How does the code of corporate governance apply to my business?

Corporate governance refers to the processes and structure by which the business and affairs of the company are directed and managed, in order to enhance long-term shareholder value through enhancing corporate performance and accountability, whilst taking into account the interests of other stakeholders.

Good corporate governance matters, especially in situations where there may be significant conflicts of interests between shareholders and management, such as in certain corporate acquisitions, management buyouts, financial reporting, performance appraisal, hiring and replacement of senior management, and executive compensation.

The objective of the Code of Corporate Governance is not to prescribe corporate behaviour in detail but to essentially secure sufficient disclosure so that investors and others can assess a company’s performance and governance practices and respond in an informed way.  

The code is divided into four main sections: board matters; remuneration matters; accountability and audit; and communication with shareholders.

Many of the guidelines set out in the code are recommendations for companies to disclose their corporate governance arrangements.

Compliance with the Code is not mandatory but companies listed on the Singapore Exchange are required under the SGX Listing Rules to disclose their corporate governance practices and give explanations for deviations from the code in their annual reports.

The Monetary Authority of Singapore (MAS) announced on  Feb 4 , the composition of a newly established Corporate Governance Council (Council), chaired by Mr Alan Chan, the chief executive officer of Singapore Press Holdings.

This council seeks to promote a high standard of corporate governance in companies listed in Singapore, so as to maintain investors' confidence and enhance Singapore’s reputation as a leading and trusted international financial centre.

The code was first issued by the Corporate Governance Committee on March 21, 2001. A review of the code was initiated in May 2004 and a revised code was issued on July 14, 2005. With effect from Sept 1, 2007, the code came under the purview of the MAS and SGX.

The MAS has proposed measures to improve corporate governance at local banks and insurers to ensure more independence and expertise at the board level.

For more information, go to the Institute of Certified Public Accountants of Singapore's website at www.icpas.org.sg or visit www.icpasresearch.org.sg for more online resources.

(CPA Clinic is joint initiative between ICPAS and The Straits Times. It features a monthly column in the Money section dispensing tips and advise relating to small medium enterprises. This article first published in The Straits Times on 24 March 2010.)