The board and management of Sembcorp recognise
that well-defined corporate governance processes
are essential in enhancing corporate accountability
and long-term sustainability, and are committed to
high standards of corporate governance to preserve
and maximise shareholder value. 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 2012 (the Code). The board is pleased
to report that the company has complied in all
material aspects with the principles and guidelines
set out in the Code, and any deviations are
explained in this report.
The company continually reviews and refines its
processes in light of best practice, consistent with
the needs and circumstances of the Group, and we
are encouraged that our efforts towards excellent
governance have been recognised. At the 2014
Singapore Corporate Awards, Sembcorp Industries
won gold awards for Best Managed Board and
Best Annual Report for companies with S$1 billion
and above in market capitalisation. Our Group
President & CEO Tang Kin Fei was also named
Best Chief Executive Officer in the same category.
In addition, the company was ranked in the top
three on Singapore’s Governance and Transparency
Index, an independent ranking exercise by the
National University of Singapore’s Centre for
Governance, Institutions and Organisations, CPA
Australia and The Business Times that assesses
644 Singapore-listed companies in terms of
governance, ethics, transparency and rigour in
financial reporting. Furthermore, the Securities
Investors Association (Singapore) named Sembcorp
the runner-up for the Singapore Corporate
Governance Award at the 15
th Investors’ Choice
Awards. The award was given under the category
of companies with market capitalisation of
S$1 billion and above.
BOARD MATTERS
Board’s Conduct of Affairs (Principle 1)
Effective board to lead and effect controls
Sembcorp is led by an effective board comprising
mainly independent non-executive directors. The
board is headed by Ang Kong Hua. He is joined on
the board by Mr Tang, Goh Geok Ling, Evert
Henkes, Bobby Chin Yoke Choong, Margaret Lui,
Tan Sri Mohd Hassan Marican, Tham Kui Seng,
Dr Teh Kok Peng, as well as Ajaib Haridass and
Neil McGregor who joined the board on May 1, 2014.
Role of the board
The board is collectively responsible for the long-term
success of the company. Each director exercises
his independent judgement to act in good faith and
in the best interest of the company for the creation
of long-term value for shareholders. The principal
duties of the board are to:
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Provide leadership and guidance to
management on the Group’s overall strategy,
taking into consideration sustainability issues
and the need to ensure necessary financial and
human resources are in place
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Ensure the adequacy of the Group’s risk
management and internal controls framework
and standards, including ethical standards, and
that its obligations to shareholders and other
key stakeholders are met
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Review management performance and oversee
the Group’s overall performance objectives, key
operational initiatives, financial plans and annual
budget, major investments, divestments and
funding proposals, quarterly and full-year
financial performance reviews, risk management
and corporate governance practices
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Provide guidance on sustainability issues, such as
environmental and social factors, as part of the
Group’s overall business strategy
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To assist the board in the efficient discharge
of its responsibilities and provide independent
oversight of management, the board has established
the following board committees with written terms
of reference:
• Executive Committee
• Audit Committee
• Risk Committee
• Executive Resource & Compensation Committee
• Nominating Committee
• Technology Advisory Panel
Special purpose committees are also established
as dictated by business imperatives.
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, with its greater involvement
in key businesses and executive decisions, and
membership of the Audit and Risk Committees, with
their respective oversight roles, are mutually exclusive.
The Group has adopted 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. Significant investments
and transactions exceeding threshold limits are
approved by the board while transactions below
the threshold limits are approved by the Executive
Committee and management to facilitate
operational efficiency, in accordance with
applicable financial authority limits.
Executive Committee
The Executive Committee (ExCo) is chaired by
Mr Ang and its members include Mr Goh,
Mr Tang
and Mrs Lui.
Within the limits of authority delegated by the
board, the ExCo reviews and approves business
opportunities, strategic investments, divestments,
and major capital and operating expenditure.
The ExCo also evaluates and recommends larger
investments, capital and operating expenditure,
as well as divestments to the board for approval.
Technology Advisory Panel
The Technology Advisory Panel (TAP) comprises
board members Mr Ang, Mr Tang and Dr Teh, as
well as co-opted members Dr Josephine Kwa Lay
Keng, Dr Ng How Yong and Prof Lui Pao Chuen.
Their profiles may be found
here.
The TAP provides guidance to the Group on its
vision and strategy in leveraging technology to
enhance Sembcorp’s leadership in the energy and
water industries. The panel advises on technologies
for research and development as well as investment,
oversees the application of significant emerging and
potentially disruptive technologies in the energy and
water sectors, and ensures the appropriate
management of specialised research and
development projects and systems for intellectual
property creation and protection. In addition, the
panel advises Sembcorp’s board and management
on technological trends and opportunities in line
with the company’s growth strategies.
The other committees’ respective composition,
roles and responsibilities are further explained in this
report. Minutes of board committee meetings are
circulated to the board to keep directors updated on
each committee’s activities.
