Corporate Governance in Singapore—The Road Thus Far

The first Code of Corporate Governance was adopted in Singapore in 2001. Since then, the Code has been re-issued three times, most recently in 2018. There has also been a shift in the approach taken by the Singapore regulators on how corporate governance should be enforced among companies, especially those listed on the Singapore Exchange. From a voluntary ‘comply-or-explain’ approach to a partially mandatory one, instilling the right degree of corporate governance in Singapore companies has been a balancing act for the regulators throughout these years.

On the one hand, Singapore has inherited the common-law legal system, which traditionally has the ‘strongest legal rules covering protection of corporate shareholders and creditors’. Singapore’s success as a global commercial and financial hub can also be attributed to its willingness to embrace international standards, especially in corporate law and capital markets regulation. On the other hand, Singapore operates in an environment that is highly competitive. There is a concern that imposing unduly onerous corporate governance standards on listed companies may make Singapore less attractive as a place for business. Furthermore, share ownership of companies in Singapore is highly concentrated with family-owned and government-linked companies making up the majority of listed companies. This means that modifications to the traditional corporate governance framework based on dispersed shareholdings are necessary. The key challenge for Singapore’s regulators is, therefore, how to shape its corporate governance to meet international standards while tailoring it to the needs of local companies using a mixture of hard and soft laws.

As my paper explains, what Singapore has done over the years is to gradually tighten the ‘comply-or-explain’ corporate governance model as its listed companies internalize the fundamentals of corporate governance. To ensure that its corporate governance regime remains relevant to the stakeholders who are most affected by it, the regulators have adopted a ‘bottom-up’ approach by playing second fiddle to the ad-hoc industry-led corporate governance committee formed at each review. The committee is responsible for re-drafting the Code, soliciting responses from the public, and suggesting suitable implementation processes and timetables. The regulators then give teeth to the recommendations by making the necessary changes to the Code, the relevant laws, and listing rules. The long-term objective of the approach is to create and support a nationwide eco-system advocating for good corporate governance amongst companies in Singapore.

In the latest re-issue of the Code in 2018, compliance with the key tenets of corporate governance is no longer voluntary as they were moved from the Code to form part of the mandatory Singapore Exchange’s (SGX) Listing Rules (SGX LR) for listed companies. Compliance with the 13 broad-based principles laid out in the Code is also compulsory, while fulfillment of the provisions continues to be on a ‘comply-or-explain’ basis. There is also a set of accompanying Practice Guidance giving examples and suggestions on how the Code may be applied. Adoption of these suggestions by the companies is entirely voluntary.

The interplay between the hard- and soft-law approaches in the regulation of corporate governance has given the regulators the flexibility to adapt the regime to the changing needs of the capital market over time. A good example is the criteria for a director to be deemed ‘independent’. Beginning with independence from management only in 2001, the concept has evolved to include, in addition, independence from a shareholder holding ten percent in 2012. The threshold was eventually reduced to five per cent in 2018. The circumstances that render directors non-independent, which used to be on a ‘comply-or-explain’ basis, have now moved from the Code to the mandatory SGX-LR. A tenure for independent directors was also introduced in 2018, although the shareholders could approve to extend the tenure. On 11 January 2023, the relevant rules were further refined to limit the tenure to nine years with no extension. This change was coupled with the mandatory disclosure of the exact details of the remuneration packages of the CEO and the directors, by moving the reporting requirements from the Code to the SGX-LR from the financial year ending on or after 31 December 2024.

Despite the progress made, there are areas which need improvement. For example, promoting board diversity amongst Singapore companies is still a work in progress, even though the concept of ‘diversity’ was introduced over two decades years ago. On the other hand, stakeholder engagement (in contrast to shareholder engagement) is relatively new to Singapore’s corporate governance framework, having entered the Code only in 2018. Interestingly, although the state-owned enterprises or the government-linked companies (GLCs), as they are known in Singapore, form a large proportion of the market capitalization on the SGX, Singapore has never adopted a separate corporate governance code modelled on the OECD Guidelines on Corporate Governance State-Owned Enterprises. This may be due to the unique way in which these GLCs are governed by Temasek, which is itself constitutionally safeguarded and its corporate governance regime reinforced by the Temasek Charter.

Luh Luh Lan is Associate Professor at the National University of Singapore.