Code of corporate governance: lessons from Singapore to China

International 227 INTERNATIONAL Code of corporate governance: lessons from Singapore to China Dr Lin Lin * China; Codes of practice; Comparative law; Corporate governance; Directors’ powers and duties; Directors’ remuneration; Shareholders’ rights; Singapore Introduction Corporate governance codes aim to promote high levels of corporate governance by putting forth principles and provisions with which companies are expected to comply.1 Such Codes play vital roles in underpinning the integrity and efficiency of financial markets. Indeed, well-governed companies will usually outperform other companies and will be able to attract investors whose support can help to finance further growth.2 Corporate governance practices globally have been evolving, with the types of companies and investors becoming more diverse, and new situations concerning corporate governance emerging.3 As such, many jurisdictions saw fit to review and modify their Codes to ensure their relevance and progressivity, so as to support sustained corporate performance and maintain investor confidence in the capital market. In recent years, many countries, including the United Kingdom (UK),4 China, and Singapore, have revised their corporate governance codes. The Chinese Code of Corporate Governance for Listed Companies (Chinese Code) which was issued in 2002,5 was revised for the first time in September 2018.6 Since introducing its first Code of Corporate Governance (Singapore Code) in 2001,7 Singapore has amended it three times, issuing updated versions in July 2005, May 2012 and August 2018. The recent 2018 revisions to the Singapore Code and Chinese Code were largely undertaken for similar reasons. The revisions to the Chinese Code were made with the objective of introducing greater emphasis on information disclosure,8 board accountability and board diversity, among other improvements. The changes to the Chinese Code have also sought to bolster the protection of the rights and interests of minority shareholders and strengthen the constraints on the powers of controlling shareholders.9 Additionally, a seventh chapter was inserted into the Chinese Code to encourage the participation of institutional investors in corporate governance. Similarly, the changes to the Singapore Code sought to strengthen board quality by focusing on a number of key areas, such as the improvement of director independence by lowering the shareholding threshold for determining independence from 10 to 5 per cent and making this a mandatory requirement by shifting it from the Singapore Code to the Singapore Exchange Listing Rules (Listing Rules). The changes also similarly looked to enhance board composition and diversity, with age and gender being added as aspects for companies to consider, and companies being made to disclose their board diversity policy and progress made in achieving this. Further, the revisions have increased the transparency of remuneration practices by imposing extensive disclosure requirements.10 Additionally, Singapore is striving for listed companies to go beyond mere box-ticking and boiler-plate explanations to engaing meaningfully with stakeholders.11 * Dr Lin Lin is Assistant Professor, Faculty of Law, National University of Singapore (NUS). Email address: [email protected]. An earlier draft of the article was presented at the 21st Centry Commercial Law Forum, 27 October 2018, Tsinghua Law School. I thank Laura Zou for research assistance in this project. 1 Monetary Authority of Singapore, Code of Corporate Governance (Singapore: MAS, 2018), Introduction (the Singapore Code). 2 OECD, “Improving Business Behaviour: Why we need Corporate Governance” (2004), http://www.oecd.org/daf/ca/corporategovernanceprinciples /improvingbusinessbehaviourwhyweneedcorporategovernance.htm [Accessed 7 May 2019]. 3 Sandra Seah, “A new spin to Corporate Governance in Singapore – 2018” (April 2018), Bird & Bird, https://www.twobirds.com/en/news/articles/2018/singapore/a-new -spin-to-corporate-governance-in-singapore-2018 [Accessed 7 May 2019]; Explanation of the Revisions to the Code of Corporate Governance for Listed Companies in China (Draft for Comment), p.1. 4 Financial Reporting Council, “A UK Corporate Governance Code that is fit for the future” (16 July 2018), https://www.frc.org.uk/news/july-2018/a-uk-corporate-governance -code-that-is-fit-for-the [Accessed 7 May 2019]. 5 MSCI, “Corporate Governance in China” (September 2017), p.1, https://www.msci.com/documents/10199/1d443a3d-0437-4af7-aa27-ada3a2655f6d [Accessed 7 May 2019]. 6 Jamie Allen and Li Rui, “Awakening Governance: ACGA China Corporate Governance Report 2018” (2018), Asian Corporate Governance Association, https://corpgov .law.harvard.edu/2018/08/25/awakening-governance-acga-china-corporate-governance-report-2018/ [Accessed 7 May 2019]. 7 MAS, “Code of Corporate Governance” (14 August 2018), http://www.mas.gov.sg/Regulations-and-Financial-Stability/Regulatory-and-Supervisory-Framework/Corporate -Governance/Corporate-Governance-of-Listed-Companies/Code-of-Corporate-Governance.aspx [Accessed 7 May 2019]. 8 Chinese Code art.89. 9 Chinese Code Ch.6. 10 As explained subsequently in subsection “Remuneration Assessments” in this article. 