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The board and management of Sembcorp Industries
recognise that well-defined corporate governance
processes are vital in enhancing corporate
accountability and sustainability and are committed to
ensuring high standards of corporate governance to
preserve and maximise shareholder value.
For the company’s efforts towards excellent
financial reporting and extensive disclosures beyond
the minimum regulatory requirements, we were
awarded a Silver award for the Best Annual Report
at the Singapore Corporate Awards 2010 held in
May. During the year, we were also named the
Most Transparent Company in the multi-industry /
conglomerates category at the Securities Investors
Association (Singapore) Investors’ Choice Awards,
and ranked Singapore’s seventh most transparent
company under The Business Times’ Governance and
Transparency Index.
This report sets out the company’s corporate
governance processes and activities for the financial
year with reference to the principles set out in the
Singapore Code of Corporate Governance 2005 (Code)
and deviations from the Code are explained. The
company continually reviews and refines its processes
in light of the best practice, consistent with the needs
and the circumstances of the Group.
The board is headed by Mr Ang Kong Hua who
succeeded Mr Peter Seah Lim Huat as Chairman upon
Mr Seah’s retirement from the board on May 1, 2010.
He is joined on the board by Mr Tang Kin Fei, Mr Goh
Geok Ling, Mr Richard Hale, OBE, Mr Evert Henkes,
Mrs Lee Suet Fern, Mr Bobby Chin Yoke Choong, Mrs
Margaret Lui and Tan Sri Mohd Hassan Marican. Ms
Yong Ying-I was also a director of the company until
her retirement from the board on April 22, 2010.
The fundamental responsibility of the directors
is to exercise their judgement to act in what they reasonably believe to be the best interest of the
company, for the creation of long-term value for
shareholders. The board relies on the integrity and due
diligence of senior management, external auditors and
advisors to oversee the Group’s overall performance
objectives, key operational initiatives, financial plans
and annual budget, major investments, divestment and
funding proposals, financial performance reviews, risk
management and corporate governance practices.
To assist the board in the efficient discharge of its
responsibilities and provide independent oversight
of management, a number of board committees,
including the Executive Committee, Audit Committee,
Executive Resource & Compensation Committee,
Nominating Committee and Risk Committee, have
been established. Primarily made up of independent
or non-executive directors, each committee makes
decisions on matters within its terms of reference and
applicable limits of authority, and recommends the
course of action for the board’s consideration on such
matters. The committees’ respective composition, roles
and responsibilities are further explained in this report.
Special purpose committees are also established as
dictated by business imperatives.
The composition of the board committees is
structured to ensure an equitable distribution of
responsibilities among board members, maximise
the effectiveness of the board and foster active
participation and contribution. Diversity of experience
and appropriate skills are considered along with the
need to maintain appropriate checks and balances
between the different committees. Hence, membership
of the Executive Committee (ExCo), with its greater
involvement in key business and executive decisions, and
membership of the Audit and Risk Committees, with
their respective oversight roles, is mutually exclusive.
Board meetings are held on a quarterly basis to
review and approve the release of the quarterly results
and discuss reports by management on the Group’s
performance, plans and prospects. A board meeting is
also held at the end of each financial year to review the Group’s strategy going forward and to consider
and approve the Group’s budget for the following
year. Twice a year, the board also sets aside time
during its scheduled meetings without the presence
of management to discuss management’s performance.
Further board meetings may also be held to specifically
consider other issues arising. Decisions of the board
and board committees may also be obtained via
circular resolutions. To assist directors in planning
for their attendance at board and board committee
meetings as well as at the Annual General Meeting
(AGM), these are scheduled one year in advance, and
telephonic attendance and conference via audio-visual
communication are allowed under the company’s
Articles of Association. The company recognises that
to focus on a director’s attendance at formal meetings
alone may lead to a narrow view of his contribution.
Directors’ contributions may be made in many other
forms, such as bringing strategic relationships to
the Group, providing guidance to management or
offering an exchange of views outside the formal
environment of the board or board committee
meetings. Notwithstanding this, the company
encourages active participation at formal meetings
of the board.
