setting process.

A large majority of the companies disclosed the list of RC and stated that
directors were not involved in deciding their own remunerations. On top of that, 82% of
the STIs and 89% of the GLCs have a RC comprising a majority of independent
directors. This showed a huge improvement as compared to that of 72% in the study
conducted jointly by S&P and NUS. On the contrary, only 32% of the STIs and 39% of
the GLCs had at least one member who was knowledgeable in the field of executive
compensation or had expert advice inside and/or outside the companies.

Level and Mix of Remuneration

The Code states that the level of remuneration should be appropriate to attract,
retain and motivate the directors needed to run the company successfully but companies
should avoid paying more than necessary for this purpose. Furthermore, a proportion of

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the remuneration, especially that of executive directors, should be linked to performance.

Companies scored very badly in designing performance-related remuneration

packages. The proportion of companies disclosing were all below 40% with regards to
issues such as whether shareholders’ interests were aligned with executive directors’
compensation (34% for STIs and 22% for GLCs); whether the performance-related
elements of executive directors formed a significant proportion of the total remuneration
package (36% for STIs and 28% for GLCs); and whether the compensation of non-
executive directors was linked to their level of contribution and responsibilities (26% for
STIs and 17% for GLCs). Although many companies stated that directors’ compensation
was linked to their performance in the Board, pre-determined and equal directors’ fees
were given in most cases. Thus, on the basis of “substance over form”, marks were not
awarded to these companies. Contrary to what was expected, GLCs scored much lower
than STIs in these aspects.

In addition, only 46% of the STIs included long-term incentives in the directors’
remuneration such as share schemes and/or share options with a vesting period of over
one year. GLCs scored much higher than STIs in this aspect with 61% disclosing. Few
companies followed the Guidance Notes from the Code to consider the compensation for
early termination of directors’ contracts, merely 4% of the STIs and 6% the GLCs
complied with this requirement.

Disclosure on Remuneration

The disclosure of corporate remuneration is intended to provide investors with

complete and meaningful information on the application of the Board’s remuneration
policies against the performance of the company. It again serves to promote the
fundamental tenets of accountability and fairness. The disclosure level for this sub-
section was again relatively low. The proportions of disclosure were all below 50% for
both STIs and GLCs relating to issues such as disclosure of individual remuneration of
directors and top five executives who were not directors within the bands of S$250,000
(42% for STIs and 39% for GLCs), and disclosure of remuneration of an employee who
was an immediate family member of a director or CEO and whose remuneration
exceeded S$150,000 (40% for STIs and 44% for GLCs).

Only 16% of STIs and 6% of GLCs disclosed the procedures for setting
remuneration in their annual report. Many companies merely stated that there were
procedures for determining the remuneration of directors and key executives, who were
not directors, without disclosing the details of those procedures.

Accountability and Audit

This section of the Code covers areas such as accountability of Management to

the Board and of the Board to the shareholders, audit committees, internal controls and
internal audit. Overall, companies exhibited a high level of disclosure in this area. The

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members of the Board were provided with periodic management accounts while the
Board provide quarterly assessment of the company’s performance, position and
prospects to the shareholders.

All listed companies in Singapore are required to form audit committees which
may be the reason behind the high level of disclosure in this area. In addition, companies
also provided disclosures on the responsibilities and authorities of the audit committees.
More than 90% of the audit committees in STIs and GLCs had members who were
independent.

Figures 6 and 7 below illustrate the number of audit committees meetings and
attendance at the meetings respectively. 14% of the STIs and 6% of the GLCs did not
disclose the number of audit committee meetings that were held in a year. Audit
committees of the GLCs were more active as 66% of them held at least five meetings in a
year. This was a great difference as compared to the STIs where only 42% of its audit
committees did the same.

The disclosure of attendance at each audit meeting was unsatisfactory for the
GLCs where only 45% of them did so. On the other hand, the disclosure level for the
STIs was higher, as 70% of them disclosed this information. Among those who did
disclose, 40% of STIs and 39% of GLCs had 81% to 90% of the members present at each
meeting.

FIGURE 6: NUMBER OF AUDIT COMMITTEE MEETINGS

5-6
32% 5-6
55% 7-8
7-8
11%
8%
9 or more
9 or more
0%
2%
3-4 Not
Not
44% 3-4 Disclosed
Disclosed
28% 6%
14%
2 or less
2 or less
STI Companies GLC Companies 0%
0%

FIGURE 7: ATTENDANCE AT AUDIT COMMITTEE MEETINGS

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 Less than
Not 61% Not
Disclosed 0% Disclosed
30% 61% - 80% 55%
2%

100%
81% - 99% 6% Less than
40% 61%
100% 0%
28% 81% - 99%
39% 61% - 80%
0%

STI Companies GLC Companies

Companies had made disclosure regarding an annual review of their internal

controls. On top of that, 88% of the STIs and 72% of the GLCs had included a statement
in the annual report commenting on the adequacy of their internal controls. Besides that,
the internal audit functions of the companies were also adequately sourced with a high
proportion of companies having internal auditors that met the standards set by recognised
professional bodies.

Communication with Shareholders

This section seeks to encourage companies to engage in more effective

communication with shareholders. In order to protect their own interest, it is essential for
shareholders to have the opportunity to participate and question Management on both
operational and governance matters.

On the whole, the companies scored well in this area. More than 90% of the
companies had websites to disclose information on a timely basis. Shareholders of the
companies were given the opportunity to participate and vote in AGMs. Besides that, the
Chairmen of the various board committees and the external auditors were also present at
the AGMs to answer shareholders’ queries.

Overall, the level of disclosure by the companies in the sample is not entirely
satisfactory. To recap, the average score for STIs was 62.8% and for GLCs was 61.6%.
There is much room for improvement for the companies especially in the area of
disclosing remuneration matters and board assessment of directors’ performance.

IV. CRITICAL PROBLEMS IN CORPORATE GOVERNANCE PRACTICES IN

SINGAPORE:

Should Independent directors be de-linked from substantial shareholders?

One area where the Singapore government did not accept the recommendations of
the Council on Corporate Disclosure and Governance (CCDG) during its review of the

13
Code in 2005 was that directors who are directly or indirectly associated with a
substantial shareholder (defined in the Companies Act as a shareholder having 5% or
more voting shares in the company) could still be deemed independent. The main
opponents to the CCDG’s proposal to de-link independent directors from substantial
shareholders are banks and large companies like Temasek Holdings Pte Ltd and its listed
subsidiaries.

The reasons given by the government for not accepting the CCDG’s
recommendations are firstly, that the critical feature for directors to be able to exercise
their duties effectively is independence of mind and independence from management,
rather than independence from substantial shareholding per se. Substantial shareholders
do not pose that kind of principal-agent problems that executive directors can potentially
pose and to equate them by treating both as non-independent directors would not be right.
Secondly, substantial shareholders have a greater stake in the success of the company and
their interests, more often than not, will be aligned with those of all the shareholders of
the company. In case of conflicts of interest arising, there are sufficient provisions in the
Companies Act to safeguard against mismanagement by substantial shareholders or
vested interests. Thirdly, tightening the definition of independent directors to exclude
those associated with substantial shareholders will also deprive companies, especially
those with substantial shareholders which are large establishments, the pool of talent
from the shareholder companies which can enhance the quality of the directors on the
board and committees of the companies. Given Singapore’s relatively small and young
economy, there is a limited pool of talent from which to draw keen and well-qualified
directors.

This paper would first refute the government’s reasons for not accepting the
CCDG’s proposal to de-link independent directors from substantial shareholders. Firstly,
as the substantial shareholder, he has influence in the choice of the chief executive who
often sits as an executive director as well as the other executive directors. It is an old
boys’ club network. Thus it would be fair to say that the board is filled by people who are
‘sympathetic’ to the substantial shareholder. If independent directors may also be drawn
from the substantial shareholders, then theoretically speaking, the whole board may
comprise of directors representing the substantial shareholder. Where the listed company
is family-owned or government-linked, as is often the case in Singapore, the danger
arises that the substantial shareholder may expropriate the company’s assets against the
interest of the minority shareholders, who are in fact the investing public. At this juncture,
this paper would refer to the recent findings of La Porta, Lopez-de-Silanes and Shleifer
(2000) that controlling shareholders, which are characterized as “insiders”, expropriate
minority shareholders in a variety of ways. In the words of La Porta:

Expropriation can take a variety of forms. In some instances, the insiders simply
steal the profits. In other instances, the insiders sell the output, the assets, or the
additional securities in the firm they control to another firm they own at below
market prices. Such transfer pricing, asset stripping, and investor dilution, though
often legal, have largely the same effect as theft. In still other instances,
expropriation takes the form of diversion of corporate opportunities from the firm,
installing possibly unqualified family members in managerial positions, or

14
 overpaying executives. In general, expropriation is related to the agency problem
described by Jensen and Meckling (1976), who focus on the consumption of
‘perquisites’ by managers and other types of empire building. It means that the
insiders use the profits of the firm to benefit themselves rather than return the
money to the outside investors.3

It is thus not true to say that the substantial shareholders’ interests are aligned
with the other shareholders. Secondly, though there may be sufficient provisions in the
Companies Act protecting minority shareholders from abuse by the majority, it is hardly
realistic to ask the man in the street to take the controlling shareholder to court in cases of
mismanagement and abuse. In fact, the evidence has shown that no minority action has
ever been taken in Singapore against the majority shareholder in the context of a listed
company. The minority shareholder “votes with his feet” rather than further risk his
capital in a minority action in court.