11 Monetary Authority of Singapore, “MAS Announces Establishment of Corporate Governance Council to Review the Code of Corporate Governance” (27 Feburary 2017), https://www.gov.sg/~/sgpcmedia/media_releases/mas/press_release/P-20170227-1/attachment/Media%20Release%20-%20MAS%20Announces%20Establishment%20of %20Corporate%20Governance%20Council%20to%20Review%20the%20Code%20of%20Corporate%20Governance.pdf [Accessed 7 May 2019]; (MAS, Code of Corporate Governance (6 August 2018)). (2019) 40 The Company Lawyer, Issue 7 © 2019 Thomson Reuters and Contributors 228 The Company Lawyer It is useful to compare Singapore and China’s corporate governance codes. First, corporate governance in Singapore has often been hailed as being among the best in Asia and the world.12 The Singapore Governance and Transparency Index, a national barometer of corporate governance in Singapore, is at an all-time high,13 and Singapore-listed companies have generally done well in the ASEAN Corporate Governance Scorecard.14 Studies have also attributed Singapore’s consistent strong performance in corporate governance surveys to how it keeps its corporate governance regime up-to-date.15 Thus, it may be useful to glean lessons from the Singapore Code which can be adopted in the Chinese Code. Secondly, Singapore and China have similar corporate structures and corporate cultures, with both societies being Chinese-dominated and having concentrated shareholder structures.16 With listed companies in Singapore and China both being characterised by high ownership concentration,17 drawing comparisons between their corporate governance ecosystems is particularly apt, especially since both the Chinese Code and Singapore Code have recently been revised. This article examines the latest Chinese Code and Singapore Code critically. It discusses the major differences between the two codes and seeks to draw lessons from Singapore to China. Specifically, this article will focus on the Singapore and Chinese Code, but not the respective Companies Acts of both countries. Given that an increasing number of Chinese companies are listing on the Singapore Exchange (SGX),18 and Singapore institutional investors are investing significantly in Chinese companies,19 it is particularly timely and useful for practitioners to gain an understanding of the differences between the Chinese Code and the Singapore Code, which underpin the corporate governance practice in the respective countries. The second part of this article outlines the general structure and effects of the Chinese and Singapore Codes. The third part identifies and discusses selected differences between the Chinese and Singapore Codes. Finally, the fourth part concludes. Structure and effects of the codes The Singapore Code differs significantly in structure from the Chinese Code. The Singapore Code comprises Principles that must be complied with, and Provisions that companies are expected to comply with but may deviate from if they provide comprehensive and meaningful explanations. There is also the Practice Guidance which complements the Singapore Code by setting out best practices, of which adoption is voluntary.20 Notably, the 2018 revision saw certain guidelines in the 2012 version of the Code being moved to the Listing Rules for mandatory compliance, with these being important baseline market practices, such as the requirement for independent directors to make up at least one-third of the board, and the substantial shareholder rule. Similarly, many guidelines were shifted to the Practice Guidance for voluntary adoption.21 As such, there were numerous changes to the Listing Rules, with the revisions to the Singapore Code and Listing Rules took effect at the same time on 1 January 2019.22 In contrast, the Chinese Code does not divide its articles in such a manner, and the proposed revisions do not seem to impact the rules governing the listing of stocks on the Shenzhen Stock Exchange or the Shanghai Stock Exchange. The Singapore and Chinese Codes also vary in their effect. Singapore developed a Code based on the “comply or explain” model, where listed companies have to comply with the Code and explain any non-compliance.23 A non-complying company has to explicitly state in its Annual Report which Code provision it has departed from, and explain how the practice adopted is still consistent with the intent of the relevant Principle. As for China, it developed a Code based on the principle of mandatory regulation, where the CSRC can order rectification if there has been non-compliance.24 However, the Articles are not mandatory in the sense that they may not be enforced by the courts. Although such Codes of Corporate Governance are predominantly ‘soft law’, in that mandatory compliance is not necessary, such Codes may nonetheless be useful 12 Jiyce Koh and Annabelle Yip, “The Evolution of Corporate Governance in Singapore” (2016), p.3, http://www.eguide.sid.org.sg/images/SIDeGuide/articles/BM/1. %20Boardroom%20Matters%20Vol%20II-The%20Evolution%20Of%20Corporate%20Governance%20In%20Singapore.pdf [Accessed 7 May 2019]. 13 Lawrence Loh, “Corporate governance reforms ring empty if compliance is not enforced” (16 August 2018), Today, https://www.todayonline.com/commentary/corporate -governance-reforms-ring-empty-if-compliance-not-enforced [Accessed 7 May 2019]. 14 Koh and Yip, “The Evolution of Corporate Governance in Singapore” (2016), p.9, http://www.eguide.sid.org.sg/images/SIDeGuide/articles/BM/1.%20Boardroom %20Matters%20Vol%20II-The%20Evolution%20Of%20Corporate%20Governance%20In%20Singapore.pdf [Accessed 7 May 2019]. 15 Shaun Cochran, Jamie Allen and Charles Yonts, CG Watch 2016: Ecosystems matter (Hong Kong: Asian Corporate Governance Association and CLSA Ltd, 2016), pp.3 and 14. 16 Dan W. Puchniak, “Multiple Faces of Shareholder Power in Asia: Complexity Revealed”, Working Paper 005 (May 2014), p.20, https://law.nus.edu.sg/wps/pdfs/005 _2014_Dan_Puchniak.pdf [Accessed 7 May 2019]. 17 OECD, “OECD Survey of Corporate Governance Frameworks in Asia” (2017), pp.5–6, https://www.oecd.org/daf/ca/OECD-Survey-Corporate-Governance-Frameworks -Asia.pdf [Accessed 7 May 2019]. See also Wai Yee et al., “Managing the Risks of Corporate Fraud: the Evidence from Hong Kong and Singapore” (2018) 48 Hong Kong Law Journal 125. 18 “SGX inks deals to boost ties with Chinese firms” (6 November 2018), Singapore Business Review, https://sbr.com.sg/markets-investing/news/sgx-inks-deals-boost-ties -chinese-firms [Accessed 22 May 2019]. 19 Takshi Nakano, “Temasek’s China bet has paid off but times are getting harder” (9 August 2018), Nikkei Asian Review, https://asia.nikkei.com/Business/Temasek-s-China -bet-has-paid-off-but-times-are-getting-harder [Accessed 7 May 2019]. 20 MAS, Code of Corporate Governance (6 August 2018), p.2. 21 Lawrenece Loh, “Revised code balances governance and risk” (10 September 2018), Business Times, https://www.businesstimes.com.sg/companies-markets/revised-code -balances-governance-and-risk [Accessed 7 May 2019]. 