Stronger governance code, listing rules need backing of a robust culture of stewardship

[SINGAPORE] When the Corporate Governance Advisory Committee (CGAC) and Singapore Exchange Regulation (SGX RegCo) kicked off a public consultation last week on proposed new rules for boardrooms, reporters naturally wanted to know how many companies would be affected by the headline changes.

The numbers, which came shortly after, were rather intriguing.

Take the proposed requirement under SGX listing rules for companies to appoint a lead independent director (ID) if their chairman is not independent. Based on data from the Singapore Directorship Report 2025 by the Singapore Institute of Directors, about 70 listed entities could be affected.

This was equivalent to 11 per cent of the 615 listed entities in the market. The same report said 18 per cent of board chairs were also the CEO.

On the other hand, there is almost total compliance with the proposed changes to SGX listing rules that will require key board committees to have independent chairs, and comprise a majority of IDs.

Data provided by SGX RegCo indicated that independent chairs are already in place in 95.9 per cent of nominating committees (NCs), 97.5 per cent of audit committees (ACs), and 96.5 per cent of remuneration committees (RCs). The proportion of NCs, ACs and RCs that comprise a majority of IDs are 98.5 per cent, 99.2 per cent and 98.8 per cent, respectively.

What accounts for the seemingly different levels of readiness for these new SGX listing rules? Are independent board committees a painless box-tick compared to IDs playing a real leadership role at these companies?

Is it a reflection of the culture at companies with dominant owner-operator shareholders?

Stiffer market rules

The proposed SGX listing rules mentioned above are already part of the Code of Corporate Governance. While the Code operates on a principles-based, comply-or-explain framework, SGX listing rules set mandatory standards for companies. Both are periodically adjusted in tandem.

On board chair independence, for example, the latest proposed amendments were not limited to SGX listing rules requiring boards to have a lead ID when the chair is not independent. The CGAC has also proposed a new provision under the Code requiring companies where the chairman is also the CEO to explain how the chairman’s role is effectively fulfilled.

The CGAC is also proposing the Code be amended to recommend all NC members comprise non-executive directors (NEDs). It already recommends that all AC and RC members comprise NEDs.

It was the more prescriptive aspects of the recommendations that grabbed attention last week, though. For instance, the CGAC is recommending that SGX listing rules demand more explicit disclosures in announcements of director appointments, covering selection criteria, rationale, board diversity considerations, and the search and nomination process.

Issuers will also be required to disclose whether the appointment of a director is supported by the NC, and to provide reasons if it is not.

In another much-talked-about move, the CGAC is recommending directors sit on no more than five boards of listed companies, to ensure they are able to devote sufficient time and attention to their responsibilities.

It is seeking views on whether this should be mandatory under SGX listing rules, or applied on a comply-or-explain basis under the Code. In 2024, there were 49 SGX-listed companies with directors sitting on more than five boards.

Limits of coercion

This consultation may seem reminiscent to some market watchers of the one back in 2022 about the disclosure of pay for CEOs and directors, and the nine-year tenure limit for IDs. After companies failed to do what was expected of them, market regulators essentially forced their hand.

Some of the CGAC and SGX RegCo’s stated objectives cannot be achieved through more mandatory requirements, though. More effective implementation of the Code, and a sharper focus on value creation cannot really be coerced, in my view.

In fact, the CGAC’s proposal to support more effective implementation of the Code is to simply provide an explanation of the “intended outcomes” for each principle of the Code, and guidance on how companies can demonstrate that their governance arrangements achieve those intended outcomes.

The idea is to reduce compliance uncertainty among companies that are less well-resourced, and help them to go beyond just describing their governance processes to explaining how they are achieving good governance outcomes.

Yet, much depends on whether companies see the provisions of the Code as anything more than a box-ticking burden. For many companies, boilerplate disclosures may be less about regulatory uncertainty than internal priorities.

Meanwhile, a key proposal to support greater focus on value creation is to require companies to maintain and disclose a capital management policy. This would be an extension of the new dividend policy requirement under SGX listing rules that will take effect at the beginning of 2027.

The intention here is to foster greater transparency and accountability on how companies allocate their capital, and drive shareholder value.

CGAC is seeking views on whether this should be introduced on a comply-or-explain basis under the Code, or as a mandatory requirement under SGX listing rules.

Even if it is included in the SGX listing rules, however, much will depend on whether companies see capital management disclosures as the basis of more meaningful engagement with investors about their value creation strategies, or just another compliance burden to manage.

Managing controlling shareholders

To be clear, I am not suggesting the proposals put forward by the CGAC and SGX RegCo are pointless. Some are arguably overdue.

Yet, many of the most prominent companies in the Singapore market have controlling shareholders who effectively determine their business strategies and the appointment of all their directors. Even if these directors behave entirely independently, the mere risk that they may favour controlling shareholders if push ever comes to shove can make minority investors nervous and result in companies trading at low valuations.

The way I see it, controlling shareholders and boards need to constantly reassure minority investors that their interests are being actively weighed in every decision. If minority shareholders are just passengers on a bus, they need to be confident that the vehicle is travelling in the right direction and at the appropriate speed, and that they will be kept abreast of detours and U-turns along the way.

How can this be achieved? No doubt, rules related to board independence as well as capital management policies could be part of the solution. But it could be just as important for leaders across the market ecosystem to regularly use their collective voice to remind controlling shareholders and boards of their crucial stewardship role.

Without a genuine culture of stewardship in boardrooms, tougher governance and listing rules may just generate more boilerplate disclosures that do little for investor confidence.