The Group has adopted a set of internal controls
and guidelines that set out financial authorisation
and approval limits for borrowings, including off
balance sheet commitments, investments, acquisitions,
disposals, capital and operating expenditures,
requisitions and expenses. The board or ExCo
approves transactions exceeding certain threshold
limits, while delegating authority for transactions
below those limits to management so as to facilitate
operational efficiency.
The ExCo comprises three directors. Mr Ang was
appointed a member of the ExCo upon joining the
board on February 26, 2010, and subsequently took
over as its chairman following Mr Seah’s retirement
from the board on May 1, 2010. The ExCo’s other
members are Mr Goh and Mr Tang.
The ExCo reviews and approves business
opportunities, strategic investments, capital and
operating expenditures and divestments. Within
the limits of authority delegated by the board, it
also evaluates and recommends larger investments,
capital and operating expenditures, as well as
divestments to the board for approval.
Directors are briefed on changes to regulations and
accounting standards from time to time either during
board meetings or at specially convened sessions,
including sponsored training sessions and seminars
conducted by external professionals. Articles and reports
relevant to the Group’s businesses are also circulated to
the directors for information. The company conducts
orientation programmes for newly-appointed directors
where comprehensive presentations on Sembcorp’s
strategic plans and direction, as well as its business
activities in its various geographical markets are given
by management, country heads and the Group Business
Development department. A formal letter is also sent
to newly-appointed directors upon their appointment
explaining the Group’s governance policies and
practices, as well as their duties and obligations as
directors. Furthermore, facility visits to our subsidiaries’
operation sites are arranged to provide newly-appointed
directors an understanding of the Group’s
business operations. Existing directors are also invited
to participate in such facility visits and orientation
programmes. During the year, visits to our operations
in China as well as to our new integrated township
projects in Vietnam were conducted for the board.
The current board comprises nine directors, of
whom seven are independent directors. Excluding
the Group President & CEO, all the directors are non-executive,
including the Chairman. Given that the
majority of the board is comprised of non-executive
directors who are independent of management and
independent in terms of character and judgement,
objectivity on issues deliberated is assured.
The Nominating Committee (NC) ensures that
the board maintains an appropriate size and
comprises members with a balance of skill, attributes,
knowledge and experience. It takes care to ensure
that directors have sufficient time to devote to their
duties. Through the delegation of its authority to
the NC, the board has applied its best efforts to ensure
that the directors appointed possess the background,
experience and knowledge in business, finance, legal,
related industry and management skills critical to
the company’s businesses.
The board members comprise business leaders,
professionals with financial, audit and accounting backgrounds and a practising lawyer. Best efforts
have also been made to ensure that, in addition to
contributing their valuable expertise and insight
to board deliberations, each director brings to the
board an independent and objective perspective
to enable balanced and well-considered decisions
to be made. For profiles of the directors, please click here.
The Chairman and the Group President & CEO
are not related to each other. The roles of Chairman
and the Group President & CEO are kept separate
to ensure an appropriate balance of power, increased
accountability and greater capacity of the board
for independent decision making.
The Chairman, who is non-executive, leads and
ensures effective and comprehensive board discussion
on matters brought to the board including strategic
issues as well as business planning. The board monitors
the translation of the board’s decisions into executive
action. The Group President & CEO oversees the
execution of the Group’s strategies and policies,
and the conduct of its business.
Sembcorp Industries’ board is periodically renewed
to ensure strong, independent and sound leadership
for the continued success of the company and its
businesses. The board also recognises the contribution
of directors who, over time, have developed deep
insights into the Group’s businesses and exercises
its discretion to retain the services of such directors
where appropriate.
The company subscribes to the principle that all
directors including the Group President & CEO should
retire and submit themselves for re-election at regular
intervals, subject to their continued satisfactory
performance. The company’s Articles of Association
requires a third of its directors to retire and subject
themselves to re-election by shareholders at every
AGM (one-third rotation rule).
Prior to seeking shareholders’ approval at the AGM,
the NC reviews and considers the retirement and re-election
of directors. In addition, a newly-appointed
director submits himself for retirement and election
at the AGM immediately following his appointment.
Thereafter, he is subject to the one-third rotation rule.
Directors who are above the age of 70 are also statutorily required to seek re-appointment at each AGM.