Thirdly, Singapore being a small economy is dominated by a few large players

across industries. These conglomerates have opposed the CCDG’s suggestion to de-link
independent directors from substantial shareholders for fear that they are unable to fulfill
the one-third requirement for independent directors in view of the limited pool of talent
available in Singapore. The government opined that these conglomerates may then list
their subsidiaries in alternative jurisdictions. In the first place, it hardly stands to reason
that the prevailing rule should be dictated by the voice of the minority, ie the banks and
Temasek Holdings Pte Ltd, although there is no doubt that they are very large
establishments. With the financial muscle of the banks and Temasek Holdings Pte Ltd,
surely appointing independent directors from abroad is not out of the question

In addition, it is submitted that the problem of limited talent can be partially

alleviated by calling upon bodies like the Singapore Institute of Directors (SID) to play a
more active role in recruiting and training directors. For instance, the SID could maintain
a roll of independent directors to be ‘marketed’ to the listed companies. It is further
submitted that appointing directors from the old boys’ network cannot be eradicated
unless there is provided an alternative route for companies to recruit their directors, and
the SID is well poised to play this role. Needless to say, there must also be a
determination on the part of Singapore’s listed companies to break out of the old boys’
network when appointing their directors, particularly independent directors. As regards
the government’s fear that Singapore conglomerates will list their subsidiaries overseas, it
is submitted that for these conglomerates to list their subsidiaries in alternative
jurisdiction is indeed a good thing as it would help them tap on these markets for capital
and would in fact mark the success of their regionalisation efforts

This paper would now present the reasons why independent directors should be
de-link from substantial shareholders. The nub of the problem lies in the way in which
directors are elected to the board. Although directors (including independent directors)

3
Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer, ‘Corporate Ownership around the World’, NBER
Working Paper 6625, June 1998, available at <http://www.nber.org/papers/6625>

15
are theoretically speaking elected by the shareholders, in practice the process resembles
an election in a one-party state: Management controls the voting process and chooses a
single slate of nominees, most of whom are managers or have close relations with them.
In recent years, good corporate practice has stressed measures to give corporate boards
greater independence from management in the hope that the board would, as a result,
represent shareholder interests more vigorously. To strengthen the board’s independence,
most codes of corporate governance advocate that the independent directors should not be
associated with Management or have business relationships with the company. Despite
such best practices, there is a common perception that directors, including independent
directors are appointed from the old boys’ network, leading to a clubby and cozy
atmosphere where directors mutually refrained from assessing each other’s performance
openly, “scratches each other’s back” and also refrain from criticizing Management
openly. As such, there is often a lack of transparency and accountability in the way the
boards operate.

For instance, the scorecard results have confirmed a lack of transparency as

regards the functioning of the board of directors in the area of assessing the board’s
performance. To recap, only 52% of the STI companies disclosed that the board
performance criteria is proposed by the nominating committee and approved by the board.
In addition, only 42% disclosed that the assessment process (of the effectiveness of the
board) is carried out by the nominating committee. For the GLCs, only 44.4% disclosed
that the board performance criteria is proposed by the nominating committee and
approved by the board. As regards the assessment process for the effectiveness of the
board, only 50% disclosed this fact in their annual reports. In other words, about half of
the STI companies and GLCs do not assess the board’s performance at all. The
functioning and deliberation of the board, even in a crucial area such as assessing the
board’s performance is shrouded in secrecy.

With respect to assessing the independence of directors, only 40% of the STI
companies disclosed that the company explained why the directors should be considered
independent. The GLCs fared even worse in this regard with only 27.8% disclosing that
the company has explained why the directors should be considered independent. This
finding means that it is often unclear to investors whether the board is independent. To
make matters worse, the nature of the directors’ relationship with the company is also not
sufficiently disclosed as seen by the fact that only 54% of the STI companies and 50% of
the GLCs disclosed this fact.

Due to the lack of transparency in the way in which boards operate as well as the
cozy atmosphere in most boards arising from the old boys’ network, there arises a
common perception that the boards of Singapore’s listed companies are not independent.
This perception would be made worse if independent directors are not de-linked from
substantial shareholders. And particularly in the Singapore context where the majority of
companies have a block shareholder holding 15% or more shareholding, the substantial
shareholder very often controls the company with its slate of nominated directors. To
ensure the independence of the board, it is imperative that independent directors should
not be associated directly or indirectly with the substantial shareholders.

16
Re-visiting the one-third requirement for independent directors

There are debates concerning the optimum number of independent directors that a
company should have on its board. The 2005 Code of Corporate Governance
recommended that independent directors should make up one-third of the board.
However, in the U.S and Australia, it is already a requirement that independent directors
make up the majority of the board, whilst in the U.K, the Higgs Report recommended that
at least one-half of the members of the board should be independent. Should we adopt the
approach in these leading jurisdictions to require that the majority of the board comprise
of independent directors? The CCDG and the government did not think so. This author is
in agreement for the following reasons.

Firstly, there is no conclusive evidence that a board dominated by independent

directors actually helps shareholders. On the one hand, Cotter, Shivdasani and Zenner
(1997) offered evidence indicating that outside directors enhance shareholder wealth
during tender offers. Others found that outsider-dominated boards are more likely to
remove poorly performing CEOs [Weisbach 1988] and to nominate outside CEOs
[Borokhovich, Parrino and Trapani, 1996]. A more recent study links higher bond ratings
and lower bond yields to greater institutional ownership and stronger outside control of
the board [Bhojraj and Sengupta, 2003]. Brown and Caylor (2004) examined that
correlation at a point in time between no less than 51 supposed good governance factors
and six measures of firm performance in a large sample did find an association between
board independence (as indicated by whether or not the board had a majority of outside
directors) and four of their measures though not Tobin’s Q.

On the other hand, Sanjai Bhagat and Bernard Black (2002) reported evidence
from the first large-scale, long-time horizon study of the relationships among board
independence, board size, and the long-term performance of large American firms. They
looked at data on the financial performance and growth from 1985 to 1995 of 934 of the
largest American firms and found that firms with more independent boards do not
achieved improved profitability. Interestingly, they found that low-profitability firms did
tend to respond to their troubles by increasing the proportion of independent directors on
their boards, but no evidence was produced to show that the strategy worked.

An Australian study also found no solid evidence that independent directors add
value.4 In a study of 260 listed companies in Singapore, it was found with regards to the
regression on the proportion of independent directors, the relationship is positive with
Tobin’s Q5 but negative with ROA.6 The study sought to explain the difference in results
by positing that having a higher proportion of independent directors boosts the market’s

44
J Lawrence and G Stapledon, ‘Do independent Directors Add value?’, Melbourne Centre for Corporate Law and
Securities Regulation, 1999.
5
Chung and Pruitt’s (1994) method for approximating Tobin’s Q is adopted in the report. Basically, Tobin’s Q=MVE +
PS + DEBT/TA where MVE=(closing price of ordinary shares at the end of the financial year) X (number of common
shares outstanding); PS=liquidation value of the firm’s outstanding preferred stock; DEBT= (current liabilities-current
assets) + (long-term interest bearing debt) and TA=book value of total assets.
6
ROA=Return on Assets.

17
confidence in the role of board monitoring in reducing agency problems although the
negative correlation with ROA suggests that too much outside interference might actually
have a negative impact on the accounting performance of the company.7

It is submitted that the studies are unclear as to whether having a board dominated
by independent directors would improve the firms’ profitability, and hence there is no
conclusive evidence to support the argument that it adds value to a firm to have a board
dominated by a majority of independent directors. However, the Singapore study appears
to support the argument that having a board dominated by independent directors boosts
the market’s confidence in the shares of the firm and hence boosts the value of the firm
(Tobin’s Q). But it is submitted that it would be simply too hasty to conclude that boards
should comprise a majority of independent directors based on a single study of 260 firms
in Singapore. More empirical research needs to be done in this area.

Secondly, besides the uncertain effect on a firm’s profitability and corporate

performance, having a board dominated by independent directors also does not affect the
voluntary disclosure practices of Singapore firms. In another Singapore study of 50 listed
companies, no significant association was found between the level of voluntary
disclosure and the percentage of independent non-executive directors on corporate boards.
This means that the non-executive independent directors are not pressing the company to
disclose more non-mandatory information. 8 In fact, it can be seen from the scorecard
results that the mean level of mandatory disclosure for STI companies and GLCs was
quite dismal at 62.8% and 61.6% respectively. It is submitted that this shows that having
the one-third rule has not significantly improve the level of disclosure of Singapore’s top
listed companies either. The trend appears to be that Singapore directors do not volunteer
information unnecessarily, and increasing the percentage of independent directors has not
improved the level of voluntary disclosure. Even in respect of mandatory disclosure
under the 2005 Code of Corporate Governance, Singapore’s strongest companies have
fared badly with disclosures of around 60% only. Would increasing the percentage of
independent directors to comprise the majority of the board improve the level of
disclosure? It is submitted that an affirmative answer is unlikely given Singapore’s
corporate boardroom culture of disclosing only the minimum to comply with mandatory
regulatory requirements.

Thirdly, it is submitted that the whole issue does not hinge on numbers but rather
on “substance over form”. Sonnenfeld (2002) argues that it is not the rules and
regulations of the governing process that count but the way people work together that is
vital. Therefore, what distinguishes exemplary (effective) boards is that they are robust,
effective social systems. In other words, they exhibit a healthy boardroom culture. Jack
Welch, ex CEO of General Electric also advocates this approach as opposed to a tighter
set of governance rules: “The characteristics you want are integrity, common sense and a
willingness to speak out” [Gottliebsen, 2003].

7
Ho Hwee Peng Elaine, Lin Siwen and Lu Xianyao, ‘The Effects of Executive Directors’ Variable Remuneration and
Board Independence on Corporate Performance: A Singapore Study’, Nanyang Technological University.
8
‘Firm Characteristics and their Impact on Voluntary Disclosure for Singapore and Hong Kong Listed Companies’,
Nanyang Technological University.

18
 Vital elements constructing such a culture would create a climate of trust and
candour with full access to relevant information; effective governing body teamwork
which avoids groupthink and social loafing9; encouragement of open dissent and debate;
members/directors changing roles regularly; individual accountability of
members/directors for their roles to the rest of the board; and regular reflection and
evaluation of the board’s own performance. In particular, the need for active debate and
open questioning of management is seen as central to this “healthy” process.

In an article to the Harvard Law Review (March 2006), The Harvard Law Review
Association posited that “independence” of the board should be an institutional concept
that arises from the collective efforts of every director rather than dependent on the
personal attribute of “independence” of each individual director. Drawing upon Professor
Langevoort’s model of a tripartite board, The Harvard Law Review Association therefore
proposes that a robust and effective board should comprise the “independent monitors”,
“’gray’ mediators” and “managers”. A mediator is needed to bring constructive
collaboration between the two groups of independent outside directors and the
knowledgeable insider-managers.