22 Annabelle Yip, “Key Changes to Code of Corporate Governance and SGX Listing Rules” (17 August 2018). 23 Lyn Boxall, “Complying with “Comply or Explain” in Singapore Institute of Directors, Boardroom Matters, Vol.II (Singapore: Singapore Institute of Directors, 2015). 24 George Ribeiro and Dominic Hui, “Corporate governance and directors’ duties in China: overview” (2017), Thomson Reuters Practical Law, https://uk.practicallaw .thomsonreuters.com/4-502-3042?transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1 [Accessed 7 May 2019]. (2019) 40 The Company Lawyer, Issue 7 © 2019 Thomson Reuters and Contributors International 229 in supplementing the ‘hard law’ to promote good corporate governance. Compared to ‘hard law’, such Codes have the advantage of flexibility which allows for deviation where necessary while upholding the underlying principles of the Code. Furthermore, while these Codes are not legally binding, they may nevertheless have practical effect if social norms and market expectations lead to genuine compliance.25 For example, even though the 2012 Singapore Code was merely ‘soft law’, a study by KPMG nonetheless found that on average, companies achieved a compliance of 60%.26 Key differences between Singapore and China’s CGCs This section will compare selected areas in the Singapore and Chinese Codes, including the scope and stringency of the provisions. Board matters The Chinese Code contains a number of provisions absent from the Singapore Code regarding the appointment of directors. For instance, it states that the election of directors and supervisors must fully reflect the opinions of minority shareholders,27 and that listed companies with more than 30 per cent of shares being owned by a sole shareholder or shareholders acting in concert must adopt a cumulative voting system.28 Also, while both the Singapore and Chinese Codes state that the board needs to have a transparent process for appointing directors, the Singapore Code adds that it should take into account the need for progressive renewal of the board,29 whereas the Chinese Code emphasises the need for the election to be open, fair, impartial and independent.30 Further, the Codes differ on the duties which the Nominating Committee has to perform. The duties imposed by the Singapore Code are wider in scope, encompassing evaluating the board's performance, and the reviewing of training programmes and succession plans for the board.31 In contrast, the Chinese Code imposes narrower duties, focusing mainly on the selection and review of candidates for directorship and management, as well as election procedures.32 Board structure and composition The Singapore and Chinese Codes vary in terms of their board diversity requirements, with the former being more detailed than the latter. The Singapore Code states that the board must have an appropriate balance of independence and diversity of thought and background, specifically raising factors such as gender and age for consideration to avoid groupthink and foster constructive debate.33 In contrast, while the Chinese Code does raise the need to encourage board diversity, it does not mention any particular factors.34 Further, the Singapore Code requires disclosure of the board diversity policy, while the Chinese Code does not.35 The Codes also differ on their definitions of independent directors. According to the Singapore Code, an independent director must have no relationship with the company, its related corporations, its substantial shareholders or officers that could interfere with his independent business judgment, whether such interference is actual or perceived.36 Similarly, the Chinese Code states that independent directors must not have a relationship with the company and its major shareholders that may hinder his independent and objective judgment.37 However, the Chinese Code adds that independent directors must be free of the influence of not only major shareholders, but also actual controllers, and other organisations and persons who are interested parties of the company.38 The Chinese Code is, on paper, arguably more stringent as it restricts the term of appointment of independent directors to six consecutive years,39 while the Singapore Code is less stringent, deeming the director non-independent if he has served as a director for an aggregate period of more than nine years and his continued appointment has not been sought and approved 25 Paul Sanderson et al., “Flexible or not? The comply-or-explain principle in UK and German corporate governance”, Centre for Business Research, University of Cambridge, Working paper No.407 (2010), p.1, https://www.cbr.cam.ac.uk/fileadmin/user_upload/centre-for-business-research/downloads/working-papers/wp407.pdf [Accessed 7 May 2019]. 26 KPMG, “Review of Mainboard Companies’ Code of Corporate Governance Disclosures” (5 July 2016), https://assets.kpmg.com/content/dam/kpmg/pdf/2016/07/sg-Review -of-Mainboard-Companies-Code-of-Corporate-Governance-Disclosures-Jul16.pdf [Accessed 7 May 2019]. 27 Chinese Code art.17. 28 Chinese Code art.17. 29 Singapore Code, Principle 4. 30 Chinese Code art.28. 31 Singapore Code, Provision 4.1. 32 Chinese Code art.41. 33 Singapore Code, Principle 2 and Provision 2.5. 34 Chinese Code art.25. 35 Singapore Code, Provision 2.5. 36 Singapore Code, Provision 2.1. 37 Chinese Code art.35. 38 Chinese Code art.36. 