Every year, the NC reviews the independence of
directors. To this end, each director is required to
complete a Director’s Independence Checklist on an
annual basis to confirm his independence. The checklist
is drawn up based on the guidelines provided in the
Code and further requires each director to assess
whether he considers himself independent despite
not being involved in any of the relationships
identified in the Code. The NC will then review the
checklist completed by each director to determine
whether that director is independent.
The NC supports and advises the company by
nominating suitable board candidates to maintain
the board’s balance of skills, knowledge and experience.
Appointments to the board are made on merit and
against objective criteria. Candidates must be able
to discharge their responsibilities as directors while
upholding the highest standards of governance
practised by the Group. While the directors may have
several directorships in other companies, the NC takes
care to ensure and is satisfied that appointees have
contributed adequate time to meet the expectations
of their role as directors.
During the year under review, the NC was chaired
by Mr Seah until his retirement in May 2010. Mr Ang
took over as Chairman from Mr Seah with effect from
May 1, 2010. The other members include Mr Goh
and Mrs Lui, who joined the board on June 1, 2010.
In line with the Code, Mr Ang is not a substantial
shareholder of the company, nor is he directly
associated with Temasek Holdings, a substantial
shareholder of the company.
Pursuant to the one-third rotation rule, Mr Tang
and Mrs Lee will retire at the forthcoming AGM. Mrs
Lee, having served on the board for more than five
years, has decided that she will not seek re-election.
Mrs Lui and Tan Sri Mohd Hassan Marican, who were
newly appointed to the board on June 1 and June 16,
2010 respectively, will also submit themselves for
retirement and re-election by shareholders at the
forthcoming AGM.
In addition, Mr Hale, who is above the age of
70, will submit his retirement pursuant to the
Companies Act at the coming AGM. After having
served on the board as an independent director for
more than 10 years, Mr Hale has decided that he
will not seek re-appointment.
Each year, the board undertakes an informal
assessment of its performance. To provide feedback
to aid in this assessment, each director is required
to complete a questionnaire on the effectiveness of
the board as a whole. This questionnaire considers
factors such as the size and composition of the board,
directors’ access to information, board processes
and accountability, as well as board performance in
relation to its principal functions and communication
with senior management. Feedback from the
questionnaire is subsequently discussed at a board
meeting and is used to highlight areas of strength
and weakness for continuous improvement of the
board and its committees.
The NC feels that the financial indicators set out
in the Code as guides for the evaluation of the board
are more a measure of management’s performance
and therefore are less applicable to directors. The
NC believes that board performance is ultimately
reflected in the long-term performance of the Group.
To assist the board in discharging its duties and
to keep abreast of the Group’s operational and
financial performance, key issues, challenges and
opportunities, Sembcorp’s management furnishes
adequate management and operation reports as well
as financial statements to the board on a regular basis.
As a general rule, board and board committee papers
are sent to directors at least three working days before
each meeting so that they may better understand the
matters prior to the meeting and discussions may be
focused on questions that the directors have on these
matters. Members of senior management who may
provide insight into the matters at hand are also called
on to be present at discussions relevant to them.
Financial highlights of the Group’s performance
and key developments are presented on a quarterly
basis at board meetings. The Group President & CEO,
Group Chief Financial Officer and members of senior
management are present at these presentations to
address any queries which the board may have.
The Company Secretary, in consultation with the
Chairman and the Group President & CEO, assists
the board with the preparation of meeting agendas.
She administers, attends and prepares minutes of
board proceedings, ensuring good information
flow within the board and its committees. She also
assists the board on the compliance of the Group
with the Memorandum and Articles of Association
and regulations, including requirements of the
Companies Act, Securities & Futures Act and the SGX-ST.
She liaises with the SGX-ST, the Accounting and
Corporate Regulatory Authority and when necessary,
shareholders. Management also assists the board to
implement and strengthen good corporate governance
practices and processes across the Group.
The board has ready and independent access to
the Group President & CEO, senior management, the
Company Secretary and internal and external auditors
at all times. The board exercises its discretion to seek
independent professional advice if deemed necessary
to ensure that full information is available before
important decisions are made.
In 2010, the Executive Resource & Compensation
Committee (ERCC) was chaired by Mr Seah until his
retirement from the board in May 2010. Mr Ang
was appointed as an ERCC member in February 2010
and succeeded Mr Seah as ERCC Chairman upon his
retirement from the board. Mr Ang is joined on the
committee by Mr Goh and Mrs Lui.