Meetings and attendance
The board meets on a quarterly basis to review and
approve the release of the company’s quarterly
results, as well as to deliberate on key activities and
business strategies, including significant acquisitions
and disposals. At these board meetings, the Group
President & CEO updates the board on the
development and prospects of the Group’s
businesses and each board committee also reports
an update of its activities. An additional board
meeting is 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, and ad-hoc board meetings may also
be convened as necessary to consider other specific
matters. Time is also set aside at these scheduled
meetings for the board to discuss management’s
performance; members of management are not
present at or privy to such discussions.
Board and board committee meetings, as well
as annual general meetings (AGMs) of the company
are scheduled in consultation with the directors in
advance of each year. Telephonic attendance and
conference via audio-visual communication channels
are allowed under the company’s Articles of
Association to enable the participation of directors
who are unable to be present, and decisions of the
board and board committees may be obtained at
meetings or via circular resolution. Should a director
be unable to attend a board or board committee
meeting, he / she will still be sent the papers tabled
for discussion and have the opportunity to
separately convey any views to the chairman for
consideration or further discussion with other
directors. If necessary, a separate session may be
organised for management to brief that director
and obtain his / her comments and / or approval.
The directors’ attendance at board and
committee meetings held during the financial year
2014 is set out below.
Board orientation and training
All new directors receive formal letters of
appointment explaining the Group’s governance
policies and practices, as well as their duties and
obligations as directors. New directors also receive
an information pack which contains the Group’s
organisation structure, the contact details of
members of senior management, the company’s
Memorandum and Articles of Association,
respective committees’ terms of reference, the
Group’s policy relating to disclosure of interests in
securities and prohibition on dealings in Sembcorp
securities, as well as guidelines on directors’ fees.
The company conducts orientation programmes
for new directors with comprehensive briefings on
board policies and processes, as well as presentations
by senior management on Sembcorp’s overall
strategic plans and direction, financial performance
and activities in its various geographical markets.
As part of training and professional development
for the board, the company ensures that directors
are briefed from time to time on changes to
regulations, guidelines and accounting standards,
as well as other relevant trends or issues. These are
done either during board meetings or at specially
convened sessions, including training sessions and
seminars conducted by external professionals.
Briefings and updates provided for directors in 2014
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Briefings on developments in accounting and
governance standards presented by our external
auditors at Audit Committee meetings
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Updates on the Group’s business and strategic
developments presented by the Group President
& CEO to the board
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Insights on China and India markets presented
by external advisors to the board
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Review of the Group’s country risk framework
with benchmarking against global best
practices presented by an external advisor to the
Risk Committee
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Quarterly overviews on the risk and controls
environment of the Group and updates relating
to other risk management and governance
initiatives, such as the governance assurance
framework, presented by the Group Risk and
Governance departments to the Risk Committee
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Public forum discussions on boards and
technology by eminent US and Asian practitioners
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Besides such briefings, articles and reports
relevant to the Group’s businesses are also circulated
to the directors for information. Furthermore, facility
visits to the Group’s operating sites are also arranged
to enhance directors’ understanding of the Group’s
businesses as well as meetings with key customers
and government officials. In October 2014, a facility
visit was conducted in conjunction with the official
opening of the Sembcorp Cogen @ Banyan and the
Sembcorp Technology & Innovation Centre on
Jurong Island in Singapore.
Board Composition and Guidance (Principle 2)
Strong and independent board exercising objective judgement
Board composition
The current board comprises eleven directors, eight
of whom are independent directors. Excluding the
Group President & CEO, all the directors are non-executive.
The board members include business
leaders and professionals with strong experience
relevant to the Group’s businesses, from engineering,
petrochemicals, oil and gas and real estate industries
to accountancy, finance and legal sectors. Best efforts
have been made to ensure that in addition to
contributing their valuable expertise and insight to
board deliberations, each director also brings to the
board an independent and objective perspective to
enable balanced and well-considered decisions to be
made. The board is of the view that given that the
majority of directors are non-executive and
independent of management in terms of character
and judgement, objectivity on issues deliberated is
assured. Profiles of the directors may be found
here.
Review of directors' independence
The independence of each non-executive director
is assessed annually, with each director required to
complete a Director’s Independence Checklist drawn
up based on the guidelines provided in the Code.
The checklist also requires each director to assess
whether he considers himself independent despite
involvement in any of the relationships identified in
the Code. Thereafter, the Nominating Committee
reviews the completed checklists, assesses the
independence of the directors and presents its
recommendations to the board. Particular scrutiny is
applied when assessing the continued independence
of directors who have served more than nine years.
Taking into account the views of the Nominating
Committee, the board determined in 2014 that with
the exception of Mr Tang, Mrs Lui and Mr McGregor,
all of Sembcorp Industries’ directors are independent.
Mr Tang is Group President & CEO and an executive
director, while Mrs Lui is Chief Executive Officer of
Azalea Asset Management, a related company of
Temasek Holdings (Temasek) which holds more than
10% interest in the Group. Mr McGregor was
regarded as an independent director at the time of his
appointment to the board and prior to his employment
as Senior Managing Director of Temasek’s Enterprise
Development Group on June 1, 2014. Thereafter he
was deemed
non-independent given his direct
association with Temasek as defined in the Code.
