| |
"It seems obvious enough but bears repeating that corporate governance
is not an end in itself. What companies have to avoid is a wooden
approach to corporate governance, ticking boxes in terms of attendance,
composition of committees, and so on, and focusing on processes
that are easily observed from outside rather than on the quality
of governance, which is less easily measured. Whether boards are
effective will ultimately depend on their substance – whether
directors have the skills, knowledge and good judgment, individually
and collectively, and whether they retain the spirit of entrepreneurship
that distinguishes the successful companies from the rest... The
issue is therefore not about the existence of conflicts of interests,
but how they can be best managed in the interests of all shareholders."
Tharman Shanmugaratnam,
Senior Minister of State for Trade and Industry & Education,
at the 28th Annual Report Award Dinner on 9 January 2002.
OUR
CORPORATE GOVERNANCE STATEMENT
Our principles of corporate governance reflect our heritage and belief
in delivering results while building for the future. We believe firmly
that integrity, excellence and commitment in our people supported
by a sound system of policies, practices and internal controls are
the success elements that will help us create long-term value and
returns for shareholders.
We believe that integrity and professionalism are the cornerstone
of our commitment to build a great company of which shareholders,
staff, customers, suppliers and other stakeholders can be justifiably
proud. Sound corporate governance is one element of a sound corporation.
This is an important requisite for our businesses for their steady
growth as a trusted and respected business enterprise.
Corporate governance principles and practices must remain relevant
in a changing world. Just as we will be open to new ideas and practices,
we will also be disciplined in discarding obsolete or ineffective
practices and impractical ideas. This will be an ongoing effort to
remain lean, relevant and supple, as we evolve with the needs of our
business and our people to build a great enterprise and deliver on
our promises.
The Report of the Corporate Governance Committee on the Code of Corporate
Governance ("Code") dated 21 March 2001 was accepted by
the Singapore Government on 4 April 2001. It is now part of the Continuing
Obligations of the SGX Listing Manual.
Introduced with effect from 1 July 2002, Clause 710(2) of the new
SGX Listing Manual requires that on or after 1 January 2003, an issuer
must "describe its corporate governance practices with specific
reference to the Code in its annual report. It must disclose any deviation
from any aspect of the Code together with an appropriate explanation
for such deviation in the annual report".
At the same time, the Code has urged us to adopt a balanced approach
by observing "the spirit and not just blindly follow the letter of
the Code...".
THE CODE
The Code is divided into four main sections:
(a) Board Matters
(b) Remuneration Matters
(c) Accountability and Audit
(d) Communication with Shareholders
Each section is classified into Principles and Guidance Notes. We
recognise and support the Principles and spirit of the Code. We note
that each company needs to develop and maintain its corporate governance
processes to meet the specific needs of its business demands.
We note also that the Guidance Notes may serve to flesh out the underlying
issues underpinning each of the principles. We intend to manage our
company, keeping in focus the substance and spirit of the Principles
of the Code.
This Report sets out how ST Engg has effectively applied the principles
of good corporate governance in a disclosure-based regime, where the
accountability of the Board to its shareholders and the management
to the Board, provides the framework for achieving a mutually beneficial
tripartite relationship aimed at creating and growing sustainable
shareholder value.
ST Engg is committed to achieving high standards of corporate conduct
and has generally complied with the Principles of the Code. In the
following sections, we have reproduced each of the Code's Principles,
against which we have outlined our policies and practices:
(A) BOARD MATTERS
Board's Conduct of its Affairs
Principle 1: Every company should be headed by an effective Board
to lead and control the company.
Our Policy and Practices
An effective board for our listed companies and groups must be constituted
with a majority of non-executive directors independent of management,
with the right core competencies and diversity of experience to enable
them in their collective wisdom to contribute effectively.
Every director is expected to act in good faith and always in the
interest of the Company.
The key roles of our Board are to :
- guide the corporate strategy and directions of the Group;
- ensure effective management leadership of the highest quality and
integrity;
- provide oversight in the proper conduct of the Group's business.
The Chairman and Chief Executive Officer ("CEO") are separate persons
in order to maintain an effective oversight.
The Board comprises 11 directors of whom 10 are non-executive Directors.
The Chairman is Mr Peter Seah. The executive Director is Mr Tan Pheng
Hock who is President & CEO.
The Board comprises business leaders, professionals with financial
background, practising lawyers and members of the public sector. Profiles
of the Directors are found on page 86 of this Report.
