A. Explanation

This Provision emphasises that a director is a fiduciary who must always act in the best interests of the company. It also sets out guidance on how directors can discharge their duties.

In law and in practice, there are different types of directors.

For listed companies, the Code distinguishes between directors who are executive or non-executive, and independent or not independent. In this context, there are three types of directors:

• Executive Directors (EDs).
• Non-Executive Directors (NEDs) who are not necessarily independent, or Non-Independent Non-Executive Directors (NI-NEDs).
• NEDs who are independent and commonly referred to as Independent Directors (IDs).

In addition, the statutes and case law identify the following types of directors:

• Alternate Directors.
• Nominee Directors.
• De facto Directors.
• Shadow Directors.

The different types of directors have different roles and functions, though the law – including the Companies Act – imposes the same legal duties and obligations on them.

At common law, directors are fiduciaries who are required to act in the best interests of the company. That is, at all times, they must, in running the company as directors, act honestly and in good faith; avoid conflicts of interest, exercise due care, skill and diligence; and not abuse their power or misuse any information as well as adhere to the law and all rules and regulations.

The Provision notes that directors’ responsibilities include holding management accountable and setting the tone on ethics and culture.

The Board is primarily responsible for governance of the company – setting directions and steering the company. The day-to-day operations and actions and performance of the company is in the hands of management. Thus, the Board needs to be clear on management’s accountabilities to the Board.

Yet, it would be near-impossible for a Board to be detailed in its directions and policies so as to cover every conceivable situation and action that the company’s executives might take. It can, however, set the tone for a set of values and culture that guides the behaviour of management and employees. The Provision specifically states that the Board should put in place a Code of Conduct and Ethics in setting this tone from the top to influence the desire organisational culture.

Most Codes of Conduct and Ethics tend to have a statement on conflicts of interest. This is specifically mentioned in this Provision. As noted above, related to the duty to act in the best interests of the company is the director’s fundamental duty to avoid any conflict between his personal, professional or business interests with that of the company.

Given the sheer number of transactions and parties that a company is involved with, it is almost inevitable that conflicts of interest will arise in the course of business. The Provision recognises this and also the reality that conflict of interest is a sensitive subject. On this front, many directors have been taken to task for failing in their duties.

The Practice Guidance suggests that the Board should have clear policies and procedures for dealing with conflicts of interest. One clear procedure required by the Code is that where a director faces a conflict of interest, he should disclose this and recuse himself from meetings and decisions involving the issue.

B. Practice Guidance

• Practice Guidance 1: Board Roles and Director Duties.

C. Related Rules and Regulations

• Section 157 of the Companies Act: As to the Duty and Liability of Officers.
• MR 103(5) and CR 103(6): General Principles (Directors shall act in the interests of shareholders as a whole).
• MR 223 and CR 417: Conflicts of Interest.
• MR 901 and CR 901: Interested Person Transaction.
• MR 1207(10B) and CR 1204(10B): Annual Reports.

D. CG Guides

• NC Guide 3.2: Types of Directors [Nomination and Appointment Process].
• NC Guide 4.1: Introduction [Director Independence].
• Board Guide 2.9: Independence [Board Composition].
• Board Guide 5.2: General Duties of Directors [Director Duties].
• Board Guide 5.8: Types of Directors [Director Duties].
• AC Guide 3.7: Interested Person and Related Party Transactions [Risk Management and Internal Controls].

E. Related Articles

• “Should failing to act diligently be a crime?” by Adrian Chan. (446KB)
• “CA amendments: What did not make it?” by Adrian Chan. (47KB)
• “But, I am only a sleeping director…” by Joyce Koh. (54KB)
• “Keeping on the right side of the law” by Michael Gray. (46KB)
• “Conflicts of interest: duties and consequences” by Gerard Tan. (456KB)
• “Conflicts of interest: perception is reality” by Gerard Tan. (439KB)
• “Determining interested persons and related parties” by Gerard Tan. (389KB)
• “Conflicts of interest: how would one know?” by Gerard Tan. (389KB)
• “The director’s duty in sustainable governance” by Kala Anandarajah. (231KB)