Tan Sri Mohd Hassan Marican sits on the board
of Sembcorp Marine, a listed subsidiary from which
the company has received payment in excess of
S$200,000 in aggregate for consultancy services
and provision of utilities services, as did Mr Goh
prior to April 22, 2014. The board has assessed this
matter and is of the view that the payment received
from Sembcorp Marine is insignificant in the context
of the Group’s earnings. The board believes that
Tan Sri Mohd Hassan Marican and Mr Goh’s
directorships in Sembcorp Marine have not and
will not interfere, or be reasonably perceived to
interfere, with their abilities to exercise independent
judgement and act in the best interest of
Sembcorp Industries.
Mr Goh and Mr Henkes have served on our
board since their appointments in 2000 and 2004
respectively. The board has established that despite
serving as directors for more than nine years,
Mr Goh and Mr Henkes continue to demonstrate
the essential characteristics of independence
expected by the board and furthermore, their
length of service and in-depth knowledge of the
Group’s businesses are viewed by the board as
especially valuable.
The board has determined that Mr Chin,
who was appointed a director to the board of
Temasek on June 10, 2014, and Tan Sri Mohd
Hassan Marican and Mr Tham, who respectively
hold the positions of Senior International Advisor
and Corporate Advisor at Temasek International
Advisors, a subsidiary of Temasek, are independent.
The board believes that the three directors have
consistently exercised strong independent
judgement in their deliberations and that they act
in the best interest of the company as they are not
accustomed or under an obligation, whether formal
or informal, to act in accordance with the directions,
instructions or wishes of Temasek.
Chairman and Chief Executive Officer (Principle 3)
Clear division of responsibilities between the board
and management
The Chairman and the Group President & CEO
are not related to each other. Their roles are kept
separate to ensure a clear division of responsibilities,
increased accountability and a greater capacity of
the board for independent decision-making.
The Chairman, who is non-executive, chairs the
board, ExCo, Executive Resource & Compensation
Committee, Nominating Committee and the TAP.
He leads and ensures effective and comprehensive
board discussion on matters brought to the board,
including strategic issues as well as business planning.
The Chairman promotes an open environment for
deliberation and ensures that board and board
committee meetings are conducted in a manner
that allows non-executive directors to participate
in meaningful and active discussion. He also
monitors follow-up to the board’s decisions
to ensure that such decisions are translated
into executive action and provides advice to
management. In addition, the Chairman provides
leadership and guidance to management,
particularly with regard to its global growth
strategy and project investments. He also helps
to oversee the Group’s talent management, and
works with the Group President & CEO to ensure
that robust succession plans are in place for key
management positions.
The Group President & CEO makes strategic
proposals to the board, develops the Group’s
businesses in accordance with strategies, policies,
budgets and business plans as approved by the
board and provides close oversight, guidance
and leadership to senior management.
Board Membership (Principle 4)
Formal and transparent process for the appointment and re-appointment of directors
Nominating Committee
The Nominating Committee (NC) comprises
non-executive directors, namely Mr Ang, Mr Goh,
Mrs Lui and Tan Sri Mohd Hassan Marican. Three
out of four directors in the NC (including the
Chairman)
are independent.
The NC is responsible to review Sembcorp’s
board to ensure strong, independent and sound
leadership for the continued success of the
company and its businesses.
The key responsibilities of the NC are to:
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Ensure that the board has the right balance
of skills, attributes, knowledge and experience
in business, finance and related industries,
as well as management skills critical to the
company’s businesses
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Review the composition and size of the board
and its committees and recommend new
appointments, re-appointments and
re-elections to the board and board
committees as appropriate
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Review the directors’ independence and
succession plans for the board
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Develop a process to evaluate board and
board committee performance
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Review training and professional development
programmes for the board
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Succession planning, appointment and
re-appointment of directors
The NC seeks to refresh board membership
progressively and in an orderly manner. All
appointments to the board are made on merit and
measured against objective criteria. Candidates
must be able to discharge their responsibilities as
directors while upholding the highest standards of
governance practised by the Group. The board also
recognises the contributions of directors who have,
over time, developed deep insight into the Group’s
businesses and exercises its discretion to retain the
services of such directors where appropriate to
avoid an abrupt loss of experienced directors with
a valuable understanding of the Group.
With reference to the Group’s strategies and
business plans, the NC reviews the skills mix of board
members to ensure that the board has the required
diversity including gender, as well as the competencies
to support our growth. When the need for a new
director is identified, the NC consults with management
and identifies a list of candidates sourced through an
extensive network of contacts, based on the skill sets,
experience, knowledge and attributes required
to position the board to lead the growth of the
company. Thereafter, the NC will interview the
candidates and make its recommendation to
the board for approval. In accordance with the
company’s Articles of Association, the new director
will hold office until the next AGM and, if eligible,
can stand for re-appointment.
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 require a third of its directors to retire and
subject themselves for re-election by shareholders at
every AGM (one-third rotation rule).
In addition, all newly-appointed directors submit
themselves for retirement and re-election at the
AGM immediately following their appointment.
Thereafter, these directors are 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.