In short, it is submitted that the independence of the board will not be garnered
through having a majority of independent directors but rather through developing and
nurturing a healthy boardroom culture with a mix of directors acting as “independent
monitors”, “mediators” and “managers”.

Multiple directorships

Another issue of concern is that in Singapore, the directors are believed to be

sitting on too many boards. A recent survey of 102 listed companies conducted by
Jardine Lloyd Thompson found that about 4% of the directors sit on more than four listed
company boards. Comparatively, only 0.5% of directors in the US do so. In addition, the
maximum number of directorships that an individual director holds in the United States is
8, while in Singapore there are a few directors who actually hold more than 10
directorships.

9
Groupthink refers to group mediocrity in decision-making by chasing consensus (falsely) at all costs and social
loafing occurs where group members do not participate effectively in groups and rely on other members to do the work
(Baker et al, 2002)

19
 FIGURE 8: NUMBER OF DIRECTORSHIPS HELD BY INDEPENDENT DIRECTORS

4% 4%
14%
1-3
4-6
7-9
10 or more

78%

Figure 8 shows the proportion of independent directorships held by the directors

in the sample of companies. The results concurred with the survey done by Jardine Lloyd
Thompson. As illustrated by the figure, 22% of the independent directors in Singapore sit
on at least four boards, out of which five directors sit on 10 or more boards.

Very often, independent directors are appointed to the board to add lustre and
prestige. These directors will usually hold several similar positions in other companies.
The number of directorships that an individual holds was believed to be a reflection of
the value of his or her human capital. Furthermore, when a director serves on multiple
boards, he may be able to acquire more experience and knowledge in dealing with
corporate affairs. This may make him relatively more competent and thus enhance the
quality of his time spent on the board as compared to a director who only holds a single
directorship. A study was done in comparing the number of directorships with the firm
performance. It was noted that directors with multiple directorships seem to be related to
better firm performance10.

However, it is submitted that multiple directorships could seriously compromise a

director’s ability to effectively monitor the Management. When the number of positions
held far exceeds what the director can handle, his time and effort spent on each board will
be compromised. The benefits from having more competent directors will be more than
offset by the directors’ lack of commitment. In fact, in 2002, the Securities Investors
Association of Singapore (SIAS) has proposed that the number of directorships an
individual can hold in listed companies to be capped at 4. Thus, the CCDG may want to
consider incorporating this recommendation in their next proposal.

10
J.Li and JS Ang, “Quantity versus Quality of Directors’ Time: The Effectiveness of Directors and Number of Outside
Directorships” (2000), Managerial Finance, used attention hypothesis and expertise hypothesis to test whether quantity
or quality of time spent by directors are more important. Empirical findings from the study showed that attention
(quantity) is not that significant as compared to expertise (quality).

20
Conflicts of Interests

As specified in the Companies Act, directors are to act in the interests of the
company without putting themselves in situations where their own personal interests will
conflict with their duties as directors. Thus, when directors hold executive positions in
related companies, there may be a potential conflict of interests situation involved. In this
section, 3 cases in the sample of companies where potential conflicts of interests may
arise will be examined.

Case A
CEO of United Overseas Land (UOL) Ltd and CEO of Hotel Plaza Ltd

UOL is the parent company of Hotel Plaza, holding 76% of its shares, and has “control”
over its operating and financial policies. Since the CEO of UOL also holds the position of
CEO in Hotel Plaza, he will have the opportunity to make decisions in Hotel Plaza for the
benefits of UOL. On top of that, the minority shareholders may not have the ability to
challenge the decision of the management. As a result, a conflict of interests may occur
and the interests of Hotel Plaza might well be compromised.

Case B
Chairman/CEO of United Overseas Bank (UOB) Ltd and Chairman/Executive Director
of United International Securities (UIS) Ltd

UOB holds 45% of the shares in UIS, making the latter an associate of the company.
Unlike a parent company, UOB does not have any “control” over its associate but will
have “significant influence” on the decisions made by UIS. Since the executive positions
in both companies are held by the same person, there may be a potential conflict of
interests.

Case C
Managing Director of Jardine Matheson Holdings (JMH) Ltd and Managing Director of
Dairy Farm International Holdings Ltd

JMH is incorporated in Bermuda with a primary listing in London and secondary listing
in Bermuda and Singapore. It is the parent company of Dairy Farm, holding a total of
62% of shares in the company. Similarly, since the managing director of both companies
is the same, the interests of Dairy Farm may also be compromised when the director
make decisions for the benefit of JMH.

In addition, with a board size of 9 directors, there are three directors who are related to
each other including the Managing Director and the Chairman. JMH and its subsidiaries
are actually examples of family-owned business where family members have control of
the whole group. The shareholdings of JMH are structured in a way where its subsidiaries
also have shares in the company itself. The three directors managed to control the whole
group with their positions on the board, cross-shareholding between JMH and its
subsidiaries and related family trusts that they hold.

21
Analysis of the above Cases

In order to assess whether the above conflicts of interests are critical, the
performance of the firms will be measured using three financial ratios:
- Return on Equity (ROE)11;
- Return on Assets (ROA)12; and
- Net Profit Margin13.

The table below compares the three ratios of the companies to the industry
average.
TABLE 3: FINANCIAL RATIOS (ROE)14
Net Profit Margin
Name of ROE (%) ROA (%)
(%)
Company
Company Industry Company Industry Company Industry
UOL 25.38 6.19 13.99 2.81 112.69 32.30
Hotel Plaza 9.31 5.95 4.29 6.54 13.63 17.05
UOB 12.02 10.66 1.24 3.34 2.08 4.61
UIS 2.74 2.83 2.72 -12.09 87.20 36.61
JMH 40.75 11.8 14.02 4.55 15.97 2.84
Diary Farm 64.1 11.8 16.10 4.55 7.03 2.84

For Case A, the ratios showed that Hotel Plaza was performing relatively lower
than the industry average. This indicates that the conflict of interests might have affected
the performance of the company. However, it is also acknowledged that there may be
other factors contributing to the poor performance which are beyond the scope of the
present study.

For Case B, it is the investor company which is performing poorer than the
industry average, with minimal difference for ROE but significant difference for ROA
and Net Profit Margin. Given the average compliance level of UOB (scoring 66.7%), the
impact of the conflict of interests may well pose a serious problem in future.

For Case C, JMH is a family-owned business but it does not necessarily mean that
they have a poor management and control system. For example, in the US, with a more
concentrated ownership structure and active involvement by family members, these
companies actually perform better than their non-family competitors [Anderson and
Reeb, 2003]. On the other hand, a study done on East Asian companies revealed that the
limited disclosure of information, cross-shareholding and other corporate governance

11
Determined by taking net income divided by total shareholders’ equity
12
Determined by taking net income divided by total assets
13
Determined by taking net income divided by net sales or operating revenue
14
Data extracted from OSIRIS Database

22
related problems have lead to severe conflicts among the various parties and hampered
the performance of the companies [Faccio et al, 2001].

JMH and Diary Farm are both East Asian companies. Furthermore, JMH and
some of its subsidiary15 scored very low in terms of compliance with the Code. Thus,
some might expect JMH and Diary Farm to have poor performance but the ratios showed
otherwise. In fact, both companies performed well above the industry average.
Nevertheless, this paper would suggest that JMH and its subsidiaries improve on their
corporate governance disclosures as a counter-balance to potential conflicts of interest
situations.

Disclosing Directors’ Exact Remuneration?

The subject of directors’ remuneration continues to attract lively interest and

remains at the heart of the debate on effective corporate governance. There are several
reasons why it is an important area of concern among government, investors and the
business community. Firstly, executive directors’ remuneration is believed to be one of
the most significant factors that affect a company’s ability to attract, retain and motivate
their executives to put forth their best effort in managing the company. It has a direct
impact on the productivity and competitiveness of a company or even a nation as a
whole. Secondly, it is also an issue in which directors face a conflict of interests. Any
excessive pay to directors is at the expense of the company. As such, shareholders of the
company are concerned with not paying directors more than what they deserve or
rewarding them for failures to perform. Lastly, it will also affect the confidence and
perceptions of the stakeholders on a company’s success. As noted in the Greenbury
Report (1995), paying directors over the odds, particularly where the company has
performed badly could cause resentment among the staff and damage the company’s
reputation.

The second area where the Singapore government did not accept the CCDG’s
recommendation is where the CCDG proposed that the exact remuneration of directors be
disclosed on grounds of greater transparency and accountability whilst the government
felt that disclosing exact figures would lead to upward ratcheting of directors’ fees, and in
the case of executive directors, increased poaching and pressures for higher remuneration.

Firstly, it is submitted that disclosing exact remuneration will lead to upward

ratcheting of fees only if the performance yardstick is not spelt out clearly. In the U.K
Directors’ Remuneration Report Regulations, 2002, directors are not only required to
disclosed their exact remuneration, they are also required to disclose in a performance
graph how the company has performed in respect of comparator companies or groups of
companies. The argument is that unless a director can convince shareholders that he is
able to bring the company’s performance on par with or exceeding the comparator
companies, he is not entitled to ask for more remuneration than what the comparator

15
Scores can be found in Appendix G

23
companies are paying their directors. On the contrary, disclosing exact remuneration may
even have a downward pressure on directors’ remuneration.

Secondly, there appears to be an upward trend in respect of directors’

remuneration in recent years. In a report jointly produced by the Singapore Human
Resources Institute and Remuneration Data Specialists in October 2005, it was reported
that executive directors of Singapore’s smallest listed firms earned about S$227,000 on
average in 2004.16 But those at the helm of the biggest companies earned about 13 times
more- close to S$3 million. On average, a non-executive director at a small firm gets
about S$24,800 in annual fees while one at a big company pockets some S$80,600. Data
culled from the 2004 annual reports of 575 listed firms also revealed that executive
directors’ remuneration, including non-cash perks grew 21.7% on average in 2004. Non-
executive directors’ pay increased by an average of 35.6% in 2004 compared to a 3.6%
pay hike for private sector employees in Singapore in the same year.

Figure 9 shows the distribution of the directors’ remuneration for the STI
companies for 2003 and 2004. There were 436 directors sitting on the boards of the STI
in 2003 and 435 directors sitting on the boards in 2004.