The ERCC is responsible for ensuring a formal
procedure for developing and reviewing policies on
compensation and development of the Group’s
senior management. It assists the board to ensure
that competitive remuneration policies and practices
are in place to attract, motivate and retain talented
executives. The ERCC also reviews the remuneration
of the non-executive directors and executive director.
The ERCC reviews succession planning for key
positions in the Group and the leadership pipeline
for the organisation. It reviews the development
of senior staff and assesses their strengths and
development needs based on the Group’s leadership
competencies framework with the aim of building
talent and maintaining strong and sound leadership for the Group. The ERCC conducts a succession planning
review of the Group President & CEO, officers
reporting directly to him, as well as selected key
positions in the company on an annual basis. Potential
internal and external candidates for succession are
reviewed for different time horizons according to
immediate, medium-term and long-term needs.
The ERCC also establishes guidelines on share-based
incentives and other long-term incentive plans
and approves the grant of such incentives to key
executives. These incentives aim to motivate executives
to maximise operating and financial performance
and shareholder value, and are aimed at aligning the
interests of the executives with those of shareholders.
The ERCC has access to expert professional advice
on human resource matters whenever there is a need
for such external consultations. In its deliberations,
the ERCC takes into consideration industry practices
and norms of compensation. The Group President &
CEO does not attend discussions relating to his own
compensation, terms and conditions of service, or the
review of his performance. No ERCC member or any
director is involved in deliberations in respect of any
remuneration, compensation, share-based incentives
or any form of benefits to be granted to himself.
Sembcorp believes that a competitive remuneration
and reward system based on individual performance
is important in order to retain and incentivise the best
talents. Sembcorp’s remuneration and reward system
is also responsive to the economic climate as well as
the performance of the Group and its business units.
The Group President & CEO, as an executive
director, does not receive director’s fees. As a lead
member of management, his compensation consists
of his salary, allowances, bonuses and share-based
incentives conditional upon meeting certain
performance targets. Details on the share-based
incentives and the performance targets are available
in the Directors’ Report and Note 4 in the Notes
to the Financial Statements.
Non-executive directors have remuneration
packages that consist of a director’s fee component
pursuant to the company’s Directors’ Fee Policy and
a share-based incentives component pursuant to the company’s employee share plans. The company
does not have a retirement remuneration plan for
non-executive directors. The Directors’ Fee Policy is
based on a scale of fees divided into basic retainer
fees, attendance fees and additional fees for service
on board committees. The basis of the allocation of
share-based incentives takes into account a director’s
contribution and additional responsibilities on board
committees. Details on share-based incentives granted
to the non-executive directors and their fair value are
available in the Directors’ Report and Note 4 in the Notes
to the Financial Statements.
Key executives are rewarded based on actual
performance relative to pre-agreed performance
targets, which include financial and non-financial
performance indicators such as economic value added
(EVA), total shareholder return and promoting and
maintaining health, safety and environment issues.
The Group believes that the current reward systems
are in line with market norms and formulated to
motivate executives to give their best to the Group.
Rewards include long-term share-based incentives,
which would further ensure the retention of the
most talented and high-performing executives in
the Group. For further details on the share-based
incentives and performance targets please refer to the Directors’ Report and Note 4 in the Notes
to the Financial Statements.
The Group has an incentive compensation plan
for key executives that is tied to the creation of EVA,
as well as to the attainment of individual and Group
performance goals. A ’bonus bank’ is used to hold
incentive compensation credited in any year. Typically,
one-third of the available balance is paid out in cash
each year and the balance carried forward to the
following year. Such carried-forward balances of the
bonus bank may either be reduced or increased in
future, based on the yearly EVA performance of the
Group and its subsidiaries.
To retain and motivate high calibre directors from
Singapore and overseas to contribute to the growth
of the Group, the company needs to compensate its
directors in keeping with international standards
and commensurate with the directors’ level of
responsibility, performance and contributions to the
Group. The directors’ fees are reviewed regularly and are subject to the approval of shareholders at
the AGM. The report on directors’ and key executives’
remuneration may be found under the related item
in the Supplementary Information section of the
Financial Statements in this report.