Pursuant to the one-third rotation rule, Mr Chin
and Dr Teh will retire and submit themselves for
re-election at the forthcoming AGM. Mr Haridass
and Mr McGregor, who were newly appointed to
the board on May 1, 2014, will also submit
themselves for retirement and re-election by
shareholders at the forthcoming AGM.
In addition, Mr Ang, Mr Goh and Mr Henkes,
who are above the age of 70, will submit their
retirement at the coming AGM in accordance with
the statutory requirement. The board has been
informed that Mr Ang will offer himself for
re-appointment, while Mr Goh and Mr Henkes have
decided not to
seek re-appointment.
The board does not encourage the appointment
of alternate directors. No alternate director has
been or is currently being appointed to the board.
Review of directors’ time commitments
While reviewing the re-appointment and
re-election of directors, the NC also considers the
directors’ other board directorship representations
and principal commitments to ensure they have
sufficient time to discharge their responsibilities
adequately. Taking into consideration the total
time commitment required of our directors for
involvement in Sembcorp’s board and board
committees and for their other appointments
outside our company, the board has determined
that the maximum number of listed company
board representations held by any Sembcorp
Industries director should not exceed six.
For 2014, the board is satisfied that all directors
have given sufficient time and attention to the
affairs of the company and have discharged
their duties adequately.
Board Performance (Principle 5)
Active participation and valuable contributions
are key to overall effectiveness of the board
Board evaluation process and
performance criteria
The board believes that board performance is
ultimately reflected in the long-term performance
of the Group. Each year, in consultation with
the NC, the board assesses its performance to
identify key areas for improvement and requisite
follow-up actions.
To provide feedback to aid in this assessment,
each director is required to complete a questionnaire
on the effectiveness of the board, board committees
and directors’ contribution and performance.
The evaluation considers factors such as the size
and composition of the board and board
committees, board processes and accountability,
board and board committees’ development and
effectiveness, information management, decision-making
processes, risk and crisis management,
succession planning, communication with senior
management and stakeholder management.
The evaluation and feedback are then consolidated
and presented to the board for discussion on areas
of strengths and weaknesses, to improve the
effectiveness of the board and its committees.
In 2014, the NC reviewed and improved the
questionnaire to further enhance assessment of
board and board committee effectiveness.
Access to Information (Principle 6)
Directors have complete, adequate and timely
information and resources
Complete, adequate and timely information
The company recognises that directors should be
provided with complete, adequate and timely
information on an ongoing basis. This is to enable
them to make informed decisions, discharge their
duties and keep abreast of the Group’s operational
and financial performance, key issues, challenges
and opportunities. Sembcorp’s management
furnishes management and operation reports as
well as financial statements to the board on a
regular basis. Financial highlights of the Group’s
performance and key developments are presented
on a quarterly basis at board meetings and the
Group President & CEO, Group Chief Financial
Officer and members of senior management attend
board and board committee meetings to provide
insight into matters under discussion and address
any queries which the directors may have.
In line with Sembcorp’s strong commitment
towards environmental responsibility, directors are
provided with electronic tablets to enable them to
access board and board committee papers prior to
and during meetings. As a general rule, board and
board committee papers are disseminated to
directors at least three working days prior to
meetings to provide sufficient time to review and
consider matters at hand, and so that discussions
at the meetings can be focused on the directors’
questions arising from these matters. 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, should it need to request
for additional information.
Company Secretary
The Company Secretary assists the Chairman to
ensure good information flow within the board and
its committees and between the board and senior
management. In addition, the Company Secretary
attends to corporate secretarial matters, such as
arranging orientations for new directors and
assisting with their professional development as
required. In consultation with the Chairman and the
Group President & CEO, the Company Secretary
assists the board with scheduling of board and
board committee meetings and the preparation of
meeting agendas, and also administers, attends and
minutes board proceedings. The Company Secretary
assists the board on the Group’s compliance with
the Memorandum and Articles of Association and
applicable regulations, including requirements of
the Companies Act, Securities & Futures Act and the
SGX-ST. Moreover, the Company Secretary liaises on
behalf of the company with the SGX-ST, the
Accounting and Corporate Regulatory Authority
and when necessary, shareholders.
Independent professional advice
In the furtherance of its duties, the board exercises
its discretion to seek independent professional advice
at the company’s expense, if deemed necessary.
REMUNERATION MATTERS
Procedures for Developing Remuneration
Policies (Principle 7)
Remuneration of directors adequate and not excessive
With the assistance of the Executive Resource &
Compensation Committee, the board ensures that
a formal policy and transparent procedure for
determining remuneration of executives and
directors are in place.
Executive Resource & Compensation Committee
The Executive Resource & Compensation Committee
(ERCC) is chaired by Mr Ang, an independent non-executive
director, and he is joined on the committee
by Mr Goh, Mrs Lui and Tan Sri Mohd Hassan Marican.