39 Establishment of Independent Director Systems by Listed Companies Guiding Opinion,zhengjianfa[2001]No.102 (issued by the China Securities Regulatory Commission on 16 August 2001) art4(4). (2019) 40 The Company Lawyer, Issue 7 © 2019 Thomson Reuters and Contributors 230 The Company Lawyer in separate resolutions by all shareholders.40 Further, the Chinese Code prohibits the independent director from holding any other position apart from being a special board committee member, a requirement which is not present in the Singapore Code.41 Moreover, the Singapore Code does not lay down the duties of independent directors, unlike the Chinese Code. Rather, the duties of directors are located in the Companies Act (Cap. 50). The Companies Act sets out the general duties and obligations of directors, which also extends to independent directors, with further guidance on their role being provided in the Singapore Institute of Directors Statement (No.7 of 2007) .42 As for the Chinese Code, there is a specific section covering the role of independent directors,43 which states that independent directors must fully understand the operational situation of the company and what will be discussed at board meetings.44 Additionally, the independent directors must safeguard the interests of the company and all shareholders, and be especially concerned with protecting minority shareholder interests from being infringed.45 Other duties include providing annual debriefings at the general meeting and safeguarding the overall interests of the company when there is a conflict between shareholders or directors significantly impacting the operation and management of the company.46 However, the Singapore Code does have a number of provisions not found in the Chinese Code. For example, there are provisions stipulating that independent directors should make up a board majority where the chairman is not independent,47 and that directors independent from any management and business relationship with the company should form a board majority.48 Further, the votes of non-controlling shareholders in the appointment and re-appointment of any independent director must be separately disclosed,49 and non-executive and/or independent directors are to meet regularly without management present, before providing feedback to the board as appropriate.50 Directors’ duties The Singapore and Chinese Codes also differ in how directors’ duties are phrased. The Singapore Code states that directors should act in the best interests of the company and where conflicts of interest arise, they are advised to recuse themselves from meetings and decisions involving the issues of conflict.51 In contrast, the Chinese Code makes no mention of performing duties in the best interests of the company, although it does state that directors must be faithful, diligent, cautious in carrying out their duties, and fulfil the commitments they make.52 The Chinese Code also adds that directors must ensure they have sufficient time and energy to carry out their due duties.53 Further, while both Codes require directors to attend board meetings and participate actively, the Singapore Code adds that the number of individual directors’ attending each meeting should be disclosed,54 something which is absent from the Chinese Code.55 Additionally, it stipulates that directors with multiple board representations are to ensure that sufficient time and attention are given to the affairs of each company.56 The disclosure requirements under the Singapore Code are also more stringent. The Singapore Code states that directors should be given training opportunities to help them understand their directorship duties and develop knowledge necessary for acting as directors,57 a provision which was formerly in the Chinese Code58 but which since has been removed. The company should also disclose the induction, training and development opportunities provided to new and existing directors.59 Moreover, under the Singapore Code, board committees have to be formed with clear, written terms of reference setting out their compositions, authorities 40 Singapore Code, Provision 2.1, n.6. Chinese Code art.34. 42 Singapore Institute of Directors, “Statement of Good Practice – The Role, Duties and Responsibilities of the Independent Director” (No.7 of 2007), https://www.sid.org .sg/images/PDFs/Codes/SGP07.pdf [Accessed 7 May 2019]. This statement has been superseded by the Board Guide (the eGuide does not detail the duties of the ID and the statement continues to be referenced by newer publications, e.g. Wan Hong Chan, “Duties and responsibilities of independent directors – An overview” (Singpore: Dentons Rodyk. 2016), https://dentons.rodyk.com/en/insights/alerts/2016/october/17/duties-and-responsibilities-of-independent-directors-an-overview [Accessed 7 May 2019]. 43 Chinese Code, Ch.3 s.5. 44 Chinese Code art.37. 45 Chinese Code art.37, 46 Chinese Code art.37. 47 Singapore Code, Provision 2.2. 48 Singapore Code, Provision 2.4. 49 Singapore Code, Provision 2.3. 50 Singapore Code, Provision 2.5. 51 Singapore Code, Provision 1.1. 52 Chinese Code art.21. 53 Chinese Code art.22. 54 Singapore Code, Provision 1.5. 55 Chinese Code art.35. 56 Singapore Code, Provision 1.5. 57 Singapore Code, Provision 1.2. 58 Chinese Code art.37. 59 Singapore Code, Provision 1.2. 41 (2019) 40 The Company Lawyer, Issue 7 © 2019 Thomson Reuters and Contributors International 231 and duties.60 The names of the committee members, these terms of reference, any delegation of the board’s decision-making authority, and a summary of each committee’s activities have to be disclosed.61 This is unlike the Chinese Code, which contains no such requirement, although each committee is accountable to the board and must submit all proposals for review.62 Finally, the Singapore and Chinese Codes diverge on the need for a board risk committee. The Singapore Code states that the board should determine the nature and extent of the significant risks which the company is willing to take in achieving its strategic objectives and value creation, and set up a board risk committee to address this if appropriate.63 In contrast, the Chinese Code makes no mention of such a committee, only naming the corporate strategy committee, audit committee, nomination committee, and remuneration and appraisal committee.64 Secretaries While the Singapore Code makes reference to a company secretary, the Chinese Code refers to a board secretary (dongshi mishu). The Chinese Code spells out the board secretary’s responsibilities in detail, stating that she is in charge of organising and co-ordinating the company’s information disclosure affairs, and handling related matters, such as public announcements.65 She is also responsible for the preparations for the company’s shareholder and board meetings, the custody of documents, and