Good, better, best, never let it rest

IN the past year, the results of the regular surveys carried out on the governance landscape for Singapore Exchange (SGX)-listed companies have been encouraging. The Singapore Governance and Transparency Index (SGTI) and Sustainability Reporting Review 2021 showed improvements over previous reviews.

But there is always room for improvement and Singapore Exchange Regulation (SGX RegCo) has identified 3 areas for further enhancement in the new year.

The digitalisation of general meetings

During the early stages of Covid-19, many companies found themselves unable to hold virtual annual general meetings (AGMs) or extraordinary general meetings (EGMs) as there were no enabling provisions in statute nor in their constitutive documents. The Covid-19 (Temporary Measures) Act was introduced to enable companies to hold virtual AGMs and EGMs, and conduct live question and answer (Q&A) and live voting, regardless of what the company's constitutive documents say.

The Act did not specify the need for live Q&A or live voting. It enabled companies to do so. SGX RegCo released a joint statement with the Accounting and Corporate Regulatory Authority (ACRA) and Monetary Authority of Singapore (MAS), which encouraged (but did not require) companies to conduct live Q&A and live voting during their general meetings.

That said, what SGX RegCo does require is for companies to engage shareholders by providing them the opportunity to ask questions and for the company to address all substantial and relevant questions. Companies are encouraged to respond to questions promptly to facilitate shareholders' votes.

At physical general meetings, Q&A would take place before voting begins. We observed that an increasing number of companies are providing for live Q&A, while others would answer questions at the general meeting itself or post answers on SGXNet.

Only a couple of companies, however, used live voting, with the rest opting for votes being submitted through proxy forms in advance of the general meeting. This meant that companies' responses to substantive questions from shareholders were only provided after votes had already been submitted.

To address this issue, SGX RegCo is prescribing additional timelines for responses to the Q&A for all general meetings. Companies must post the answers to the substantial and relevant questions they receive at least 72 hours before the deadline for shareholders to submit their proxy votes, if the notice period is 21 days; if the notice period is only 14 days, the timeline is at least 48 hours.

On the other hand, we have also issued guidance that companies can set a deadline for shareholders to submit their questions. This deadline should be reasonable and no earlier than 7 calendar days after the publication of the notice of the general meeting to provide sufficient time for shareholders to consider the matters to be tabled at the meetings.

Another trend we have observed is that companies are increasingly hosting virtual information sessions (VIS) to facilitate shareholders' participation and allow their views to be communicated before their EGMs. At a VIS, the management or the board can take questions live on concerns on various matters affecting the company that will be voted on at the upcoming EGM.

Typically, the VIS is held before the EGM and before the deadline for shareholders to send in their votes, so that the questions and answers can inform the voting. This is especially valuable when shareholders are voting on a very difficult or potentially contentious issue, and they should have the chance to ask questions before they vote.

Taking reference from this, SGX RegCo will require companies to hold a VIS for certain corporate actions. These include rights issues that require approval of shareholders in a general meeting, privatisations, schemes of arrangement, interested person transactions, major transactions and reverse takeovers - issues for which shareholders would significantly benefit from having an opportunity to ask questions before they vote.

Companies are to either publish the minutes, or provide a link for shareholders to access a recording of the VIS on SGXNet and, if available, the issuer's corporate website, at least 72 hours prior to the closing date and time for the lodgement of the proxy forms.

Board diversity and climate reporting

The year 2022 will see the 9-year rule for independent directors (IDs) take effect - in other words, IDs who have served 9 years or more will no longer be considered independent unless a 2-tier vote is passed to enable the director to remain on the board as an ID. One of the primary reasons for this rule is to promote renewal and succession planning.

One envisaged outcome of this is better board diversity. At SGX RegCo, we issued a public consultation earlier this year requiring, among others, the disclosure of companies' board diversity policies, diversity targets and a roadmap to achieve those diversity targets.

We have, however, observed companies leveraging on the 2-tier vote system at their AGMs to retain IDs past the 9-year mark. Companies have simply extended their 9-year directors without bringing in fresh blood. We expect companies to use the 2-tier rule sparingly, and only in exceptional cases. We therefore urge companies to be significantly more judicious in their application of the 2-tier vote system, and to expect increased scrutiny should they want to use it anyway.

SGX RegCo also issued a public consultation on requiring companies to disclose climate information. Some sceptics may ask how climate disclosures will solve the problem of global warming and climate change. The key is not to look at climate disclosures in isolation but as an essential piece to a much bigger puzzle. Our companies will also be better-equipped to build business resilience by anticipating potential climate-related risks and opportunities, in light of more stringent national emissions reduction targets.

There are at least 3 implications for companies. First, investors will be able to compare climate data across companies and industries. Second, investors can price in how companies are cutting emissions to avoid the looming carbon tax. Third, investors will also want to know how companies are taking advantage of the massive opportunities that clean energy offers. We will therefore start to see significant positive implications from improved climate reporting.

Improved disclosure around letters of demand

Our rules state that issuers must disclose if they receive letters of demand for a substantial sum that would have a material impact on them.

The fact that the borrower may still be seeking an extension of time does not alter the need for timely disclosure, as there is already certainty of the claim. Some seek to justify non-disclosure using the clause in SGX rules stating that such disclosure is unnecessary should the claim or action be "bound to fail". But it should be noted that the bar for claims to be classified as such is very high.

Letters of demand that are individually insubstantial can add up to a substantial sum that requires disclosure. As a rule of thumb, letters of demand adding up to 10 per cent of an issuer's net asset value (NAV) should be disclosed. One new piece of guidance from SGX RegCo is that subsequent letters of demand should be disclosed in at least bands of 10 per cent. For example, once additional letters of demand have accumulated to make another 10 per cent of NAV, a second announcement should be made.

We at SGX RegCo have a central role in coordinating the interests of issuers and investors, to ensure that investors are provided with all the information necessary for them to make informed decisions.

This naturally circles back to the overall topic of governance and reporting -- the evolving business and regulatory landscape means that companies must be ready to continuously up the ante on governance and transparency, diversity and sustainability, and I look forward to seeing how things continue to change for the better. Let's not rest on our laurels.

• The writer is chief executive of Singapore Exchange Regulation

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