The ERCC is responsible for developing, reviewing
and recommending to the board the framework of
remuneration for the board and key management
personnel as defined in the Code. To this end, it:
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Assists the board to ensure that competitive
remuneration policies and practices are
in place and aligned with the prevailing
economic environment
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Reviews and recommends to the board for
endorsement each director and member of key
management’s specific remuneration package
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Establishes guidelines on share-based incentives
and other long-term incentive plans and
approves the grant of such incentives to key
management personnel. These incentives serve
to motivate executives to maximise operating
and financial performance and shareholder
value, and are aimed at aligning the interests
of key management personnel with those
of shareholders
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Reviews succession planning for key
management personnel and the leadership
pipeline for
the organisation
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In its deliberations, the ERCC takes into
consideration industry practices and compensation
norms. The Group President & CEO does not attend
discussions relating to his own compensation,
terms and conditions of service, or the review of
his performance. In addition, 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 / herself.
The ERCC has access to expert professional
advice on human resource matters whenever there
is a need for such external consultation. In 2014,
Mercer (Singapore) was engaged as external
consultants to provide such advice. In engaging
external consultants, the company takes care to
ensure that the relationship, if any, between the
company and these external consultants will not
affect the independence and objectivity of the
external consultants. In 2014, the ERCC undertook
a review of the independence and objectivity of
Mercer (Singapore) and has confirmed that it has
no relationships with the company which would
affect its independence.
In reviewing succession planning and the
Group’s leadership pipeline, the ERCC 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. On an annual
basis, the ERCC conducts a succession planning
review of the Group President & CEO, officers
reporting directly to him, as well as other selected
key positions in the company. Potential internal and
external candidates for succession are reviewed for
different time horizons according to immediate,
medium-term and long-term needs. In addition, the
ERCC also reviews the company’s obligation arising
in the event of termination of the Group President &
CEO and key management personnel’s contracts
of service, to ensure that such contracts contain
fair and reasonable termination clauses.
Level and Mix of Remuneration (Principle 8)
Competitive reward system to ensure highest
performance and retention of directors and
key management personnel
Sembcorp believes that its remuneration and reward
system is aligned with the long-term interest and
risk policies of the company and that a competitive
remuneration and reward system based on
individual performance is important to attract,
retain and incentivise the best talent.
The Group President & CEO, as an executive
director, does not receive director’s fees from
Sembcorp. 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 performance
targets are available in the
Directors’ Report and
Note 36 in the Notes to the Financial Statements.
Non-executive directors' fees
In 2014, the ERCC reviewed and updated the
directors’ fee framework to include a new all-in
chairman’s fee. This reflects the greater commitment
required of the Chairman in spending time outside
regular board and board committee meetings to
guide and provide oversight to the company and its
management where this is needed, such as in the
Group’s expansion into new markets. With the
introduction of the all-in chairman’s fee, the
Chairman will not receive further fees or allowances
as a director on our board or for involvement in any
of the board’s committees, such as membership fees.
The framework below adopted by the company
is based on a scale of fees divided into basic retainer
fees, attendance fees and allowances for travel and
service on board committees:
The directors’ fees payable to non-executive
directors are paid in cash and in share awards under
the Sembcorp Industries Restricted Share Plan
2010. The ERCC has determined that up to 30%
of the aggregate directors’ fees approved by
shareholders for a particular financial year may be
paid out in the form of restricted share awards.
Directors’ cash fees and share awards will only be
paid and granted upon approval by shareholders
at the AGM of the company. Directors and their
associates also abstain from voting on any
resolution(s) relating to their remuneration.
Share awards granted under the Sembcorp
Industries Restricted Share Plan 2010 to directors as
part of directors’ fees will consist of the grant of
fully paid shares outright with no performance and
vesting conditions attached, but with a selling
moratorium. This however does not apply to Mr
Tang, as he does not receive directors’ fees given
that he is Group President & CEO of the company.
Non-executive directors are required to hold shares
in the company (including shares obtained by other
means) worth at least the value of their annual basic
retainer fee (currently S$75,000); any excess may be
disposed of as desired. A non-executive director
may only dispose of all of his shares one year after
leaving the board. Subject to shareholders’ approval
at the forthcoming AGM, the cash component of
the directors’ fees for FY2015 is intended to be
paid half-yearly in arrears.
The actual number of shares to be awarded to
each non-executive director will be determined by
reference to the volume-weighted average price of
a share on the SGX-ST over the 14 trading days
from (and including) the day on which the shares
are first quoted ex-dividend after the AGM (or, if the
resolution to approve the final dividend is not
approved, over the 14 trading days immediately
following the date of the AGM). The number of
shares to be awarded will be rounded down to the
nearest hundred and any residual balance will be
settled in cash. The share component of the
directors’ fees for FY2015 is intended to be
paid after the AGM in 2016 has been held.
The company does not have a retirement
remuneration plan for non-executive directors.
Remuneration for key management personnel
Sembcorp’s remuneration and reward system for
key management personnel is designed to ensure a
competitive level of compensation to attract, retain
and motivate employees to deliver high-level
performance in accordance with the company’s
established risk policies. The remuneration of
our key management personnel comprises three
primary components:
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Fixed remuneration
Fixed remuneration includes an annual basic
salary, and where applicable, fixed allowances,
an annual wage supplement and other
emoluments. Base salaries of key management
personnel are determined based on the scope,
criticality and complexity of each role, equity
against peers with similar responsibilities,
experience and competencies, individual
performance and market competitiveness.