management of shareholders’ information.66 The Singapore Code does not delve into the duties of the company secretary, simply stating that directors have separate and independent access to her at the company’s expense, and that her appointment and removal is for the board to decide as a whole.67 However, her duties are not very different from those in the Chinese Code, generally encompassing the organising of shareholder and board meetings, the filing of the company’s annual accounts and maintaining the necessary registers, among other duties. Importantly, the secretary of a public company must comply with the Companies Act.68 Chairman and CEO There are a number of provisions in the Singapore Code absent from the Chinese Code pertaining to the chairman and CEO. Under the Singapore Code, the chairman and CEO should be separate persons to ensure an appropriate balance of power, increased accountability, and greater capacity of the Board for independent decision-making.69 Further, the board is to establish and set out in writing a clear division of responsibilities between them.70 Another provision in the Singapore Code also states that the board should have a lead independent director to provide leadership in situations where the chairman is conflicted, and especially when he is not independent.71 This lead independent director, if appointed, would be available to shareholders where they have concerns and when contact through the normal channels of communication with the chairman or management are inappropriate or inadequate.72 In contrast, the Chinese Code does not provide for a lead independent director, although independent directors are expected to actively perform their duties and safeguard the company's interests where there is a conflict between shareholders or directors that significantly impacts on the operation and management of the company.73 The Singapore position is more robust than the Chinese one in increasing the independence of the Board. Remuneration assessments The Codes differ in terms of their stipulations for the Remuneration Committee (RC). Under the Singapore Code, it is recommended that the board establish an RC comprising at least three non-executive directors, the majority of whom, including the RC chairman, should be independent.74 In contrast, the Chinese Code contains no requirement for the RC to be made up of at least three non-executive directors, although the RC similarly has to be chaired by an independent director, with independent directors constituting the majority of the RC.75 Further, the duties of the RC vary between the two Codes. The Singapore Code states that the RC is to review and make recommendations to the board on a remuneration framework for the board and key management personnel, as well as the specific remuneration packages for each individual director and 60 Singapore Code, Provision 1.4. Singapore Code, Provision 1.4. 62 Chinese Code art.38. 63 Singapore Code, Provision 9.1. 64 Chinese Code art.38. 65 Chinese Code art.92. 66 Chinese Code art.28. 67 Singapore Code, Provision 1.7. 68 See Companies Act (Cap. 50, 2006 Rev. Ed. Sing.) s.171. 69 Singapore Code, Provision 3.2. 70 Singapore Code, Provision 3.1. 71 Singapore Code, Provision 3.3. 72 Singapore Code, Provision 3.3. 73 Chinese Code art.37. 74 Singapore Code, Provisions 6.1 to 6.2. 75 Chinese Code art.38. 61 (2019) 40 The Company Lawyer, Issue 7 © 2019 Thomson Reuters and Contributors 232 The Company Lawyer the key management personnel.76 However, the Chinese Code does not make a distinction between the general remuneration framework and specific packages. Under the Chinese Code, the RC’s main duties involve studying and reviewing the remuneration policies and schemes for directors and senior management personnel.77 Moreover, as it is also an appraisal committee, its duties include studying the appraisal standard for directors and management personnel, conducting the appraisals and making recommendations.78 The Singapore Code is more comprehensive in that it has a number of provisions not found in the Chinese Code, stipulating that the RC should consider all aspects of remuneration, including termination terms,79 and disclose the engagement of any remuneration consultants and their independence.80 Additionally, under the Singapore Code, the remuneration of non-executive directors has to be appropriate to their level of contribution, taking into account factors including effort, time spent and responsibilities,81 whereas the Chinese Code contains no reference to non-executive directors. The disclosure requirements in the Singapore Code are also more detailed, requiring the company to be transparent on its remuneration policies, the level and mix of remuneration, procedure for setting remuneration, and relationships between remuneration, performance and value creation.82 Particularly, the company has to disclose the names, amounts and breakdown of the remuneration paid to each individual director, the CEO and at least the top five key management personnel, in bands no wider than S$250,000.83 Further, the names and remuneration of employees who are substantial shareholders or immediate family members of a director, the CEO or a substantial shareholder should be disclosed where such remuneration exceeds S$100,000, in bands no wider than S$100,000, and stating the employee’s relationship with the relevant person.84 Further, the Singapore Code states that the company should disclose all forms of remuneration, other payments and benefits for directors and key management personnel received from itself and its subsidiaries,85 as well as details of employee share schemes.86 In contrast, such provisions are absent from the Chinese Code, although art.61 does mention employee stock ownership without raising the need for disclosure of related details. Still, the Chinese Code does require the disclosure of the compensation of directors and supervisors,87 though in less rigorous terms than the Singapore Code. It stipulates that the senior management’s salary distribution plan must be approved by the board, explained to the general meeting of shareholders, and