Recent developments have seen the emergence of the two tier board and the increase of the independent director role.
Independent and non-executive directors are commonly found in listed companies. Listed companies appear to have the budgets and the depth of business necessary to support the needs of these independent and non-executive directors. This is in part, due to the level of business turnover that listed companies are involved with, and also the complexities that are associated with business conducted by the board of a listed company. Traditionally, the independent, non-executive director serves to maintain the integrity and impartiality of the Board. There is no reason why these same principles cannot apply to SMESs. (For further detail, please refer to the SGX listing manual which covers the role of non-executive directors. Section 157 of the Companies Act (Cap. 50) deals with the office of directors).
Recently however, the Corporate Governance Council, which is responsible for the Code of Corporate Governance (the “Code” – latest version 2012), has been looking into this area to put in place certain provisions to ensure that the value of having independent, non-executive directors in companies are more commonly implemented. The current Code was originally adapted from the American-style code back in 20011. In this short article, we look at what is happening in Singapore, along with the emergence of a possible two-tier board for smaller companies that are not publicly listed, as a suggestion to all business of what might come their way in future with these changes.
In the diagram below, we introduce the two-tier model board, where a supervisory board sits independently of the main board. The supervisory board is made up of people unrelated to the main board or the shareholders of the company. They are appointed more for their expertise in certain areas (e.g. audit/legal/technical expertise) rather than any association or loyalty to the Board of Shareholders. With the emergence of many tech-related activities (e.g. app development), having non-executive directors involved in the tech-related activity of the company may suit the board well, because it would give the board a higher level of competence to deal with tech-related matters.
The appointment is usually non-executive, which means that they do not deal with the day-to-day functions of a company’s business. These two-tier companies have long been a feature of many companies in Europe and may soon see its emergence in Asia. The term of each appointment can vary over different periods of time ranging from an annual appointment to several years in one instance.
The implementation of independent directors in a company has become a global signifier of good corporate governance2. Will you give this two tier board some consideration in your company?
Register of Controllers & Nomiee Directors – Something New!
This is a quick look at Part XIA – Sections 386AF to 386AL of the Companies Act (Cap. 50). In 2017, the Companies (Amendment) Act 2017 was passed on 10 March 2017 and came into force on 31 March 2017.
The company and every officer shall maintain the following two registers where applicable. If this is not complied with, a fine of S$5,000.00 may be imposed.
Who is affected: All companies and limited liability partnerships registered in Singapore. Foreign companies registered in Singapore need only maintain a register of Controllers.
A Nominee Director is essentially a person appointed in a position as director but only does under the directions/instructions of another person (usually a controlling shareholder).
A Registrable Controller is a person or entity who has significant interest and control over the company. For ease of understanding, this generally refers to a shareholding of 25% or more. (see Sixteenth Schedule, Companies Act for the definition of significant interest and significant control).
A register is a table of information collated and filed with the company records of a company (and usually kept with the company’s secretary), where it can be duly inspected.
*Prepared in collaboration with Bryan Yeo, Solicitor, Supreme Court of Victoria, Australia.