The directors’ fees totalled S$937,626 in 2010
(as compared to S$802,000 in 2009) and were derived
using the fee structure below.
Sembcorp is committed to open and honest
communication with shareholders at all times. The
company presents a balanced and coherent assessment of the Group’s performance and prospects to shareholders
through the timely release of its quarterly and annual
financial reports.
The company believes that prompt compliance
with statutory reporting requirements is imperative
to maintaining shareholders’ confidence and trust
in the company. In line with stock exchange
requirements, negative assurance statements were
issued by the board to accompany the company’s
quarterly financial results announcements, confirming
that to the best of its knowledge, nothing had come
to its attention which would render the company’s
quarterly results false or misleading.
The Audit Committee (AC) comprises three directors,
all of whom are independent non-executive directors.
The AC is chaired by Mr Hale and its members are Mrs
Lee and Mr Chin. Ms Yong was also a member of the
AC until her retirement from the board in April 2010.
The AC assists the board in fulfilling its fiduciary
responsibilities relating to the internal controls, audit
and accounting and reporting practices of the Group.
Its main responsibilities are to review the company’s
policies and control procedures with the external
auditors, internal auditors and management and act
in the interest of the shareholders in respect of
interested person transactions as well as any matters
or issues that affect the financial performance of the
Group. The AC reviews the quarterly, half-yearly and
full-year results announcements as well as the financial
statements of the Group and company before they
are submitted to the board for approval.
Each year, the AC also reviews and recommends the
appointment of the company’s external auditors. The
AC meets the external and internal auditors at least
once a year without the presence of management.
The AC has the authority to investigate any matter
within its terms of reference and enjoys full access
to and co-operation from management to enable it
to discharge its function properly.
Where relevant, the AC is guided by the
recommended best practices for audit committees as
set out in the Guidebook for Audit Committees issued
by Singapore’s Audit Committee Guidance Committee
in October 2008.
The AC has also reviewed the nature and extent
of non-audit services provided by the external auditors to the Group for the year, excluding services provided to
Sembcorp Marine, a listed subsidiary that has its own audit
committee. The AC is satisfied that the independence
of the external auditors has not been impaired by their
provision of non-audit services. Details of non-audit fees
payable to the external auditors are found in Note 35(b)
in the Notes to the Financial Statements.
The AC also oversees the Group’s whistle-blowing policy.
The board and management of the company are
fully committed to a robust system of internal controls,
procedures and risk management to safeguard
shareholders’ interests and the Group’s assets, and
to manage risks. The company seeks to improve
internal control and risk management on an ongoing
basis to ensure that they remain sound and relevant.
The Risk Committee (RC) is chaired by Mr Hale and
its current members include Mrs Lee, Mr Chin and
Mr Henkes. Ms Yong was a member of the RC until
she retired from the board in April 2010, while Mr
Chin and Mr Henkes joined the RC on May 8, 2010
and November 9, 2010 respectively. All members of
the RC are independent directors. The RC’s main role
and function is to assist the board in overseeing risk
management for the Group. It appraises the adequacy
and effectiveness of the Group’s risk management
plans, systems, processes and procedures, Group-wide
risk policies, guidelines and limits, as well as its risk
portfolio, risk levels, and risk mitigation strategies.
For more information on the progress of the
company’s enterprise risk management system,
please refer to the Risk Management & Mitigation Strategies section of this annual report.
The internal audit function of the Group is
performed by the Group Internal Audit department
(GIA), which reports directly to the AC Chairman on
audit matters and to the Group President & CEO on
administrative matters.
GIA adopts a risk-based methodology in defining
its annual internal audit plan, which is reviewed and
approved by the AC. The internal audits performed
are aimed at ensuring that the Group maintains a
sound system of internal controls. GIA assists the board
and management in the discharge of their corporate governance responsibilities as well as in improving and
promoting effective and efficient business processes
within the Group. To ensure that the internal audits are
performed by competent professionals, GIA employs
qualified staff and identifies and provides training
and development opportunities for them so that their
technical knowledge remains current and relevant.
GIA is guided by and has met the standards for the
professional practice of internal audit promulgated by
the Institute of Internal Auditors.
The board has been kept informed of the AC’s
review of GIA’s reports and the management controls
in place and is satisfied with the adequacy of the
Group’s internal controls.
