A. Explanation

This Provision describes how Board Committees should be formed and disclosed.

The scope of a Board’s role and responsibilities is a broad one. As set out in Practice Guidance 1, the Board’s role is to:

1. Provide entrepreneurial leadership, and set strategic objectives, which should include an appropriate focus on value creation, innovation and sustainability.
2. Ensure that the necessary resources are in place for the company to meet its strategic objectives.
3. Establish and maintain a sound risk management framework to effectively monitor and manage risks, and to achieve an appropriate balance between risks and company performance.
4. Constructively challenge Management and review its performance.
5. Instil an ethical corporate culture and ensure that the company’s values, standards, policies and practices are consistent with that culture.
6. Ensure transparency and accountability to key stakeholder groups.

If the whole Board was to involve itself in every matter, it would likely be overwhelmed, and important decisions would not be able to be made in a timely manner. Practice Guidance 1 suggests the Board forms committees, but it should decide the scope and the matters delegated to them.

Some commonly established Board Committees are the Audit Committee (required for listed companies under Section 201B(1) of the Companies Act) and the SGX-ST Listing Rules under MR 704(8) and CR 704(7), Nominating Committee, Remuneration Committee, and Board Risk Committee. Other types of Board Committees include the Executive Committees and Safety and Health Committees.

The Provision specifically mentions an Executive Committee (Exco). Used appropriately, an Exco can enable a Board to conduct business when a regular Board meeting is not scheduled or the full Board cannot be promptly convened. An Exco can also provide the CEO with a confidential sounding board. However, the risk of an Exco is the creation of a “Board within a Board”, an elite group that usurps the decision-making of the larger Board.

Thus, as the Provision states, it is important to establish an Exco with a clear set of terms of reference regarding its authority and duties, and its need to report back to the Board. The Practice Guidance also suggests that if the Board chooses to form an Exco, it is responsible for understanding the Exco’s discussions and endorsing the Exco’s decisions.

All Board Committees should comprise directors equipped with the relevant expertise, experience and skillsets. These Committees may, in turn, engage professionals to help discharge their duties and responsibilities. Any delegation of authority by the Board must be disclosed in the annual report.

Regardless of the number or type of Board Committees, the Board is ultimately accountable for all decisions made. Where there is a specific delegation of decision-making, the Board still ultimately retains responsibility.

In a nutshell, the Board can delegate tasks, but it can never delegate its responsibilities. The Provisions applicable in this regard include:

• Each Board Committee has written Terms of Reference that set out its authority and duties.
• Where there are significant matters, these can be delegated to the Board Committees for deliberations. However, recommendations are to be submitted to the Board for consideration and final approval.
• As a matter of standard procedure, each Board Committee is to submit a report of its deliberations and any decisions taken, to each Board meeting.
• The names and roles of members of each Board Committee and its precise delegated authority are to be disclosed in the annual report.

B. Practice Guidance

• Practice Guidance 1: Board Roles and Director Duties.

C. Related Rules and Regulations

• Section 201B(1) of the Companies Act: Audit Committees.
• MR 704(8) and CR 704(7): Audit Committee to have at least three members.
• MR 1207(10B) and CR 1204(10B): Annual Reports.
• MR 210(5)(e) and CR 406(3)(e): Directors and Management.
• MR 720(1) and CR 720(1): Directors and Management.

D. CG Guides

• Board Guide 2.2: Authority [Board Composition].
• Board Guide 2.3: Terms of Reference [Board Composition].
• Board Guide 2.6: Board Committees [Board Composition].
• Board Guide Appendix 2D: Sample Board Terms of Reference [Board Composition].
• Board Guide Appendix 2G: Guidelines for Executive Committees [Board Composition].
• Board Guide Appendix 2H: Sample Terms of Reference for an Executive Committee [Board Composition].
• Board Guide Appendix 2I: Sample Terms of Reference for a Health, Safety and Environment Committee [Board Composition].
• Board Guide Appendix 2J: Sample Terms of Reference for an IT Governance Committee [Board Composition].
• Board Guide Appendix 2K: Sample Terms of Reference for a Strategy Committee [Board Composition].
• NC Guide 1.2: Structure and Authority [NC Composition].
• NC Guide 1.3: Terms of Reference [NC Composition].
• NC Guide Appendix 1C: Sample NC Terms of Reference [NC Composition].
• RC Guide 1.2: Structure and Authority [RC Composition].
• RC Guide 1.3: Terms of Reference [RC Composition].
• BRC Guide 1.3 Structure and Authority [BRC Composition].
• BRC Guide 1.5: Terms of Reference [BRC Composition].
• AC Guide 1.2: Structure and Authority [AC Composition].
• AC Guide 1.3: Terms of Reference [AC Composition].

E. Related Articles

• “Audit committees must now work even harder” by Gerard Tan. (66KB)
• “A good nominating committee can save a company” by Junie Foo. (73KB)
• “Excos and the balance of power” by Ng Siew Quan, Alvin Chiang and Chua Hsieh Wen. (279KB)