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Annual variable bonuses
The annual variable bonus is intended to
recognise the performance and contributions of
the individual, while driving the achievement of
key business results for the company. The annual
variable bonus includes two components. The
first is linked to the achievement of pre-agreed
financial and non-financial performance targets,
while the second is linked to the creation of
economic value added (EVA).
The EVA-linked bonus component is held in
a “bonus bank”. Typically, one-third of the
balance in the bonus bank is paid out in cash
each year, while the balance two-thirds is 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. There are provisions in the EVA
incentive plan to allow for forfeiture of the
outstanding balances in the bonus bank in
exceptional circumstances of misstatement
of financial results or misconduct resulting in
financial loss to the company.
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Share-based incentives
The company’s performance share plan and
restricted share plan were approved and
adopted by the shareholders at an Extraordinary
General Meeting of the company held on April
22, 2010. Through our share-based incentives,
we motivate key management personnel to
continue to strive for the Group’s long-term
shareholder value. In addition, our share-based
incentive plans aim to align the interests of
participants with the interests of shareholders,
so as to improve performance and achieve
sustainable growth for the company.
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Pay for performance
As in prior years, a pay-for-performance study was
conducted in 2014 by our external consultants,
Mercer (Singapore), to review the alignment
between the Group’s executive pay programme,
shareholder returns and business results. The Group
benchmarked itself with established global energy
and utilities firms and comparably-sized local listed
companies with which the Group competes for
talent and capital.
The study benchmarked different elements of
senior executive pay, namely fixed remuneration,
total cash remuneration and total compensation
including long-term incentives, against that of peer
companies. It found senior executive pay to be
positioned competitively vis-à-vis the Group’s
relative size and performance. Executive
compensation for the year had a robust correlation
to the Group’s profit from operations and EVA. In
the longer term, there was also a strong relationship
between executives’ total compensation (which
includes share awards for the Group President &
CEO and senior executives) and the Group’s
three-year earnings per share growth, wealth added
and total shareholder return. Overall, the study
showed a strong correlation between the Group’s
executive pay and its business results and
shareholder returns, indicating strong pay-for-performance
alignment.
Disclosure on Remuneration (Principle 9)
The computation of non-executive directors’ fees
totalled S$2,165,833 in 2014 (2013: S$1,583,728).
This comprised S$1,516,083 in cash and S$649,750
to be paid in the form of restricted share awards
under the Sembcorp Industries Restricted Share
Plan 2010. More information on directors and key
management personnel’s remuneration may be
found under the related item in the
Supplementary
Information section of the Financial Statements.
In 2014, the company had no employees who
were immediate family members of a director or
the Group President & CEO.
ACCOUNTABILITY AND AUDIT
Accountability (Principle 10)
The board is accountable to shareholders
Sembcorp is committed to open and honest
communication with shareholders at all times. The
company presents a balanced and clear assessment
of the Group’s performance, position 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.
Risk Management and Internal Controls (Principle 11)
The board has overall responsibility for the
governance of the Group’s risk management
and internal controls. The company’s board and
management are fully committed to maintaining
sound risk management and internal control
systems to safeguard shareholders’ interests and
the Group’s assets.
The board determines the company’s levels
of risk tolerance and risk policies, and oversees
management in the design, implementation and
monitoring of risk management and internal
control systems.
Risk Committee
The Risk Committee (RC) assists the board in
overseeing risk management for the Group. The
RC is chaired by Mr Henkes and its other members
include Mr Chin, as well as Mr Haridass and
Mr McGregor who joined the RC on May 1, 2014.
Dr Teh and Tan Sri Mohd Hassan Marican, who
served as RC members for the first four months of
the year, relinquished their seats on the RC on May 1,
2014;
Dr Teh then joined the Audit Committee
whilst Tan Sri Mohd Hassan Marican joined the
ERCC and NC.
The RC’s principal functions are to:
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Review and endorse the risk management plans
of the Group
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Review and approve group-wide risk policies,
guidelines and limits
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Review the adequacy and effectiveness of the
risk management systems, processes and
procedures of the Group
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Review risk-related reports submitted to it by
management. These include updates on the
Group’s risk portfolio, reports on major risk
exposure and any other risk-related issues as
well as actions taken to monitor and manage
such exposure / issues
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Review infrastructure and resources in place to
support the management of risk, including for
instance human resources, information technology
systems, reporting structure and procedures
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Adequate and effective system of internal controls
The Group has implemented a comprehensive
enterprise risk management (ERM) framework
where key risks identified are deliberated by
management with the support of the risk
management function, and reported regularly to
the RC. Supporting the ERM framework is a system
of internal controls, comprising a code of business
conduct, group-wide governance and internal
control policies, procedures and guidelines dictating
the segregation of duties, approval authorities and
limits, and checks and balances embedded in
business processes. The Group has also considered
the various financial risks, details of which are found
here. For more
information on the company’s ERM framework,
please refer to the
Risk Management and Internal Controls chapter.
