|The NC is charged with the responsibility of determining annually, and as and when circumstances require, if a director is independent, bearing in mind the circumstances set forth in Guidelines 2.3 and 2.4 and any other salient factors. If the NC considers that a director who has one or more of the relationships mentioned therein can be considered independent, it shall provide its views to the Board for the Board's consideration. Conversely, the NC has the discretion to consider that a director is not independent even if he does not fall under the circumstances set forth in Guideline 2.3 or Guideline 2.4, and should similarly provide its views to the Board for the Board's consideration.|
This Guideline sets out the responsibility of the NC in relation to director independence.
The need for Independent Directors (IDs) is covered in the Explanation for Guideline 2.1. The criteria for director independence is provided in Guidelines 2.3 and 2.4.
Guideline 2.3 provides a list of non-exhaustive examples of specific relationships and circumstances that are likely to affect, or could appear to affect, a director’s judgement. This list provides various permutations involving the director or his immediate family member being employed, remunerated, or in a business relationship with the company, its related corporations, its management, or its 10% or more shareholders. Guideline 2.4 identifies the case of a director who has served more than nine years on the Board.
This Guideline restates the point made in Guidelines 2.3 and 2.4 that when a director falls within the relationships or circumstances cited in those Guidelines, then he should, in the first instance, be deemed to be non-independent. However, the Board still has the prerogative to deem him to be indeed independent. If the NC considers such a director to be independent, then, it should provide its recommendation and views to the Board for its consideration (as the Board makes the ultimate decision).
Under Guidelines 2.3 and 2.4, if the Board still considers the director to be independent notwithstanding those relationships and/or circumstances, then a full disclosure in the company’s annual report must be made so that stakeholders can properly understand the nature of the situation and the basis of the decision.
Conversely, even if a director does not fall under any of the relationships and circumstances set out in Guidelines 2.3 and 2.4, the Board still has the prerogative to nevertheless deem a director as non-independent. This would be in line with the general criterion of independence set out in Guideline 2.3 in that “the director is independent in character and judgement and [that there are no] relationships or circumstances which are likely to affect, or could appear to affect, the director's judgement”. (See Explanation for Guideline 2.3.)
The Guideline states that a review of the independence of each director should be conducted annually and when circumstances require. Throughout the year, each director is required to inform the Board as soon as practicable of any change in circumstances that may affect his independence and time commitment to the company’s affairs.
One of the reasons for an annual review of independence is that although a Non-Executive Director (NED) may satisfy all the requirements of independence at the time of his appointment, changes in his personal circumstances or in the company could affect this status.
B. SGX Disclosure Guide
C. Related Rules and Regulations
D. CG Guides
- NC Guide 2.2: NC Calendar [NC Agenda].
- NC Guide 3.2: Types of Directors [Nomination and Appointment Process].
- NC Guide 4.3: Assessment of Independence Status [Director Independence].
- NC Guide 4.4: Criteria for Independence [Director Independence].
- NC Guide 4.5: Tenure of Independent Director [Director Independence].
- NC Guide Appendix 4B-1: Determining Director Independence [Director Independence].
- NC Guide Appendix 4B-2: The Nine-Year Rule for an Independent Director [Director Independence].
E. Related Articles
- “Who should judge on independence?” by Adrian Chan. (446KB)
- “The nine-year rule” by David Conner. (445KB)
- “The nominating committee and its role in identifying directors for renewal and new appointments’ by Kala Anandarajah. (112KB)
- “A calling for more independent directors” by Farhana Siddiqui & Lam Shiao Ning. (98KB)
- “In search of the truly independent director” by Willie Cheng. (1.4MB)