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This version of the Code has at its core broad Principles of corporate governance. Compliance with, and observation of, these Principles is mandatory. These Principles set out broadly accepted characteristics of good corporate governance. Companies are required1 to describe their corporate governance practices with reference to both the Principles and Provisions, and how the company’s practices conform to the Principles.
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A. Explanation
The 2018 Code has two levels:
- Principles which are overarching and non-disputable statements of good corporate governance.
- Provisions which are actionable steps that guide companies in complying with the substance of the Principles.
The “comply or explain” aspect of the Code is effected through the SGX-ST Listing Rules. Specifically, MR 710 and CR 710 (which were revised with the issue of the 2018 Code) states that the company “must describe in its annual report its corporate governance practices with specific reference to the principles and the provisions of the Code. [It] must comply with the principles of the Code. Where [the company’s] practices vary from any provisions of the Code, it must explicitly state, in its annual report, the provision from which it has varied, explain the reason for variation, and explain how the practices it had adopted are consistent with the intent of the relevant principle.”
Read closely, this Listing Rule specifies several requirements which are described in this and the (next) Introduction paragraph 8.
The first is that it is compulsory to comply with, and observe, the Principles. This represents a shift in the 2018 Code: the application of “comply or explain” is now contained in the Provisions, and not the Principles.
The second requirement is that companies must disclose their corporate governance practices in relation to both the Principles and the Provisions. This represents a recalibration of disclosure standards.
Prior to the 2018 Code, disclosures by companies had tended to focus on whether they complied with the Guidelines (Provisions). Now, companies are asked to describe their corporate governance practices with reference to both the Principles and Provisions, and how the company’s practices conform to the Principles.
The application of the requirements under the Code Provisions is described in paragraph 8 of the Introduction.
B. Related Rules and Regulations
C. CG Guides
- Board Guide 1.6: The “Comply or Explain” Regime [Corporate Governance]
- Board Guide Appendix 1I: “Comply or Explain” – An Explanation of the Regime [Corporate Governance].
- Board Guide Appendix 1K: Outline of the 2-18 Code of Corporate Governance
D. Related Articles
- “The Singapore Code of Corporate Governance – its evolution” by Adrian Chan. (69KB)
- “Developments in governance: revisions to the Singapore Code of Corporate Governance” by Annabelle Yip. (101KB)
- “Unboxing Corporate Governance: Three Fabled Tests for a Better Code” by Lawrence Loh. (135KB)
- “Comply or Explain 2.0: What’s the Difference?” by Ng Siew Quan. (145KB)