Our ERM framework is complemented by a
governance assurance framework and a risk-based
control self-assessment programme. During the year,
the Group’s risk profile was reviewed and updated.
The effectiveness of our internal controls was also
assessed and enhanced through a combination of
management control self-assessments, certifications
and internal audits, as well as actions taken in
follow up to these exercises.
For the financial year under review, the board
has been assured by the Group President & CEO
and Group Chief Financial Officer that financial
records have been properly maintained, that the
financial statements give a true and fair view of
the company’s operations and finances and that
the risk management and internal control systems
of the Group are adequate and effective.
Based on the internal controls established and
maintained by the Group, work performed by
external and internal auditors and reviews
performed by senior management, the board, with
the concurrence of the Audit Committee, is of the
opinion that the company’s internal controls were
adequate and effective as at December 31, 2014 to
address the financial, operational, compliance and
information technology risks of the Group. Internal
controls, because of their inherent limitations, can
provide reasonable but not absolute assurance
regarding the achievement of their intended control
objectives. In this regard, the board will ensure that
should any significant internal control failings or
weaknesses arise, necessary remedial actions will
be swiftly taken.
Audit Committee (Principle 12)
The Audit Committee (AC) comprises directors who
are both independent and non-executive. The AC is
chaired by Mr Chin and its members are Mr Henkes,
Mr Tham and Dr Teh, who joined the AC on May 1,
2014. Tan Sri Mohd Hassan Marican served as a
member of the AC for the first four months of the
year, before relinquishing his seat on the committee
on May 1, 2014.
Authority and duties of the AC
The AC assists the board in fulfilling its fiduciary
responsibilities relating to the internal controls,
financial accounting and reporting practices of
the Group. Its main responsibilities are to:
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Review the company’s policies and control
procedures and accounting practices with external
auditors, internal auditors and management
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Review 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
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Review the quarterly, half-year and full-year
results announcements, accompanying press
releases and presentation slides, as well as
the financial statements of the Group and the
adequacy and accuracy of information disclosed
prior to submission to the board for approval
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The AC has explicit authority to investigate any
matter within its terms of reference. It has full access
to and co-operation from management and full
discretion to invite any director or executive officer to
attend its meetings, as well as reasonable resources
to enable it to discharge its function properly.
Where relevant, the AC is guided by the
recommended best practice for audit committees
as set out in the revised Guidebook for Audit
Committees issued by Singapore’s Audit Committee
Guidance Committee in August 2014.
External auditors
Each year, the AC reviews the independence of
the company’s external auditors and makes
recommendations to the board on the
re-appointment of the company’s external auditors.
The AC reviews and approves the external audit
plan to ensure the adequacy of the audit scope. It
also reviews the external auditors’ management letter
and monitors the timely implementation of required
corrective or improvement measures. The AC meets
external and internal auditors at least once a year
without the presence of management. It has 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. Accordingly, the AC
has recommended the re-appointment of the external
auditors at the forthcoming AGM. Details of non-audit
fees payable to the external auditors are found
in
Note 33(a) in the Notes to the
Financial Statements.
Whistle-blowing policy
The AC oversees the whistle-blowing policy
implemented by the Group to strengthen corporate
governance and ethical business practices across all
business units. Employees are provided with
accessible channels to report suspected fraud,
corruption, dishonest practices or other
misdemeanours to the Group’s internal auditors and
are protected from reprisal to the extent possible.
This aims to encourage the reporting of such
matters in good faith. For more information on our
whistle-blowing policy, please refer to the
Risk
Management and Internal Controls chapter.
Internal Audit (Principle 13)
Independent internal audit function
The Group Internal Audit department (GIA) is an
independent function of the Group. The AC
approves the hiring, termination, evaluation and
compensation of the Head of GIA, who reports
directly to the AC on audit matters and to the
Group President & CEO on administrative matters.
Adequacy of the internal audit function
The AC reviews the effectiveness of the internal
audit function on an annual basis, including the
adequacy of audit resources. GIA adopts a risk-based
methodology in drawing up its annual
internal audit plan, which is reviewed and
approved by the AC.
GIA also 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. Internal audits aim to ensure that
the Group maintains a sound system of internal
controls and that our operations comply with the
internal control framework. Internal audit reports
issued are reviewed by the AC.
Professional standards and competency
GIA employs qualified staff and provides training
and development opportunities for them so that
their technical knowledge remains current and
relevant. GIA is guided by and has met standards
for the professional practice of internal audit
promulgated by the Institute of Internal Auditors
(IIA). An external assessment of GIA affirmed that
its internal audit activity conforms on the whole
to the standards set by IIA.
SHAREHOLDER RIGHTS AND RESPONSIBILITIES
Shareholder Rights (Principle 14)
Sembcorp treats all shareholders fairly and equitably.
The company recognises, protects and facilitates the
exercise of shareholders’ rights and continually
reviews and updates such governance arrangements.
The company is committed to ensuring that all
shareholders have easy access to clear, reliable and
meaningful information in order to make informed
investment decisions. The company regularly
communicates major developments in its business
operations via SGXNET, press releases, circulars to
shareholders and other appropriate channels. The
company also encourages shareholder participation
and voting at general meetings of shareholders.