To strengthen corporate governance practices
across the Group, the company has put in place a
whistle-blowing policy and procedures which provide
employees with accessible channels to GIA to report
suspected fraud, corruption, dishonest practices or other
misdemeanors. The aim of this policy is to encourage
the reporting of such matters in good faith, with the
confidence that employees making such reports will,
to the extent possible, be protected from reprisal.
For more information on the whistle-blowing policy,
please click here.
Sembcorp is committed to upholding high
standards of corporate transparency and disclosure
and continues to keep all stakeholders informed of its
corporate activities on a timely and consistent basis.
The company disseminates all price-sensitive and
material information to its shareholders via SGXNET on
a non-selective basis. Financial and other performance
data is given for the Group as well as business units
where appropriate, to provide shareholders with
a better insight into the Group’s performance. The
date of the release of quarterly results is disclosed at
least two weeks prior to the date of announcement
through SGXNET. On the day of announcement, the
financial statements as well as the accompanying press
release and presentation slides are released onto the
SGX-ST website as well as on the company website
at www.sembcorp.com. Thereafter, a briefing or teleconference by management is jointly held for the
media and analysts. For first half and full year results
announcements, results briefings are concurrently
broadcast live via webcast.
Following the release of financial statements
or price-sensitive developments, investor relations
officers are available by e-mail or telephone to answer
questions from shareholders and the media as long as
the information requested does not conflict with the
SGX-ST’s rules of fair disclosure.
The company encourages shareholder participation
at General Meetings, which are held at a convenient
central location with easy access to public transportation.
Information on shareholder meetings is disseminated
through notices in the annual reports or circulars sent to
all shareholders. The notices are also released via SGXNET
and published in local newspapers, as well as posted
on the company website. All registered shareholders
are invited to participate in shareholder meetings.
The company’s Articles of Association allow all
shareholders the right to appoint up to two proxies
to attend General Meetings and vote on their behalf.
The company also allows CPF investors to attend
General Meetings as observers.
The company practises voting by way of a show
of hands at General Meetings as this is more equitable
to minority shareholders. Nonetheless, polls may be
conducted upon the request of the Chairman or any
shareholder. Voting in absentia by mail, facsimile or
e-mail is currently not permitted as such voting
methods would need to be cautiously evaluated for
feasibility to ensure that there is no compromise to
the integrity of the information and the authentication
of the shareholders’ identity.
At General Meetings, every matter requiring approval
is proposed as a separate resolution, and the Chairman
declares the number of proxy votes received for and
against each resolution. Shareholders present are given
an opportunity to clarify or direct questions on issues
pertaining to the proposed resolutions before the
resolutions are voted on. The board and management
are present to address these questions and obtain
feedback from shareholders. The external auditors and
legal advisors (if necessary) are also present to assist the
board. Minutes of shareholder meetings are available upon request by registered shareholders.
The Group President & CEO delivers a short
presentation to shareholders at the annual general
meeting each year, to update shareholders on the
performance of Sembcorp’s businesses and the
Group’s positioning for the future.
For further details on Sembcorp Industries’
communications with its shareholders, please see
the Investor Relations chapter of this annual report.
The company has adopted a Code of Compliance
on Dealing in Securities, which prohibits dealings
in the company’s securities by its directors and
senior management within two weeks prior to
the announcement of the company’s financial
statements for each of the first three quarters of
its financial year and within one month prior to
the announcement of the company’s full-year
financial statements. Directors and employees are
also expected to observe insider trading laws at all
times, even when dealing in the company’s securities
within the permitted trading period.
Shareholders have adopted an Interested Person
Transaction (IPT) Mandate in respect of interested
person transactions of the company. The IPT Mandate
defines the levels and procedures to obtain approval
for such transactions. Information regarding the
IPT Mandate is available on the company’s website,
www.sembcorp.com. All business units are required
to be familiar with the IPT Mandate and report
any interested person transactions to the company.
The Group Reporting and Policies department
maintains a register of the company’s interested
person transactions in accordance with the reporting
requirements stipulated by Chapter 9 of the SGX-ST
Listing Manual. Information on interested person
transactions for 2010 may be found in the related
item under the Supplementary Information section
of the Financial Statements in this report. |
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