disclosed.88 The Chinese Code also provides less guidance when it comes to the link between remuneration and performance. It simply states that the reward mechanism should link the compensation for management personnel to the company’s performance and the individual’s work performance,89 whereas the Singapore Code offers more elaboration, requiring the level and structure of remuneration to be appropriate and proportionate to the sustained performance and value creation of the company, taking into account the strategic objectives of the company.90 While, like the Chinese Code, it stipulates that a significant and appropriate proportion of the executive directors’ and key management personnel’s remuneration has to be structured so as to link rewards to corporate and individual performance, it adds that the performance-related remuneration should be aligned with the interests of shareholders and other stakeholders, and promote the long-term success of the company.91 Audit committees The Codes differ on the duties of the audit committee (AC). The duties imposed by the Singapore Code are wider in scope, extending from reviewing the assurance from the CEO and CFO on financial records and financial statements, to making recommendations to the Board on proposals to shareholders on the appointment and removal of external auditors, and the remuneration and terms of engagement of these external auditors.92 The AC is further expected to review the policy and arrangements for concerns about possible improprieties in financial reporting or other matters to be raised, independently investigated, and followed up on (i.e. a whistleblowing policy).93 In contrast, the duties of the AC under the Chinese Code are narrower, focusing on the supervision and evaluation of internal and external audit systems, and the 76 Singapore Code, Provision 6.1. Chinese Code art.42. 78 Chinese Code art.42. 79 Singapore Code, Provision 6.3. 80 Singapore Code, Provision 6.4. 81 Singapore Code, Provision 7.2. 82 Singapore Code, Principle 8. 83 Singapore Code, Provision 8.1. 84 Singapore Code, Provision 8.2. 85 Singapore Code, Provision 8.3. 86 Singapore Code, Provision 8.3. 87 Chinese Code art.57. 88 Chinese Code art.60. 89 Chinese Code art.58. 90 Singapore Code, Principle 7. 91 Singapore Code, Provision 7.1. 92 Singapore Code, Provision 10.1. 93 Singapore Code, Provision 10.1. 77 (2019) 40 The Company Lawyer, Issue 7 © 2019 Thomson Reuters and Contributors International 233 auditing of the company’s financial information and its disclosure.94 The provision is less extensive than that in the Singapore Code. The Codes also vary when it comes to the qualifications of the AC. The Singapore Code is more stringent, requiring the AC to comprise at least three directors, all of whom should be non-executive, with at least two members, including the AC chairman, needing to have recent and relevant accounting or related financial management expertise or experience.95 Additionally, the AC should not comprise former partners or directors of the company’s existing auditing firm or auditing corporation within a two-year period of them ceasing to be a partner/director, and for as long as they have any financial interest in the firm/corporation.96 This is unlike the Chinese Code, which simply requires independent directors to constitute a majority of the AC, and for the convenor of the AC to be an accounting professional and independent director.97 Finally, the Singapore Code contains provisions absent from the Chinese Code, stipulating that the AC is to decide the appointment, termination and remuneration of the head of the internal audit function,98 and that it is to meet with external and internal auditors without the presence of management at least annually.99 Shareholder rights The Singapore Code is more extensive than the Chinese Code when it comes to creating avenues of communication between the company and its shareholders. While the Chinese Code states that the company must establish efficient channels of communication with its shareholders to protect their rights, including the rights to be made aware of important matters about the company and participate in decision-making and supervision, it does not elaborate on how the company ought to go about achieving this.100 However, the Singapore Code is clearer, stating that the company must communicate regularly with its shareholders and facilitate their participation during general meetings and other dialogues to allow shareholders to communicate their views on various matters affecting the company.101 Specifically, the Singapore Code recommends the institution of an investor relations policy to allow for an ongoing exchange of views,102 and a mechanism through which shareholders may contact the company with questions and through which the company may respond.103 Further, the company not only has to provide avenues for communication between the board and all shareholders, but also disclose the steps taken to solicit and understand shareholder views.104 Further, the Singapore Code has provisions concerning the conduct of shareholder meetings not found in the Chinese Code, stating that resolutions on substantially separate issues are to be tabled separately unless they are interdependent, and that, if bundled, the reasons and material implications should be explained in the notice of meeting.105 Also, all directors have to attend general meetings of shareholders, with the external auditors present to address shareholder queries about the conduct of the audit and preparation/content of the auditors’ report.106 Additionally, the Singapore Code stipulates the publication of the minutes of general meetings on the corporate website as soon as practicable,107 unlike the Chinese Code which has no such requirement. The Singapore Code is also more specific when it comes to the content of the minutes, stating that the minutes should record substantial and relevant comments or queries from shareholders relating to the agenda of the general meeting, and responses from the board and management.108 As for the Chinese Code, it simply states that the minutes of board meetings must be true, accurate, complete, and kept in a safe place.109 The Chinese Code is, however, more comprehensive in a number of respects. It must be noted that a large proportion of investors, accounting for 48 per cent of all investors in the Chinese stock market are retail investors.110 It is not uncommon for listed companies to take advantage of the information asymmetry between the company and such shareholders or undertake illegal actions to violate the rights of such shareholders.111 94 Chinese Code art.39. Singapore Code, Provision 10.2. 