Communication with Shareholders (Principle 15)
Regular, effective and fair communication with shareholders
Sembcorp advocates high standards of corporate
transparency and disclosure. This commitment is
embodied in the company’s investor relations policy
which adheres to fair disclosure principles and
emphasises active dialogue and engagement with
shareholders, investors and analysts.
Disclosure of information on timely basis
Sembcorp makes every effort to ensure that
shareholders and capital market players have easy
access to clear, meaningful and timely information
on the company in order to make informed
investment decisions. To do this, various channels
including announcements, press releases,
shareholder circulars and annual reports are utilised.
All price-sensitive and material information is
disseminated via SGXNET on a non-selective basis
and in a timely and consistent manner. The
company’s announcements are also uploaded
on the corporate website,
www.sembcorp.com,
after dissemination on SGXNET.
The date of the release of quarterly results
is disclosed at least two weeks prior to the date
of announcement via SGXNET. On the day of
announcement, the financial statements as well as
the accompanying press release and presentation
slides are released via SGXNET and on the company
website. 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. Investor relations officers
are available by email or telephone to answer
questions from shareholders, analysts and the media
as long as the information requested does not
conflict with the SGX-ST’s rules of fair disclosure.
The company also maintains a dedicated
investor relations section on its corporate website
to cater to the specific information needs of
shareholders, investors, analysts and the financial
community. Designed to provide a convenient
repository for investors’ information needs, the site
includes filings on the company’s results
announcements since the company’s listing in
1998, an archive of the company’s results briefing
webcasts, downloadable five-year financial data,
a calendar of upcoming events, as well as pertinent
stock information such as dividend history, share
price charts and analyst coverage. Investor relations
contact information is also displayed on the website
for direct
shareholder enquiries.
Establishing and maintaining regular
dialogue with shareholders
Sembcorp employs multiple communication
platforms to engage with its shareholders. In
addition to its results briefings, the company also
maintains regular dialogue with its shareholders
through investor-targeted events such as AGMs,
roadshows, conferences, site visits, group briefings
as well as one-to-one meetings. These platforms
offer opportunities for senior management and
directors to interact first-hand with shareholders,
understand their views, gather feedback as well
as
address concerns.
To keep senior management and the board
abreast of market perception and concerns, the
investor relations team provides regular updates
on analyst consensus estimates and views. On an
annual basis, a more comprehensive update is
presented, which includes updates and analysis
of the shareholder register, highlights of key
shareholder engagements for the year as well
as
market feedback.
For further details on Sembcorp’s communications
with its shareholders, please refer to the
Investor Relations chapter.
Dividend policy
Sembcorp is committed to achieving sustainable
income and growth to enhance total shareholder
return. The Group’s policy aims to balance cash
return to shareholders and investment for
sustaining growth, while aiming for an efficient
capital structure. The company strives to provide
consistent and sustainable ordinary dividend
payments to its shareholders on an annual basis.
Conduct of Shareholder Meetings (Principle 16)
Greater shareholder participation at general meetings
All shareholders are invited to participate in the
company’s general meetings.
The company disseminates information on
general meetings through notices in its annual
reports or circulars. These notices are also released
via SGXNET, published in local newspapers as well
as posted on the company website ahead of the
meetings to give ample time for shareholders to
review the documents. In line with the company’s
commitment towards environmental responsibility,
the company’s annual reports and circulars are sent
to shareholders in the form of a CD-ROM. The
annual reports and circulars may also be viewed on
the company website. However, we are mindful that
some shareholders may prefer to receive a printed
copy and this will be provided upon request.
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 Central Provident Fund
investors to attend general meetings as observers.
Voting in absentia by mail, facsimile or email 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 authenticity
of the shareholders’ identity.
The Group President & CEO delivers a short
presentation at each AGM to shareholders to
update them on the performance of Sembcorp’s
businesses. Every matter requiring approval at
a general meeting is proposed as a separate
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 in attendance to address these queries or
concerns and obtain feedback from shareholders.
External auditors and legal advisors are also present
to assist the board
as necessary.
The company conducts electronic poll voting
at shareholder meetings for greater transparency
in the voting process. The total number of votes cast
for or against each resolution is tallied and displayed
live on-screen to shareholders immediately after the
vote has been cast and is also announced after the
meetings via SGXNET.
Minutes of shareholder meetings are available
upon request by shareholders.
Dealings in securities
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 outside the prohibited trading period,
and are reminded not to deal in the company’s
securities on short-term considerations.
Interested person transactions
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 staff intranet. All business
units are required to be familiar with the IPT mandate
and report any interested person transactions to the
company, to be reviewed by the AC. The Group
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 2014 may be found in the related
item under the
Supplementary Information section
of the Financial Statements.
Governance Disclosure Guide
In line with Sembcorp’s commitment towards high standards of corporate governance and disclosure,
the company has completed the Disclosure Guide developed by the Singapore Exchange in 2015. The
company’s responses to the Disclosure Guide can be found
here.
