A. Explanation

This Provision provides guidance on the formation, role and duties of an NC.

Given the importance and scope of the work involved in Board appointments and directorship matters, the NC is a Board Committee that is typically established to specifically take on the responsibility for these matters. The SGX-ST Listing Rules requires the formation of one or more committees that would, among others, cover the function of an NC [MR 210(5)(e) and CR 406(3)(e)].

The role of the NC is to undertake in-depth reviews of, and make recommendations to the Board on, matters such as:

• Succession planning
  The Provision emphasises the succession planning of not just the directors in general, but in particular that of the Chairman, CEO and other Key Management Personnel (KMP). Practice Guidance 4 suggests there be progressive renewal of the Board so that there is diversity of tenure. The Listing Rules also require that directors submit for re-nomination and re-appointment at least once every three years [MR 720(5) and CR 720(4)].
• Evaluation process and results
  There should be a substantive evaluation of the Board’s performance. This is covered in greater detail in Principle 5 and its provisions.
• Professional development of directors
  The training and continuing professional development of directors is important to ensure they stay relevant and competent.
  
  The Listing Rules require that a director who has no prior experience as a director of an issuer listed on the Exchange receive comprehensive training and tailored induction on joining the Board (MR 210(5)(a) and CR 406(3)(a)). MR Practice Note 2.3 and CR Practice Note 4D prescribe the training that such new directors need to attend and where the NC determines that a new director does not need to undergo such prescribed training, it must disclose its reasons for its assessment that the new director possesses the relevant experience in the company’s announcement of the director’s appointment. Such first-time directors must attend mandatory training within one year from the date of their appointment to the board.
• Director appointments
  Arguably, the most important role of the NC is in the appointment and reappointment of directors. Practice Guidance 4 is devoted to the process of, and considerations for, director appointments. It emphasises that:
  
  • The process should take into account the Board’s composition and progressive renewal, as well as individual directors’ competencies, commitment, contribution and performance (e.g. attendance, preparedness, participation, candour, and performance as an independent director if applicable).
  • The search process and criteria for new director appointments should be broad rather than narrow, and should be disclosed.
  • Alternate directors are discouraged and should only be appointed in exceptional circumstances.
  • Multiple directorships should be a key factor in determining whether a director can be effective, but the number of directorships that a director can have would be specific to the individual director (see Provision 4.5).

B. Practice Guidance

•  Practice Guidance 4: Board Membership.

C. Related Rules and Regulations

• MR 210(5)(a) and CR 406(3)(a): Directors and Management.
• MR 210(5)(e) and CR 406(3)(e): Directors and Management.
• MR 720(1) and CR 720(1): Directors and Management.
• MR 720(5) and CR 720(4): Directors and Management.
• MR 720(6) and CR 720(5): Directors and Management.
• MR Appendix 7.4.1 and CR Appendix 7F: Announcement of Appointment.
• MR Practice Note 2.3 and CR Practice Note 4D: Training for Directors with No Prior Experience.

D. CG Guides

• NC Guide 1.3: Terms of Reference [NC Composition].
• NC Guide 1.5: Role of NC in NC Appointments [NC Composition].
• NC Guide 3.8: Appointment and Election of Directors [Nomination and Appointment Process].
• NC Guide 3.9: Board Renewal and Continuity [Nomination and Appointment Process].
• NC Guide 5.3: Professional Development Policy [Professional Development].
• NC Guide 5.4: Types of Professional Development [Professional Development].
• NC Guide 5.5: Professional Development Implementation [Professional Development].
• NC Guide 6.2: Board Evaluation [Board and Director Evaluation].
• NC Guide 6.3: Board Committee Evaluation [Board and Director Evaluation].
• NC Guide 6.4: Director Evaluation [Board and Director Evaluation].
• NC Guide 7.2: Succession Planning for Board Chairman [Succession Planning].
• NC Guide 7.3: Succession Planning for Directors [Succession Planning].
• NC Guide 7.4: Succession Planning for CEO [Succession Planning].

E. Related Articles

• “The crucial task of succession planning” by Ramlee Buang. (58KB)
• “CEO succession in the family-controlled firm” by Clarke Murphy. (964KB)
• “Independent director recruitment: the new challenge” by SID. (258KB)
• “Seven steps to effective board and director evaluations” by Geoffrey Kiel and James Beck. (626KB)
• “The nominating committee and its role in identifying directors for renewal and new appointments’ by Kala Anandarajah. (112KB)
• “Let's address the good reasons why companies do not conduct CEO succession planning” by Dean Stamoulis. (107KB)
• “A good nominating committee can save a company” by Junie Foo. (73KB)