Figure 9: Distribution of Directors’ Remuneration in STI Companies

16
A small firm is one with shareholders’ funds of less than S$20 million while large companies are those with
shareholders’ funds of more than S$3 billion.

24
 400

83%

350 77%

300

250
Number of Directors

2003
200
2004

150

100

50 10%
7% 8%
4% 4% 4%
2% 1%

0
Band S$0-S$250k Band S$250K--S$500k Band S$500K--S$750k Band S$750-S$1000k Band S$1000 and above
Salary Band

For the STI companies in 2003, 77% of the directors’ remuneration was in the
band of S$0 to S$250,000 whilst in 2004, 83% of the directors’ remuneration fell within
this band, indicating an increase of 6%. For the next salary band of S$250,000 to
S$500,000, there is a drop of 6%, from 10% in 2003 to 4% in 2004. This shows that the
salaries of rank-and-file directors have come down between 2003 and 2004.17

Table 4: Distribution of Directors’ Remuneration in GLCs

Salary Band Number of Directors

2003 2004
S$0 to S$250,000 178 (82%) 175 (90%)
S$250,000 to S$500,000 20 (%) 2 (1%)
S$500,000 to S$750,000 3 (1.5%) 5 (2.5%)
S$750,000 to S$1 million 3 (1.5%) 1 (0.5%)
S$1 million and above 13 (6%) 11 (6%)

For the GLCs, there was a reduction in board size in 2004 as there were 217
directors in 2003 compared to 194 directors in 2004. As the numbers leaving the board
was fairly large, a numerical representation of the figures would be more accurate (Table
4).

It can be seen from Table 4 that the salaries of the rank-and-file directors in GLCs
have remained constant. The drop in percentage in the salary band of S$250,000 to
S$500,000 is probably attributed to directors leaving the board.

17
A rank-and-file director is one whose salary band falls within S$0 to S$500,000.

25
 On the other hand, the remuneration of the CEO and top executive directors of the
STI companies and GLCs has increased significantly. Tables 5 and 6 below show the
comparison of the STIs and GLCs’ CEO and top executive directors’ remuneration
against the companies’ profitability in 2003 and 2004.18

With the exception of Oversea-Chinese Banking Corporation Ltd, an increase in

the companies’ after-tax profits between 2002 and 2003 invariably led to an increase in
the CEO and top executive directors’ remuneration in 2004 (from 2003) for the STI
companies in 75% of the companies.19 For Oversea-Chinese Banking Corporation Ltd, it
is disturbing to find that the drop in after-tax profits did not affect the CEO and top
executive directors’ remuneration. There was even an increase in the CEO and top
executive directors’ pay for reasons that were not disclosed in the annual report.

Table 5: Comparison of 17 STI Companies’ CEO and Top Executive Directors’

Remuneration (S$1 million and above) Against Company’s Profitability for 2003
and 2004

Companies which Has Companies Has Companies Has

reported a higher Company’s which Company’s which Company’s
salary band for its Profits reported a Profits reported the Profits
CEO and top after-tax lower after-tax same salary after-tax
Executive increased or salary increased band for its increased
Directors in 2004 decreased band for or CEO and or
between its CEO decreased top decreased
2002 and and top between Executive between
2003? Executive 2002 and Directors in 2002 and
Directors 2003? 2004 2003?
in 2004
City Developments Increased Allgreen Decreased Singapore Increased
Ltd Properties Technologies
Ltd Engineering
Ltd
ComfortDelgro Increased Fraser & Increased
Corporation Ltd Neave Ltd
DBS Group Increased Singapore Increased
Holdings Ltd Press
Holdings
Ltd
Keppel Corporation Increased Singapore Decreased
Ltd Airlines
Ltd

18
Out of the 50 STIs and 18 GLCs, complete data could only be found for 17 STIs and 7 GLCs for the purpose of
comparing the companies’ directors’ salary increments or reduction against the company’s profitability.
19
Out of 12 STI companies whose after-tax profits have increased between 2002 and 2003, 9 companies had their CEO
and top executive directors’ remuneration increased in 2004.

26
Keppel Land Ltd Increased Venture Decreased
Corporation
s Ltd
Oversea-Chinese Decreased Want Want Decreased
Banking Holdings
Corporation Ltd Ltd
SembCorp Increased
Industries Ltd
Singapore Exchange Increased
Ltd
Singapore Increased
Telecommunications
Ltd
United Overseas
Bank Ltd
10 (58.8%) 6 (35.3%) 1 (5.9%)

Table 5: Comparison of 7 GLCs’ CEO and Top Executive Directors’ Remuneration

(S$1 million and above) Against Companies’ Profitability for 2003 and 2004

Companies which Has Companies Has Companies Has

reported a higher Company’s which Company’s which Company’s
salary band for its Profits reported a Profits reported the Profits
CEO and top after-tax lower after-tax same salary after-tax
Executive increased salary increased band for its increased
Directors in 2004 or band for or CEO and or
decreased its CEO decreased top decreased
between and top between Executive between
2002 and Executive 2002 and Directors in 2002 and
2003? Directors 2003? 2004 2003?
in 2004
DBS Group Increased Singapore Decreased Singapore Increased
Holdings Airlines Technologies
Ltd Engineering
Ltd
Keppel Corporation Increased
Ltd
Keppel Land Ltd Increased
SembCorp Increased
Industries Ltd
Singapore Increased
Telecommunications
Ltd
5 (71.6%) 1(14.2%) 1 (14.2%)

27
 For the GLCs, an increase in after-tax profits between 2002 and 2003 also
invariably led to an increase in CEO and top executive directors’ salary in 2004 (from
2003) in 83% of the companies.20 Because directors’ remuneration is only disclosed in
bands of S$250,000, it is not possible to ascertain whether the increase in CEO and top
executive directors’ pay correlates proportionately to the percentage increase in the
company’s profitability.

This paper next examines whether the 10 STIs and 5 GLCs that increased their
boards’ salary packet have performed well compared to the industry’s average so as to
justify the increase in salary of its CEO or top executive directors. Using OSIRIS
database, the financial ratios for 5 of the companies could be found, and are set out below
in Table 6.

TABLE 6: FINANCIAL RATIOS (ROE)21

Net Profit Margin
ROE (%) ROA (%)
Name of Company (%)
Company Industry Company Industry Company Industry
City Developments
Ltd 8.88 6.47 3.71 3.21 16.66 16.19
ConfortDelgro
Corporation Ltd 22.37 -0.76 9.84 -1.49 13.11 3.34
DBS Group
Holdings Ltd 5.18 10.02 0.55 3.27 2.05 4.11
Keppel Corporation
Ltd 22.71 12.37 6.58 5.76 14.56 10.13
Singapore
Telecommunications
Ltd 19.20 3.96 10.47 3.17 28.43 9.84

It is clear that despite profitability increases between 2002 and 2003, DBS Group
Holdings Ltd has not performed above the industry average. The pay hikes of its directors
are thus not justified. As regards, ComfortDelgro Corporation Ltd and Singapore
Telecommunications Ltd, their performance cannot reasonably be compared to the
industry average as they are the biggest and the dominant player in a small domestic
industry of only 4 to 5 operators. However, with the exception of DBS Group Holdings
Ltd, this paper is unable to comment on whether the pay hikes in the other cases are
justifiable due to insufficient information.

20
Out of 6 GLCs whose after-tax profits have increased between 2002 and 2003, 5 GLCs had their CEO and top
executive directors’ remuneration increased in 2004.
21
Data extracted from OSIRIS Database

28
 Nevertheless, it is submitted that the figures appear to show that the STI and GLC
companies tend to increase their CEO and top executive directors’ remuneration if there
is an increase in after-tax profits from the previous financial years. Only two STI
companies have decreased their CEO and top executive directors’ remuneration despite
increases in profits (which is commendable) whilst one company has maintained the
status quo. For GLCs, only one company has maintained the status quo whilst all the
other companies whose profitability have increased had also increased their CEO and top
executive directors’ pay. It is submitted that this trend is unhealthy and shows an upward
ratcheting of CEO and top executive directors’ remuneration in the last two years. It is
unclear if the individual performance of these CEOs and top executive directors’
performance merit such increases in their salaries. Data on directors’ performance is,
unfortunately scarce in Singapore as the scorecard results show that only 52% of the STI
and 44.4% of the GLCs disclosed the board performance criteria in their annual reports.
Only 42% of the STI and 50% of the GLCs disclosed that the assessment process was
carried out by the nominating committee respectively.

Thus, it is submitted that the current situation in Singapore warrants a call for a
fuller disclosure of directors’ remuneration. Firstly, it is clear that there is a lack of
transparency as regards increases in CEO and top executive directors’ remuneration in
Singapore’s top listed companies. The reasons, if any for such pay hikes are unknown.
Secondly, the SHRI-RDS study mentioned earlier also found that executive directors’
remuneration accounted for 59% of small companies’ pre-tax profits which, it is
submitted, is on the high side.22 Thirdly, going by the data stated earlier that 78% of the
independent directors in the STI companies and GLCs held between 1 and 3 directorships,
which translate to salaries of between S$74,400 and S$241,800 for each independent
non-executive director, it is clear that our directors’ pay is clearly on the upward trend.23

Fourthly, another common criticism levied against remuneration policies in

Singapore is the failure to peg directors’ salaries against their performance. It is evident
from the findings that the performance-related elements of executive directors did not
form a significant proportion of the total remuneration package in most cases. Instead,
much was given in the form of basic salaries and benefits-in-kind. In addition, the
majority of the STIs and GLCs had not linked the compensation of non-executive
directors to their level of contribution and responsibilities. Instead, pre-determined and
equal directors’ fees were given. This lack of linkage between rewards and performance
may lead to what is called “rewarding for failure”, which refers to lavishly rewarding
directors for lack-lustre or even poor performance. Although it appears that the number of
director receiving excessive rewards for failure is small, such payments reflect an
inappropriate culture “from the top” which can have a strong influence on the rest of the
organization.

22
However, executive directors’ remuneration for large companies accounted for only 0.7% of pre-tax profits. It is
submitted that this is not carte blanc for executive directors’ to increase their salaries at will merely because their
remuneration form only a small component of the companies’ pre-tax profits.
23
According to the SHRI-RDS Survey in 2005, the average salary for a non-executive director in a small company is
S$24,800 whilst that in a large company is S$80,6000.