96 Singapore Code, Provision 10.3. 97 Chinese Code art.38. 98 Singapore Code, Provision 10.4. 99 Singapore Code, Provision 10.5. 100 Chinese Code art.9. 101 Singapore Code, Principle 12. 102 Singapore Code, Provision 12.2. 103 Singapore Code, Provision 12.3. 104 Singapore Code, Provision 12.1. 105 Singapore Code, Provision 11.2. 106 Singapore Code, Provision 11.3. 107 Singapore Code, Provision 11.5. 108 Singapore Code, Provision 11.5. 109 Chinese Code art.32. 110 Interpretation of the 2018 Corporate Governance Code: Protecting the Rights of Minority Investors (in Chinese) (8 October 2018), http://bond.jrj.com.cn/2018/10 /08150825169866.shtml [Accessed 7 May 2019]. 111 Interpretation of the 2018 Corporate Governance Code: Protecting the Rights of Minority Investors (in Chinese) (8 October 2018), http://bond.jrj.com.cn/2018/10 /08150825169866.shtml [Accessed 7 May 2019]. 95 (2019) 40 The Company Lawyer, Issue 7 © 2019 Thomson Reuters and Contributors 234 The Company Lawyer Accordingly, a more robust protection of shareholder rights in the Chinese Code is expected. Hence, while both the Singapore and Chinese Codes require communication of the dividend policy to shareholders,112 the Chinese Code specifically requires clarification of the profit distribution method and dividend policy in the company’s articles of association.113 Moreover, the Chinese Code has a number of provisions absent from the Singapore Code pertaining to issues such as solicitation of the shareholders’ right to vote, institutional investors and derivative actions. First, the Chinese Code stipulates that the board, independent directors and qualified shareholders may solicit for the shareholders’ right to vote in a shareholders’ meeting, although no payments can be made to the shareholders for such solicitation.114 Secondly, the Chinese Code states that institutional investors must play an active role in governance by participating in decisions on major issues, recommending candidates for directors, supervisors, and senior management personnel, and supervising the performance of directors and supervisors.115 Further, the Chinese Code requires that these institutional investors be encouraged to exercise voting rights and the right of inquiry, make proposals and participate in corporate governance.116 This is unlike the Singapore Code, which has no mention of institutional investors. Finally, while the Singapore Code does not discuss litigation, liability or compensation, the Chinese Code expressly accords shareholders the right to protect their interests and rights by initiating civil litigation or through other legal means, such as when resolutions of shareholder or board meetings infringe their interests/rights.117 The comprehensiveness of the Chinese Code in this area may be understood in the wider context of minority shareholder protection in China. Unlike Singapore, where the Companies Act provides various instruments for minority protection such as the oppression action118 and just and equitable winding up,119 the Company Law of China does not provide for such remedies. Hence, more extensive minority shareholder protection provisions are required in the Chinese Code to make up for this shortfall. Stakeholder engagement The Singapore Code is vaguer than the Chinese Code when setting out the responsibilities of the company towards stakeholders, simply stating that it must have arrangements in place to identify its material stakeholder groups and manage its relationships with such groups.120 In contrast, the Chinese Code specifically lists several groups, stating that the company must respect the rights of banks and other creditors, employees, consumers, suppliers, the community and other stakeholders, in addition to actively co-operating with them to jointly promote the sustainable and healthy development of the company.121 The Chinese Code also requires opportunities and channels for redress to be provided to allow these stakeholder reprieve should their rights be infringed.122 Further, the Chinese Code has various in-depth provisions dealing with the protection of these distinct groups. For one, the board of directors, supervisors and managers must establish channels of communication with employees and listen to their opinions on the company’s operations, financial status and major decisions concerning employee interests.123 The company is also to support the workers’ congress and trade union organisations in exercising their functions and powers.124 Secondly, the company must actively implement the concept of green development, which includes integrating ecological and environmental protection measures into the development strategy and corporate governance process, actively participating in the construction of ecological civilisation, and playing a leading role in pollution prevention, resource conservation and ecological protection.125 The Chinese Code also requires the company to actively perform its responsibilities in areas such as community welfare, disaster relief and public welfare undertakings, and encourages the company to actively support poorer regions of China by developing industries, training talent and expanding employment.126 However, the Singapore Code does have stipulations that the Chinese Code lacks when it comes to disclosure, stating that the company should disclose key areas of focus in relation to the management of stakeholder relationships during the reporting period,127 and that a 112 Singapore Code, Provision 11.6. Chinese Code art.9. 114 Chinese Code art.16. 115 Chinese Code art.78. 