|There should be a strong and independent element on the Board, with independent directors making up at least one-third of the Board.|
This Guideline explains the need for Independent Directors (IDs) and for a sufficient number of them.
While all directors have a fiduciary duty towards the company and must act in its best interests, non-independent directors (specifically, EDs and NI-NEDs) could find it challenging to fulfil that duty to the extent that they have long-term involvements and vested interests. Their close relationships with management (EDs, in particular, are part of management) and related parties, can affect their actual and perceived objectivity to critically supervise senior management, and to exercise impartial judgement that is in the company’s overall best interest.
Hence, the Guidelines prescribe a requirement for IDs. Generally, an ID does not have a material or pecuniary relationship with the company or related parties, except for director fees (see Guideline 2.3 for criteria for an ID). The objectivity and independence of the IDs’ views and their experiences with other directorships help bring diversity and external perspective to the Board.
In addition, there should be a sufficient number of such IDs on the Board to provide balance against the non-independent members of the Board. For that reason, Guideline 2.1 requires at least one-third of the Board to be IDs. However, when the Chairman is not independent, this requirement increases to at least half of the Board (Guideline 2.2).
B. SGX Disclosure Guide
- Does the Company comply with the guideline on the proportion of independent directors on the Board? If not, please state the reasons for the deviation and the remedial action taken by the Company.
C. Related Rules and Regulations
- Section 201B(2) of the Companies Act: Audit Committees [Composition].
- SGX MR 210(5)(c) and CR 406(3)(c): Directors and Management.
- SGX MR 720(1) and CR 720(1): Directors and Management.
- SGX MR 704(8) and CR 704(7): Appointment or Cessation of Service.
D. CG Guides
- Board Guide 2.9: Independence [Board Composition].
- Board Guide 5.8: Types of Directors [Director Duties].
- Board Guide 5.10: The Non-Executive Director.
- NC Guide 3.4: Board Composition [Nomination and Appointment Process].
- NC Guide 4.1: Introduction [Director Independence].
- NC Guide 4.2: Number of IDs [Director Independence].
E. Related Articles
- “The search for independence” by Lim Chin Hu. (446KB)
- “Professionalising independent directorship” by Benedict Lim. (458KB)
- “Independent directors: Neither tigers nor pussy cats” by Anabelle Yip. (255KB)
- “Independent director recruitment: The new challenge” by SID. (258KB)
- “The idea of a ‘professional independent director’ ” by Umakanth Varottil. (130KB)
- “Will the truly independent director please stand up?” by Willie Cheng. (56KB)