eGuide to CG Code

Directors are fiduciaries who act objectively in the best interests of the company and hold management accountable for performance. The Board puts in place a code of conduct and ethics, sets appropriate tone-from-the-top and desired organisational culture, and ensures proper accountability within the company. Directors facing conflicts of interest recuse themselves from discussions and decisions involving the issues of conflict.
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:

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



eGuide to CG Code
Definition of Corporate Governance
History and Structure of the Code
Role of the Board
Role of the Chair
Focus on Long Term and Sustainability
Revised Code Structure and Approach
Mandatory Principles
Provisions and Variations
Thoughtful and Meaningful Application
Board Matters
Principle 1
Provision 1.1
Provision 1.2
Provision 1.3
Provision 1.4
Provision 1.5
Provision 1.6
Provision 1.7
Principle 2
Provision 2.1
Provision 2.2
Provision 2.3
Provision 2.4
Provision 2.5
Principle 3
Provision 3.1
Provision 3.2
Provision 3.3
Principle 4
Provision 4.1
Provision 4.2
Provision 4.3
Provision 4.4
Provision 4.5
Principle 5
Provision 5.1
Provision 5.2
Provision 5.3
Remuneration Matters
Principle 6
Provision 6.1
Provision 6.2
Provision 6.3
Provision 6.4
Principle 7
Provision 7.1
Provision 7.2
Provision 7.3
Principle 8
Provision 8.1
Provision 8.2
Provision 8.3
Accountability and Audit
Principle 9
Provision 9.1
Provision 9.2
Principle 10
Provision 10.1
Provision 10.2
Provision 10.3
Provision 10.4
Provision 10.5
Shareholder Rights and Responsibilities
Principle 11
Provision 11.1
Provision 11.2
Provision 11.3
Provision 11.4
Provision 11.5
Provision 11.6
Principle 12
Provision 12.1
Provision 12.2
Provision 12.3
Managing Stakeholder Relationships
Principle 13
Provision 13.1
Provision 13.2
Provision 13.3
Practice Guidance
Board Roles and Director Duties
Board Composition and Guidance
Chairman and CEO
Board Membership
Board Performance
Procedures for Developing Remuneration Policies
Level and Mix of Remuneration
Disclosure on Remuneration
Risk Management and Internal Controls
Audit Committee
Shareholder Rights and Engagement
Engagement with Shareholders
Managing Stakeholder Relationships
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