29
 Finally, it is submitted that a prima facie case exists for the full disclosure of
directors’ exact remuneration to make directors’ more accountable. This paper would
suggest the adoption of the U.K Directors’ Remuneration Report Regulations to make
disclosures of directors’ exact remuneration compulsory, and to prevent any upward
ratcheting of directors’ remuneration, to disclose a performance graph or graphs of
comparator companies in the industry. The mandatory disclosure of performance graphs
of comparator companies will cause companies like DBS Group Holdings Ltd to exercise
restraint in increasing their directors’ pay. It is further suggested that the directors’ pay
packet be submitted to a non-binding vote at the shareholders’ general meeting to give
shareholders a platform to voice their approval or disapproval of the directors’
remuneration package.

V. SUMMARY OF THE STUDY

In general, the study showed that STIs had shown some improvement in their
corporate governance disclosure in the annual report, with an average score of 62.8%
compared to the previous score of 57.9% conducted jointly by S&P and NUS about a
year before.

As for the GLCs category, the average score of the companies was 61.6% which
showed that the levels of disclosure practices of GLCs and STIs companies were similar.
Even though it was expected that GLCs would score much higher than that of the STIs,
the findings proved otherwise.

The study also showed that across the four sections of the Code, companies
generally scored better in “Accountability and Audit” and “Communication with
Shareholders” whilst disclosures are lacking in the areas of “Board Matters” and
“Remuneration Matters”. Few companies disclosed the detailed remuneration packages
and the procedures for assessing and rewarding directors and top executives.

Lastly, the paper examined the critical problems in corporate governance

practices in Singapore, namely, the need to de-link independent directors from substantial
shareholders, the need for more disclosure to counter-balance potential conflicts of
interest situations from arising, and the need for a full disclosure of directors’ exact
compensation to make directors more accountable and transparent.

VI. LIMITATIONS OF THE STUDY AND FUTURE RESEARCH DIRECTIONS

Similar to many other studies, there are also inherent limitations in the study.
Firstly, the study focused only on the disclosures made in the annual reports of 50 STIs
and 18 GLCs, thus making the findings a little too limited. Besides that, the
measurements for the various items in the Code were also not totally objective due to
inherent measurement errors and omitted variable bias. Companies are given the
discretion to decide on the format of their corporate governance disclosure, which
resulted in ambiguity in the interpretations when going through their annual reports.

30
 The study is done based on the Code set forth on March 21st 2001. A revised
Code will be implemented for AGMs held on or after 1 January 2007. Thus, future
research can be done on the revised Code and also on more companies listed on the
Singapore Stock Exchange to provide a more comprehensive study on corporate
governance practices of Singapore’s listed companies.

BIBLIOGRAPHY
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31
Anderson, R. C. and D. M. Reeb, “Founding-Family Ownership and Firm Performance:
Evidence from the S&P 500”, The Journal of Finance, (June 2003), Vol. LVIII, No.3

Association of Chartered Certified Accountants, (2003), “Responsibility in Business:

Attitudes to Corporate Governance in China and Southeast Asia”, ACCA Survey,
(ACCA, 2003)

B.S. Shanoff, “Bringing in Outsiders gives Family Business a Boost”, World Wastes,
(1997), Vol. 40 No. 8, p.10-13

Burkart M., R. Panunzi, and A. Shleifer, “Family firms”, Working Paper, Harvard
University, (2002)

Council of Corporate Disclosure and Governance, Code of Corporate Governance,

http://www.ccdg.gov.sg/corpgov.htm

Corporate Governance Committee (CGC) Singapore, Corporate Governance Committee

Consultation Paper, (November 2000), (Singapore: CGC, 2000)

Dick, J. and S. Taskunas, “Corporate Governance Code in Singapore”, (June 2001)

http://www.pngid.org.pg/spore.html

Faccio, M., L. Lang, and, L. Young, “Dividends and Expropriation”, The American
Economic Review, (March 2001), Vol. 91, No. 1, p.54-78

Feng F., Q. Sun, H.S. Tong, “Do Government-linked Companies Underperform? ”,

(2004), Journal of Banking & Finance, Vol. 28, p. 2461-2492

Greenbury, S.R., “Report of a study group chaired by Sir Richard Greenbury, Directors
Remuneration”, (1995)

Higgs, D., “Review of the Role and Effectiveness of Non-Executive Directors”, (2003),
http://www.dti.gov.uk/cld/non_exec_review/

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Hu, R., “Opening Address by Minster of Finance, Dr Richard Hu at the Third Asian
Roundtable on Corporate Governance” , (April 2001),
http://app.mof.gov.sg/news_speeches/speechdetails.asp?speechID=17

Lee, J., “The Effects of Family Ownership and Management on Firm Performance”,
S.A.M Advanced Management Journal, (2004), Vol. 69 No. 4, p.46-53

Li, J. and J.S Ang., “Quantity versus Quality of Directors' Time: The Effectiveness of
Directors and Number of Outside Directorships”, Managerial Finance, (2000), Vol. 26

Mammatt J., “Simple Disclosure or should we take the issue of Director Remuneration
even further”, (Press Releases, 2005)

Manifest: The Proxy Voting Agency, “Directors’ Remuneration Report Disclosure”,

(October 2003),
http://www.manifest.co.uk/reports/remuneration/remuneration_report_disclosure.htm

Martin, W., “Directors Remuneration: a gap in the disclosure rules”, Corporate

Governance, (1998), Vol. 6, Issue 1, p.48-51

McKinsey & Company London, (2002), Investor Opinion Survey, (London: McKinsey &
Company, 2002)]

Remuneration Data Specialists Pte Ltd (RDS) and Singapore Human Resources Institute
(SHRI), “Directors’ Remuneration in Public-Listed Companies”, (SHRI-RDS Survey,
2005)

Sheehy, J., “The Role of the Outsider in Family Businesses”, Accountancy Ireland,
(2005), Vol. 37 No. 4, p.43-45

Sonnenfeld J.A “What Makes Great Boards Great”, Harvard Business Review (2002),
September, p.106-112.

Standard & Poor’s and National University of Singapore Corporate Governance

Reporting Financial Centre, “Corporate Governance Disclosures in Singapore: A study of
STI companies”, (Singapore: S&P and CGRFC, 2004)

33
Strenger, C., “The Corporate Governance Scorecard: a Tool for the Implementation of
Corporate Governance”, The Corporate Governance Scorecard, (2004), Vol. 12, No. 1

Tan C.H., “Corporate Governance and Independent Directorships”, Singapore Academy

of Law Journal, (2003), p.335-391

The Business Times, “$2.7m Gap Divides Singapore Exe Directors” 15 October 2005.

The Harvard Law Review Association, “Beyond ‘Independent Directors: A Functional

Approach to Board Independence” Harvard Law Review, (2006) Vol. 119, p.1553
(Available at LexisNexis™ Academic).

Thompson, P. and A.C. Hung, “Cracking the Singapore Code of Corporate Governance:
A Step Towards World-Class Corporate Governance and Superior Performance? ”,
Centre for EuropeAsia Business Research Paper Series, (2002)

Wallace, P., “Fixing Directors’ Fee”, The Business Times, (June 2001)

34
 APPENDIX A: DEFINITION OF GLCs
Company X

Does the government unit

own 20% or more of the No Company X is
not a GLC
voting share of Company
X?

Yes

Company X is a Subsidiary or
GLC Associate of Company
X

Does the government

unit have effective
No ownership of 20% or
The subsidiary
or associate is more of the voting share
not a GLC of the subsidiary or
associate of Company
X?

Yes

The subsidiary
or associate is a
GLC

35
 APPENDIX B: SUMMARY OF FINANCIAL YEAR ENDS
Financial Year End Number of Companies Number of Companies
(STIs) (GLCs)
30 September 2004 2 0
31 December 2004 38 13
31 March 2005 4 5
30 June 2005 5 0
31 August 2005 1 0

APPENDIX C: LIST OF COMPANIES IN THE SAMPLE

1. Strait Times Index Companies
S/N Name of Company Financial Year End
1 Allgreen Properties Limited 31 December 2004
2 Ascendas Real Estate Investment Trust 31 March 2005
3 BIL International Limited 30 June 2005
4 CapitaLand Limited 31 December 2004
5 CapitaMall Trust 31 December 2004
6 Chartered Semiconductor Manufacturing 31 December 2004
7 City Developments Limited 31 December 2004
8 ComfortDelGro Corporation Limited 31 December 2004
9 COSCO Corporation (Singapore) Limited 31 December 2004
10 Creative Technology Limited 30 June 2005
11 Dairy Farm International Holdings Limited 31 December 2004
12 DBS Group Holdings Limited 31 December 2004
13 Datacraft Asia Limited 30 September 2004
14 Fraser & Neave Limited 30 September 2004
15 Great Eastern Holdings Limited 31 December 2004
16 GES International Limited 30 June 2005
17 Hyflux Limited 31 December 2004
18 Haw Par Corporation Limited 31 December 2004
19 Hongkong Land Holdings Limited 31 December 2004
20 Jardine Matheson Holding Limited 31 December 2004
21 Jardine Strategic Holdings Limited 31 December 2004
22 Jurong Technologies Industries Corporation Limited 31 December 2004
23 Jardine Cycle & Carriage Limited 31 December 2004
24 Keppel Land Limited 31 December 2004
25 Keppel Corporation Limited 31 December 2004
26 MobileOne Limited 31 December 2004
27 Neptune Orient Lines Limited 31 December 2004
28 Nobel Group Limited 31 December 2004
29 Oversea-Chinese Banking Corporation Limited 31 December 2004
30 Parkway Holdings Limited 31 December 2004
31 People’s Food Holdings Limited 31 December 2004