116 Chinese Code art.77. 117 Chinese Code art.11. 118 Companies Act (Cap. 50, 2006 Rev. Ed. Sing.) s.216. 119 Companies Act (Cap. 50, 2006 Rev. Ed. Sing.) s.254(1)(i). 120 Singapore Code, Provision 13.1. 121 Chinese Code art.82. 122 Chinese Code art.83. 123 Chinese Code art.84. 124 Chinese Code art.84. 125 Chinese Code art.85. 126 Chinese Code art.86. 127 Singapore Code, Provision 13.2. 113 (2019) 40 The Company Lawyer, Issue 7 © 2019 Thomson Reuters and Contributors International 235 current corporate website should be maintained to allow for all stakeholders to stay informed of material updates in a timely manner.128 Provision of information The Codes differ on the provision of information to the board. The Singapore Code stipulates that management should provide directors with complete, adequate and timely information prior to meetings and on an ongoing basis to enable them to make informed decisions and discharge their duties and responsibilities.129 However, the Chinese Code does not address the supplying of information by management, with the closest provision being that the board must notify all directors in advance of board meetings and provide sufficient information.130 Otherwise, if two or more independent directors believe that the information is incomplete or insufficient, they may jointly request that the board postpone the meeting or discussion of the matter.131 Unique features of the Chinese Code Finally, the parties subject to the Singapore and Chinese Codes differ in the sense that the Chinese Code covers actual controllers and supervisors, while the Singapore Code does not. The Chinese Code states that independent directors must not subject themselves to the influence of actual controllers,132 adding that actual controllers have a duty of good faith and that they must not use their control to damage the legitimate rights and interests of the company and other shareholders, or to seek illegal interests.133 These actual controllers also owe numerous duties, such as the responsibility to make clear, specific and enforceable commitments,134 to be separate from the company’s personnel, assets and finance,135 not to occupy or control assets of the company,136 and to respect the financial independence of the company and not interfere with accounting and financial activities.137 In contrast, the Singapore Code does not have any provisions pertaining to this unique Chinese concept. Additionally, Singapore, as a common law jurisdiction, does not have the concept of a supervisory board, while the Chinese Code dedicates an entire chapter to supervisors and the supervisory board.138 Chinese companies have a two-tier board structure, comprising a supervisory board and a board of directors, with the former being generally said to be more decorative than functional, while the latter is accountable to shareholders and tasked with safeguarding the interests of various corporative stakeholders, among other duties.139 The Chinese Code also contains party-building requirements and stipulations relating to environmental protection and social responsibility not found in the Singapore Code. For one, it states that companies should include party-building work in their corporate statutes, and integrate party leadership and corporate governance.140 Further, the companies have to actively participate in ecological civilisation construction and take a leading role in preventing pollution, protecting the environment and conserving resources,141 in addition to aiding poverty-ridden areas in China142 (as mentioned in the subsection “Stakeholder engagement”). Conclusion The revisions to the Chinese Code in 2018 are relatively minor, with no significant changes to the substance of the articles. As such, the Chinese Code is still lacking in rigour, as evidenced from the comparison with the Singapore Code, which is more stringent and comprehensive in imposing duties on directors, regulating independent directors, and ensuring the independence of the board. Thus, it is submitted that China should undertake a more in-depth review of the Chinese Code and make more substantial amendments in order to bring itself into line with international trends in corporate governance. Additionally, the Chinese Code should be more frequently updated from here on, so as to keep up with these trends. Ultimately, it must be borne in mind that corporate governance codes are still “soft law” to a large extent, and whether the objective of good corporate governance can be achieved will turn on a multitude of factors, including the level of compliance with the Code, the strength of social norms and market expectations of compliance with the Code, and the public and private enforcement of hard law. In this respect, it is worth noting that the 2018 revision to the Singapore Code has shifted certain baseline market practices to the SGX Listing Rules for mandatory compliance. Such an approach may be a more effective supplement to other hard law (such as the Companies Act and the Securities and Futures Act) to 128 Singapore Code, Provision 13.3. Singapore Code, Provision 1.6. 130 Chinese Code art.31. 131 Chinese Code art.31. 132 Chinese Code art.36. 133 Chinese Code art.62. 134 Chinese Code art.65. 135 Chinese Code art.67. 136 Chinese Code art.69. 137 Chinese Code art.70. 138 Chinese Code, Ch.4. 139 Nancy Huyghebaert and Lihong Wang, “Expropriation of Minority Investors in Chinese Listed Firms: The Role of Internal and External Corporate Governance Mechanism’ (2012) 20 Corporate Governance: An International Review 308; Lin Lin, “Regulating Executive Compensation in China: Problems and Solutions” (2014) 32 Journal of Law and Commerce 207. 140 Chinese Code art.5. 141 Chinese Code art.85. 142 Chinese Code art.86. 129 (2019) 40 The Company Lawyer, Issue 7 © 2019 Thomson Reuters and Contributors 236 The Company Lawyer improve corporate governance. Nevertheless, market participants will have to wait and see whether such amendments bear fruit over the coming years as companies adjust to the revised Singapore Code. (2019) 40 The Company Lawyer, Issue 7 © 2019 Thomson Reuters and Contributors