The following, a commentary, is provided for Recommendation 2.1 to 2.3 and 3.1 to 3.5 of MCCG 2012. The commentaries seek to explain and provide some guidance for the recommendations.
PRINCIPLE 3:
REINFORCE INDEPENDENCE
The board should have policies and
procedures to ensure effectiveness of independent directors.
Recommendation 3.1
The board should
undertake an assessment of its independent directors annually.
Commentary
Independent directors
bring independent and objective judgment to the board and this mitigates risks
arising from conflict of interest or undue influence from interested parties.
The existence of
independent directors on the board by itself does not ensure the exercise of
independent and objective judgment as independent judgment can be compromised
by, amongst others, familiarity or close relationship with other board members.
Therefore, it is
important for the board to undertake an annual assessment of the independence
of its independent directors. When assessing independence, the board should
focus beyond the independent director’s background, economic and family
relationships and consider whether the independent director can continue to
bring independent and objective judgment to board deliberations. The Nominating
Committee should develop the criteria to assess independence. The board should
apply these criteria upon admission, annually and when any new interest or
relationship develops.
The board should
disclose that it has conducted such assessment in the annual report and in any
notice convening a general meeting for the appointment and re-appointment of independent
directors.
Recommendation 3.2
The tenure of an
independent director should not exceed a cumulative term of nine years. Upon
completion of the nine years, an independent director may continue to serve on
the board subject to the director’s re-designation as a non-independent
director.
Commentary
The assessment
criteria for independence of directors should also include tenure. Long tenure
can impair independence. For this reason, tenure of an independent director is
capped at nine years. The nine years can either be a consecutive service of
nine years or a cumulative service of nine years with intervals. An independent
director who has served the company for nine years may, in the interest of the
company, continue to serve the company but in the capacity of a non-independent
director.
Recommendation 3.3
The board must justify
and seek shareholders’ approval in the event it retains as an independent
director, a person who has served in that capacity for more than nine years.
Commentary
The shareholders may,
in exceptional cases and subject to the assessment of the Nominating Committee,
decide that an independent director can remain as an independent director after
serving a cumulative term of nine years. In such a situation, the board must
make a recommendation and provide strong justification to the shareholders in a
general meeting.
Recommendation 3.4
The positions of
chairman and CEO should be held by different individuals, and the chairman must
be a non-executive member of the board.
Commentary
Separation of the
positions of the chairman and CEO promotes accountability and facilitates
division of responsibilities between them. The responsibilities of the chairman
should include leading the board in the oversight of management, while the CEO
focuses on the business and day-to-day management of the company. This division
should be clearly defined in the board charter.
Recommendation 3.5
The board must
comprise a majority of independent directors where the chairman of the board is
not an independent director.
Commentary
A chairman who is an
independent director can provide strong leadership by being able to marshal the
board’s priorities more objectively. If the chairman is not an independent
director, then the board should comprise a majority of independent directors to
ensure balance of power and authority on the board.
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