36
32 SembCorp Marine Limited 31 December 2004
33 SembCorp Industries Limited 31 December 2004
34 SembCorp Logistics Limited 31 December 2004
35 Singapore Exchange Limited 30 June 2005
36 Singapore Airlines Limited 31 March 2005
37 Singapore Post Limited 31 March 2005
38 Singapore Telecommunications Limited 31 March 2005
39 STATS ChipPAC Limited 31 December 2004
40 Singapore Press Holdings 31 August 2005
41 Singapore Technologies Engineering Limited 31 December 2004
42 Singapore Petroleum Company Limited 31 December 2004
43 StarHub Limited 31 December 2004
44 Total Access Communication Public Company Limited 31 December 2004
45 TPV Technology Limited 31 December 2004
46 United Overseas Bank Limited 31 December 2004
47 United Overseas Land Limited 31 December 2004
48 Venture Corporation Limited 31 December 2004
49 Want Want Holdings Limited 31 December 2004
50 Wing Tai Holdings Limited 30 June 2005

2. Government-Linked Companies
S/N Name of Company Financial Year End
1 CapitaLand Limited 31 December 2004
2 Chartered Semiconductor Manufacturing 31 December 2004
3 DBS Group Holdings Limited 31 December 2004
4 Keppel Land Limited 31 December 2004
5 Keppel Corporation Limited 31 December 2004
6 Neptune Orient Lines Limited 31 December 2004
7 SembCorp Industries Limited 31 December 2004
8 SembCorp Logistics Limited 31 December 2004
9 SembCorp Marine Limited 31 December 2004
10 Singapore Airlines Limited 31 March 2005
11 Singapore Post Limited 31 March 2005
12 Singapore Telecommunications Limited 31 March 2005
13 Singapore Power Limited 31 March 2005
14 Singapore Technologies Engineering Limited 31 December 2004
15 SMRT Corporation Ltd 31 March 2005
16 STATS ChipPAC Limited 31 December 2004
17 Raffles Holdings Limited 31 December 2004
18 The Ascott Group Limited 31 December 2004

APPENDIX D: CORPORATE GOVERNANCE SCORECARD

Name of Company:
Financial Year End:

37
Category: STI / GLC
Name of Parent Company, if any:
Name of Subsidiary Company(s), if any:

A BOARD MATTERS
1 Board's Conduct of its Affairs (Effective Board)
1.1 Is the frequency of board meetings disclosed?
Number of times the Board meet in a year
Is attendance of individual member disclosed?
On average, what is the attendance (%) at each board meeting??
Does the company’s M&A allow for telephonic or videoconference meetings?
1.2 Is there disclosure of company’s guidelines of matters that require approval by the
board?
Do the guidelines disclose the type of material transactions that must be approved by
the board?
1.3 Does the company have a training program for all its directors?
Does the company provide ongoing training on new law, regulations and changing
commercial risks?
Is there an orientation program for all new directors?
Does the orientation program cover the company’s business and governance
practices?

2 Board Composition and Balance (Strong & Independent Board with No

Dominate Individual(s))
2.1 What is the percentage of independent directors against the total number of directors
in the board?
2.2 Did the company disclose in full the nature of the directors’ relationship with the
company
Did the company explain why the directors should be considered independent?
2.3 Has the board examine the appropriateness of its size?
2.4 Are the board members competent (accounting or finance, business or management
experience, industry knowledge)?

3 Chairman and CEO (Clear Division of Responsibility)

3.1 Did the board disclose the relationship between the chairman and CEO?
Are the chairman and CEO positions held by the same person?
3.3 Are the chairman's responsibilities with respect of board proceedings disclosed?

4 Board Membership (Formal & Transparent Process for Board Appointment)

4.2 Are all directors required to seek nomination and re-election at regular intervals (at
least once every 3 years)?
What is the length of tenure of executive directors in the company?
What is the length of tenure of non-executive directors in the company?

38
4.5 Is the complete list of board members disclosed?
Is the key information of individual director disclosed?
Is each director classified? (e.g. Executive, non-executive or independent)

5 Board Performance (Formal Assessment of Effectiveness of Board &

Contribution of Individual Director)
5.1 Is the board performance criteria proposed by the NC & approved by the board?
Are the changes to the criteria approved by the board?
5.3 Is the assessment process carried out by the NC disclosed?

6. Access to Information (Provision of Complete, Adequate & Timely Information to

Board Members)
6.1 Does the board have separate and independent access to company’s senior
management?
6.2 Does information provided include background or explanatory information relating
to matters brought before the board?
Does the board receive explanation of variances between projections (budgets) and
results?
6.3 Does the board have separate and independent access to the company’s secretary?
Is the role of company secretary defined, including responsibilities for ensuring that
board procedures are followed and compliance of applicable rules and regulations?
Does the company secretary attend all board meetings?
6.4 Does the company have an agreed procedure for directors who take independent
professional advice?

B REMUNERATION MATTERS
7. Procedure for Developing Remuneration Policies (Formal & Transparent
Procedure for Setting Remuneration)
Is the list of remuneration committee disclosed?
Are directors involved in deciding their own remunerations?
7.1 Is majority of the RC non-executive directors who is independent of the
management?
7.2 Is the RC chaired by in independent non-executive director?
Does the RC have least 1 member who is knowledgeable in the field of executive
compensation or have expert advice inside and/or outside the company?
7.3 Does the RC recommend to the board a framework of remuneration for the board
and key executive?
Does the RC determine specific remuneration packages for executive directors and
the CEO?
Are the RC’s recommendations made in consultation with the chairman of the
board?
Are the recommendation submitted for endorsement by the entire board?
Does the RC’s review cover all aspects of remuneration (such as salaries,
allowances, bonuses, options)?

39
 8 Level & Mix of Remuneration (Appropriate & Performance related
Remuneration Packages)
8.2 Is executive director compensation designed to align to the interests of the
shareholders?
Does the remuneration link individual rewards to corporate performance?
Does the remuneration link individual rewards to individual performance?
Do the performance-related elements of executive directors form a significant
proportion of the total remuneration package (more than 50%)?
8.3 Is compensation of non-executive directors linked to their level of contribution and
responsibilities, time spent and effort?
Were industry experts consulted on the remuneration of non-executive directors?
Has the board recommended all components of non-executive director compensation
for approval at the AGM?
8.4 Do service contracts for directors contain onerous removal clauses?
Did the RC consider the appropriateness of compensation commitments for early
termination of directors?
8.5 Does director remuneration include long term incentives (e.g. Bonuses payable after
12 month and/or share options with a vesting period more than 12 months)?

9 Disclosure on Remuneration (Clear Disclosure in Company's Annual Report)

Did the company provide clear disclosure of its remuneration policies, level and mix
of remuneration?
Did the company provide clear disclosure on the procedure for setting remuneration
in its annual report?
9.1 Is disclosure made to shareholders of remuneration of top five executives who are
not directors?
Is the list of RC members disclosed in the annual remuneration report?
9.2 Is the individual remuneration, of directors and top five executives who are not
directors, which falls within bands of S$ 250K disclosed?
Is there a disclosure of the breakdown of remuneration components into salaries,
variable bonuses, options, and long-term incentives?
Is full disclosure made of remuneration of each director by name?
9.3 Is disclosure made of remuneration to an employee who is an immediate family
member of a director or CEO, and whose own remuneration exceeds S$150K?
9.4 Are the details of employee share schemes/options disclosed? If it does not have
such schemes, is this fact disclosed?

C ACCOUNTABILITY & AUDIT

10 Accountability (Board accountable to shareholders, Management accountable to
board)
10.1 Does the board provide the shareholders with quarterly assessment of company’s
performance, position and prospects?
10.2 Does the management provide the board with periodic management account?

11 Audit Committee (Audit Committee with Clearly Defined Authority & Duties)

40
 Does the audit committee have its terms of reference in writing, stating its
authorities and duties?
11.1 Is the majority of the audit committee independent?
Is the chairman of the audit committee independent?
11.2 Do at least two members of the audit committee have accounting experiences or
related financial management expertise or experience?
11.3 Does the audit committee have authority to investigate any matter within its terms of
reference?
Does the audit committee have access to and cooperation of management?
11.4 Does the audit committee review scope, results and effectiveness of audits?
11.5 Does the audit committee meet with external auditors at least annually, in the
absence of company management?
Does the audit committee meet with internal auditors at least annually, in the
absence of company management?
11.6 Does the audit committee review the independence of the external auditors annually?
11.7 Is disclosure make of individual audit committee members’ attendance at audit
committee meetings?
Is the list of audit committee members disclosed?
Is the number of meetings held each year disclosed?
Number of audit committee meetings in a year?
On average, what is the attendance (%) at each audit committee meetings?

12 Internal Controls (Sound System of Internal Controls)

12.1 Is an annual review conducted of company’s internal control and risk management?
12.2 Does the board comment on their adequacy of their internal control in the company’s
annual report?

13 Internal Audit (Internal Audit Function Independent of Activities it Audits)

13.1 Does the internal auditor report primarily to the chairman of the audit committee?
13.2 Does the internal auditor meet the standards set by recognized professional bodies
(Institute of Internal Auditors)?
13.3 Does the audit committee ensure that the internal audit function is adequately
resourced?
13.4 Does the audit committee review the adequacy of the internal audit function, at least
annually?

D COMMUNICATION WITH SHAREHOLDERS

14 (Dialogues between Company & Shareholders)
Does the company maintain regular, effective and fair communication with
shareholders?
14.2 Does the company use an internet website to disclose information on a timely basis?

15 (Annual General Meeting)

15.1 Are the shareholders given opportunity to participate and vote in AGM?
Are the shareholders allowed to vote in person or in absentia, with equal effect given

41
 to the votes?
15.2 Are separate resolutions proposed at the AGM for each distinct issue? (i.e. no
resolutions are bundled together)
15.3 Are the chairmen of all board committees (audit, nomination and remuneration
committee) present at the AGM to answer shareholders’ questions?
Are external auditors present at AGM to assist responses to shareholders?

42
 APPENDIX E: SUMMARY OF CORPORATE GOVERNANCE SCORES (STIs)

Compliance
# %
A BOARD MATTERS
1 Board's Conduct of its Affairs (Effective Board)
1.1 Is the frequency of board meetings disclosed? 44 88.0
Is attendance of individual member disclosed? 35 70.0
Does the company’s M&A allow for telephonic or videoconference 28 56.0
meetings?
1.2 Is there disclosure of company’s guidelines of matters that require 36 72.0
approval by the board?
Do the guidelines disclose the type of material transactions that must 11 22.0
be approved by the board?
1.3 Does the company have a training program for all its directors? 23 46.0
Does the company provide ongoing training on new law, regulations 31 62.0
and changing commercial risks?
Is there an orientation program for all new directors? 26 52.0
Does the orientation program cover the company’s business and 21 42.0
governance practices?

2 Board Composition and Balance (Strong & Independent Board with No Dominate
Individual(s))
2.2 Did the company disclose in full the nature of the directors’ 27 54.0
relationship with the company
Did the company explain why the directors should be considered 30 40.0
independent?
2.3 Has the board examine the appropriateness of its size? 36 72.0
2.4 Are the board members competent (accounting or finance, business or 32 64.0
management experience, industry knowledge)?

3 Chairman and CEO (Clear Division of Responsibility)

3.1 Did the board disclose the relationship between the chairman and 41 82.0
CEO?
Are the chairman and CEO positions held by the same person? 37 74.0
3.3 Are the chairman's responsibilities with respect of board proceedings 32 64.0
disclosed?

4 Board Membership (Formal & Transparent Process for Board Appointment)

4.2 Are all directors required to seek nomination and re-election at 39 78.0
regular intervals (at least once every 3 years)?
4.5 Is the complete list of board members disclosed? 50 100.0
Is the key information of individual director disclosed? 50 100.0
Is each director classified? (e.g. Executive, non-executive or 41 82.0

43
 independent)

5 Board Performance (Formal Assessment of Effectiveness of Board & Contribution

of Individual Director)
5.1 Is the board performance criteria proposed by the NC & approved by 26 52.0
the board?
Are the changes to the criteria approved by the board? 23 46.0
5.3 Is the assessment process carried out by the NC disclosed? 21 42.0

6. Access to Information (Provision of Complete, Adequate & Timely Information to

Board Members)
6.1 Does the board have separate and independent access to company’s 40 80.0
senior management?
6.2 Does information provided include background or explanatory 28 56.0
information relating to matters brought before the board?
Does the board receive explanation of variances between projections 18 36.0
(budgets) and results?
6.3 Does the board have separate and independent access to the 34 68.0
company’s secretary?
Is the role of company secretary defined, including responsibilities 22 44.0
for ensuring that board procedures are followed and compliance of
applicable rules and regulations?
Does the company secretary attend all board meetings? 31 62.0
6.4 Does the company have an agreed procedure for directors who take 26 52.0
independent professional advice?

B REMUNERATION MATTERS
7. Procedure for Developing Remuneration Policies (Formal & Transparent
Procedure for Setting Remuneration)
Is the list of remuneration committee disclosed? 44 88.0
Are directors involved in deciding their own remunerations? 48 96.0
7.1 Is majority of the RC non-executive directors who is independent of 41 82.0
the management?
7.2 Is the RC chaired by in independent non-executive director? 35 70.0
Does the RC have least 1 member who is knowledgeable in the field 16 32.0
of executive compensation or have expert advice inside and/or
outside the company?
7.3 Does the RC recommend to the board a framework of remuneration 31 62.0
for the board and key executive?
Does the RC determine specific remuneration packages for executive 31 62.0
directors and the CEO?
Are the RC’s recommendations made in consultation with the 19 38.0
chairman of the board?
Are the recommendation submitted for endorsement by the entire 20 40.0
board?

44
 Does the RC’s review cover all aspects of remuneration (such as 27 54.0
salaries, allowances, bonuses, options)?

8 Level & Mix of Remuneration (Appropriate & Performance related Remuneration

Packages)
8.2 Is executive director compensation designed to align to the interests 17 34.0
of the shareholders?
Does the remuneration link individual rewards to corporate 26 52.0
performance?
Does the remuneration link individual rewards to individual 25 50.0
performance?
Do the performance-related elements of executive directors form a 18 36.0
significant proportion of the total remuneration package (more than
50%)?
8.3 Is compensation of non-executive directors linked to their level of 13 26.0
contribution and responsibilities, time spent and effort?
Were industry experts consulted on the remuneration of non- 18 36.0
executive directors?
Has the board recommended all components of non-executive 25 50.0
director compensation for approval at the AGM?
8.4 Do service contracts for directors contain onerous removal clauses? 1 2.0
Did the RC consider the appropriateness of compensation 2 4.0
commitments for early termination of directors?
8.5 Does director remuneration include long term incentives (e.g. 23 46.0
Bonuses payable after 12 month and/or share options with a vesting
period more than 12 months)?

9 Disclosure on Remuneration (Clear Disclosure in Company's Annual Report)

Did the company provide clear disclosure of its remuneration 26 52.0
policies, level and mix of remuneration?
Did the company provide clear disclosure on the procedure for setting 8 16.0
remuneration in its annual report?
9.1 Is disclosure made to shareholders of remuneration of top five 23 46.0
executives who are not directors?
Is the list of RC members disclosed in the annual remuneration 41 82.0
report?
9.2 Is the individual remuneration, of directors and top five executives 21 42.0
who are not directors, which falls within bands of S$ 250K disclosed?
Is there a disclosure of the breakdown of remuneration components 31 62.0
into salaries, variable bonuses, options, and long-term incentives?
Is full disclosure made of remuneration of each director by name? 28 56.0
9.3 Is disclosure made of remuneration to an employee who is an 20 40.0
immediate family member of a director or CEO, and whose own
remuneration exceeds S$150K?
9.4 Are the details of employee share schemes/options disclosed? If it 36 72.0
does not have such schemes, is this fact disclosed?

45
C ACCOUNTABILITY & AUDIT
10 Accountability (Board accountable to shareholders, Management accountable to
board)
10.1 Does the board provide the shareholders with quarterly assessment of 40 80.0
company’s performance, position and prospects?
10.2 Does the management provide the board with periodic management 42 84.0
account?

11 Audit Committee (Audit Committee with Clearly Defined

Authority & Duties)
Does the audit committee have its terms of reference in writing, 31 62.0
stating its authorities and duties?
11.1 Is the majority of the audit committee independent? 45 90.0
Is the chairman of the audit committee independent? 45 90.0
11.2 Do at least two members of the audit committee have accounting 31 62.0
experiences or related financial management expertise or experience?
11.3 Does the audit committee have authority to investigate any matter 36 72.0
within its terms of reference?
Does the audit committee have access to and cooperation of 40 80.0
management?
11.4 Does the audit committee review scope, results and effectiveness of 35 70.0
audits?
11.5 Does the audit committee meet with external auditors at least 36 72.0
annually, in the absence of company management?
Does the audit committee meet with internal auditors at least 32 64.0
annually, in the absence of company management?
11.6 Does the audit committee review the independence of the external 45 90.0
auditors annually?
11.7 Is disclosure make of individual audit committee members’ 35 70.0
attendance at audit committee meetings?
Is the list of audit committee members disclosed? 49 98.0
Is the number of meetings held each year disclosed? 44 88.0

12 Internal Controls (Sound System of Internal Controls)

12.1 Is an annual review conducted of company’s internal control and risk 42 84.0
management?
12.2 Does the board comment on their adequacy of their internal control in 44 88.0
the company’s annual report?

13 Internal Audit (Internal Audit Function Independent of Activities it Audits)

13.1 Does the internal auditor report primarily to the chairman of the audit 40 80.0
committee?
13.2 Does the internal auditor meet the standards set by recognized 34 68.0
professional bodies (Institute of Internal Auditors)?

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13.3 Does the audit committee ensure that the internal audit function is 37 74.0
adequately resourced?
13.4 Does the audit committee review the adequacy of the internal audit 43 86.0
function, at least annually?

D COMMUNICATION WITH SHAREHOLDERS

14 (Dialogues between Company & Shareholders)
Does the company maintain regular, effective and fair communication 46 92.0
with shareholders?
14.2 Does the company use an internet website to disclose information on 46 92.0
a timely basis?

15 (Annual General Meeting)

15.1 Are the shareholders given opportunity to participate and vote in 39 78.0
AGM?
Are the shareholders allowed to vote in person or in absentia, with 38 76.0
equal effect given to the votes?
15.2 Are separate resolutions proposed at the AGM for each distinct issue? 27 54.0
(i.e. no resolutions are bundled together)
15.3 Are the chairmen of all board committees (audit, nomination and 34 68.0
remuneration committee) present at the AGM to answer shareholders’
questions?
Are external auditors present at AGM to assist responses to 32 64.0
shareholders?

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 APPENDIX F: SUMMARY OF CORPORATE GOVERNANCE SCORES (GLCs)

Compliance
# %
A BOARD MATTERS
1 Board's Conduct of its Affairs (Effective Board)
1.1 Is the frequency of board meetings disclosed? 17 94.4
Is attendance of individual member disclosed? 8 44.4
Does the company’s M&A allow for telephonic or videoconference 14 77.8
meetings?
1.2 Is there disclosure of company’s guidelines of matters that require 12 66.7
approval by the board?
Do the guidelines disclose the type of material transactions that must 6 33.3
be approved by the board?
1.3 Does the company have a training program for all its directors? 11 61.1
Does the company provide ongoing training on new law, regulations 12 66.7
and changing commercial risks?
Is there an orientation program for all new directors? 11 61.1
Does the orientation program cover the company’s business and 8 44.4
governance practices?

2 Board Composition and Balance (Strong & Independent Board with No Dominate
Individual(s))
2.2 Did the company disclose in full the nature of the directors’ 9 50.0
relationship with the company
Did the company explain why the directors should be considered 5 27.8
independent?
2.3 Has the board examine the appropriateness of its size? 10 55.6
2.4 Are the board members competent (accounting or finance, business or 9 50.0
management experience, industry knowledge)?

3 Chairman and CEO (Clear Division of Responsibility)

3.1 Did the board disclose the relationship between the chairman and 15 83.3
CEO?
Are the chairman and CEO positions held by the same person? 16 88.9
3.3 Are the chairman's responsibilities with respect of board proceedings 10 55.6
disclosed?

4 Board Membership (Formal & Transparent Process for Board Appointment)

4.2 Are all directors required to seek nomination and re-election at 17 94.4
regular intervals (at least once every 3 years)?
4.5 Is the complete list of board members disclosed? 18 100.0
Is the key information of individual director disclosed? 17 94.4
Is each director classified? (e.g. Executive, non-executive or 15 83.3

48
 independent)

5 Board Performance (Formal Assessment of Effectiveness of Board & Contribution

of Individual Director)
5.1 Is the board performance criteria proposed by the NC & approved by 8 44.4
the board?
Are the changes to the criteria approved by the board? 8 44.4
5.3 Is the assessment process carried out by the NC disclosed? 9 50.0

6. Access to Information (Provision of Complete, Adequate & Timely Information to

Board Members)
6.1 Does the board have separate and independent access to company’s 14 77.8
senior management?
6.2 Does information provided include background or explanatory 9 50.0
information relating to matters brought before the board?
Does the board receive explanation of variances between projections 5 27.8
(budgets) and results?
6.3 Does the board have separate and independent access to the 14 77.8
company’s secretary?
Is the role of company secretary defined, including responsibilities 8 44.4
for ensuring that board procedures are followed and compliance of
applicable rules and regulations?
Does the company secretary attend all board meetings? 11 61.1
6.4 Does the company have an agreed procedure for directors who take 9 50.0
independent professional advice?

B REMUNERATION MATTERS
7. Procedure for Developing Remuneration Policies (Formal & Transparent
Procedure for Setting Remuneration)
Is the list of remuneration committee disclosed? 17 94.4
Are directors involved in deciding their own remunerations? 18 100.0
7.1 Is majority of the RC non-executive directors who is independent of 16 88.9
the management?
7.2 Is the RC chaired by in independent non-executive director? 11 61.1
Does the RC have least 1 member who is knowledgeable in the field 7 38.9
of executive compensation or have expert advice inside and/or
outside the company?
7.3 Does the RC recommend to the board a framework of remuneration 11 61.1
for the board and key executive?
Does the RC determine specific remuneration packages for executive 11 61.1
directors and the CEO?
Are the RC’s recommendations made in consultation with the 7 38.9
chairman of the board?
Are the recommendation submitted for endorsement by the entire 5 27.8
board?

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 Does the RC’s review cover all aspects of remuneration (such as 10 55.6
salaries, allowances, bonuses, options)?

8 Level & Mix of Remuneration (Appropriate & Performance related Remuneration

Packages)
8.2 Is executive director compensation designed to align to the interests 4 22.2
of the shareholders?
Does the remuneration link individual rewards to corporate 9 50.0
performance?
Does the remuneration link individual rewards to individual 8 44.4
performance?
Do the performance-related elements of executive directors form a 5 27.8
significant proportion of the total remuneration package (more than
50%)?
8.3 Is compensation of non-executive directors linked to their level of 3 16.7
contribution and responsibilities, time spent and effort?
Were industry experts consulted on the remuneration of non- 8 44.4
executive directors?
Has the board recommended all components of non-executive 8 44.4
director compensation for approval at the AGM?
8.4 Do service contracts for directors contain onerous removal clauses? 0 0.0
Did the RC consider the appropriateness of compensation 1 5.6
commitments for early termination of directors?
8.5 Does director remuneration include long term incentives (e.g. 11 61.1
Bonuses payable after 12 month and/or share options with a vesting
period more than 12 months)?

9 Disclosure on Remuneration (Clear Disclosure in Company's Annual Report)

Did the company provide clear disclosure of its remuneration 9 50.0
policies, level and mix of remuneration?
Did the company provide clear disclosure on the procedure for setting 1 5.6
remuneration in its annual report?
9.1 Is disclosure made to shareholders of remuneration of top five 9 50.0
executives who are not directors?
Is the list of RC members disclosed in the annual remuneration 17 94.4
report?
9.2 Is the individual remuneration, of directors and top five executives 7 38.9
who are not directors, which falls within bands of S$ 250K disclosed?
Is there a disclosure of the breakdown of remuneration components 13 72.2
into salaries, variable bonuses, options, and long-term incentives?
Is full disclosure made of remuneration of each director by name? 15 83.3
9.3 Is disclosure made of remuneration to an employee who is an 8 44.4
immediate family member of a director or CEO, and whose own
remuneration exceeds S$150K?
9.4 Are the details of employee share schemes/options disclosed? If it 16 88.9
does not have such schemes, is this fact disclosed?

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C ACCOUNTABILITY & AUDIT
10 Accountability (Board accountable to shareholders, Management accountable to
board)
10.1 Does the board provide the shareholders with quarterly assessment of 14 77.8
company’s performance, position and prospects?
10.2 Does the management provide the board with periodic management 14 77.8
account?

11 Audit Committee (Audit Committee with Clearly Defined

Authority & Duties)
Does the audit committee have its terms of reference in writing, 10 55.6
stating its authorities and duties?
11.1 Is the majority of the audit committee independent? 17 94.4
Is the chairman of the audit committee independent? 17 94.4
11.2 Do at least two members of the audit committee have accounting 8 44.4
experiences or related financial management expertise or experience?
11.3 Does the audit committee have authority to investigate any matter 10 55.6
within its terms of reference?
Does the audit committee have access to and cooperation of 12 66.7
management?
11.4 Does the audit committee review scope, results and effectiveness of 10 55.6
audits?
11.5 Does the audit committee meet with external auditors at least 13 72.2
annually, in the absence of company management?
Does the audit committee meet with internal auditors at least 13 72.2
annually, in the absence of company management?
11.6 Does the audit committee review the independence of the external 16 88.9
auditors annually?
11.7 Is disclosure make of individual audit committee members’ 8 44.4
attendance at audit committee meetings?
Is the list of audit committee members disclosed? 17 94.4
Is the number of meetings held each year disclosed? 17 94.4

12 Internal Controls (Sound System of Internal Controls)

12.1 Is an annual review conducted of company’s internal control and risk 12 66.7
management?
12.2 Does the board comment on their adequacy of their internal control in 13 72.2
the company’s annual report?

13 Internal Audit (Internal Audit Function Independent of Activities it Audits)

13.1 Does the internal auditor report primarily to the chairman of the audit 13 72.2
committee?
13.2 Does the internal auditor meet the standards set by recognized 12 66.7
professional bodies (Institute of Internal Auditors)?

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13.3 Does the audit committee ensure that the internal audit function is 10 55.6
adequately resourced?
13.4 Does the audit committee review the adequacy of the internal audit 14 77.8
function, at least annually?

D COMMUNICATION WITH SHAREHOLDERS

14 (Dialogues between Company & Shareholders)
Does the company maintain regular, effective and fair communication 16 88.9
with shareholders?
14.2 Does the company use an internet website to disclose information on 16 88.9
a timely basis?

15 (Annual General Meeting)

15.1 Are the shareholders given opportunity to participate and vote in 15 83.3
AGM?
Are the shareholders allowed to vote in person or in absentia, with 14 77.8
equal effect given to the votes?
15.2 Are separate resolutions proposed at the AGM for each distinct issue? 8 44.4
(i.e. no resolutions are bundled together)
15.3 Are the chairmen of all board committees (audit, nomination and 13 72.2
remuneration committee) present at the AGM to answer shareholders’
questions?
Are external auditors present at AGM to assist responses to 13 72.2
shareholders?

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 APPENDIX G: SUMMARY OF SCORES FOR EACH COMPANIES

1. Strait Times Index Companies

S/N Name of Company Scores (%)
1 Allgreen Properties Limited 75.9
2 Ascendas Real Estate Investment Trust 48.3
3 BIL International Limited 77.0
4 CapitaLand Limited 83.9
5 CapitaMall Trust 54.0
6 Chartered Semiconductor Manufacturing 47.1
7 City Developments Limited 92.0
8 ComfortDelGro Corporation Limited 86.2
9 COSCO Corporation (Singapore) Limited 82.8
10 Creative Technology Limited 20.7
11 Dairy Farm International Holdings Limited 23.0
12 DBS Group Holdings Limited 90.8
13 Datacraft Asia Limited 88.5
14 Fraser & Neave Limited 80.5
15 Great Eastern Holdings Limited 93.1
16 GES International Limited 77.0
17 Hyflux Limited 87.4
18 Haw Par Corporation Limited 83.9
19 Hongkong Land Holdings Limited 41.4
20 Jardine Matheson Holding Limited 12.6
21 Jardine Strategic Holdings Limited 10.3
22 Jurong Technologies Industries Corporation Limited 48.3
23 Jardine Cycle & Carriage Limited 63.2
24 Keppel Land Limited 83.9
25 Keppel Corporation Limited 62.1
26 MobileOne Limited 85.1
27 Neptune Orient Lines Limited 49.4
28 Nobel Group Limited 47.1
29 Oversea-Chinese Banking Corporation Limited 85.1
30 Parkway Holdings Limited 57.5
31 People’s Food Holdings Limited 33.3
32 SembCorp Marine Limited 50.6
33 SembCorp Industries Limited 72.4
34 SembCorp Logistics Limited 81.6
35 Singapore Exchange Limited 60.9
36 Singapore Airlines Limited 51.7
37 Singapore Post Limited 59.8
38 Singapore Telecommunications Limited 56.3
39 STATS ChipPAC Limited 26.4
40 Singapore Press Holdings 73.6

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41 Singapore Technologies Engineering Limited 54.0
42 Singapore Petroleum Company Limited 86.2
43 StarHub Limited 80.5
44 Total Access Communication Public Company Limited 49.4
45 TPV Technology Limited 9.2
46 United Overseas Bank Limited 66.7
47 United Overseas Land Limited 75.9
48 Venture Corporation Limited 77.0
49 Want Want Holdings Limited 62.1
50 Wing Tai Holdings Limited 73.6

2. Government-Linked Companies
S/N Name of Company Scores (%)
1 CapitaLand Limited 83.9
2 Chartered Semiconductor Manufacturing 47.1
3 DBS Group Holdings Limited 90.8
4 Keppel Land Limited 83.9
5 Keppel Corporation Limited 62.1
6 Neptune Orient Lines Limited 49.4
7 SembCorp Industries Limited 72.4
8 SembCorp Logistics Limited 81.6
9 SembCorp Marine Limited 50.6
10 Singapore Airlines Limited 51.7
11 Singapore Post Limited 59.8
12 Singapore Telecommunications Limited 56.3
13 Singapore Power Limited 4.6
14 Singapore Technologies Engineering Limited 54.0
15 SMRT Corporation Ltd 87.4
16 STATS ChipPAC Limited 26.4
17 Raffles Holdings Limited 75.9
18 The Ascott Group Limited 71.3

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