The Board meets to review the key activities and business strategies
of the Group. The Board delegates specific responsibilities to board
committees described in our Corporate Governance Report for 2002 found
on page 85 of the Annual Report. Regular Board Meetings are held quarterly
to deliberate strategic policies of the group including significant
acquisitions and disposals, the annual budget, review the performance
of the business and approve the release of the half-yearly and year-end
reports. In addition, the Audit Committee has been delegated the authority
by the Board to review and approve the release of quarterly results.
Where necessary, additional board meetings are also held to address
significant transactions or issues. We believe that contributions
from each director can be reflected in ways other than the reporting
of attendances of each director at board and committee meetings. A
director would have been appointed on the strength of his calibre,
experience, and stature, and his potential to contribute to the proper
guidance of the company and its businesses.
To focus on a director's attendances at formal meetings alone may
lead to a narrow view of a director's contribution. It may also not
do justice to his contribution which can be in many forms including
management's access to him for guidance or exchange of views outside
the formal environment of board meetings. In addition, he may bring
relationships strategic to the interests of the Group.
The matrix of Board members' participation in various Board committees
is provided on page 89 of the Annual Report. This reflects each Board
member's additional responsibilities and special focus on the respective
board committees of the Company. The Board has adopted a set of internal
controls which sets out approval limits for capital expenditure, investments
and divestments, bank borrowings and cheque signatory arrangements
at Board level. Approval sublimits are also provided at management
levels to facilitate operational efficiency.
Changes to regulations and accounting standards are monitored closely
by Management. To keep pace with regulatory changes, where these changes
have an important bearing on the company's or directors' disclosure
obligations, directors are briefed either during Board meetings or
at specially-convened sessions conducted by professionals.
Newly-appointed directors are given briefings by the Management on
the business activities of the Group and its strategic directions.
BOARD COMPOSITION AND BALANCE
Principle 2: There should be a strong and independent element on the
Board, which is able to exercise objective judgment on corporate affairs
independently, in particular, from Management.
No individual or small group of individuals should be allowed to dominate
the Board's decision making.
Our Policy and Practices
The majority of our directors are non-executive and independent of
management. This enables the Management to benefit from an outside
diverse and objective perspective of issues that are brought before
the Board. It would also enable the Board to interact and work with
management through a robust exchange of ideas and views to help shape
the strategic process. This together with a clear separation of the
role of the Chairman and the CEO provides a healthy professional relationship
between the Board and Management with clarity of roles and robust
oversight.
The Board comprises 11 directors, 10 of whom are non-executive directors,
independent of management. Of the 10 non-executive directors, 6 are
independent of the management and the principal shareholder. They
are Dr Philip Pillai, Mr Tan Guong Ching, Mr Philip Tan Yuen Fah,
Mr Winston Tan Tien Hin, Mr Venkatachalam Krishnakumar and Mr Lucien
Wong Yuen Kuai.
The Board is supported by key board committees to provide independent
oversight of Management. These key committees are the Audit Committee,
Executive Resource and Compensation Committee ("ERCC") and Budget
Committee made up of independent or non-executive directors including,
where appropriate, external co-opted members. Other committees can
be formed from time to time to look into specific areas as and when
the need arises.
Membership in the different committees are carefully managed to ensure
that there is equitable distribution of responsibilities among Board
members, to maximise the effectiveness of the Board and foster active
participation and contribution from Board members. Diversity of experience
and appropriate skills are also considered. There is need to also
ensure that there are appropriate checks and balances between the
different committees.
Hence, membership of the Budget Committee and the Business Investment/Divestment
Committee with involvement in key business or executive decisions,
and the membership of the Audit Committee with its oversight role
must, as far as possible, be mutually exclusive.
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
Principle 3: There should be a clear division of responsibilities
at the top of the company – the working of the Board and the
executive responsibility of the company's business – which will
ensure a balance of power and authority, such that no one individual
represents a considerable concentration of power.
Our Policy and Practices
We believe there must be a clear separation of the roles and responsibilities
between the Chairman and the President & CEO of the Company. The
Chairman who is non-executive is responsible for the Board and is
free to act independently in the best interests of ST Engg and its
subsidiaries ("the Group") and shareholders while the President
& CEO is responsible for the Group's businesses. The Chairman
ensures that the members of the Board work together with the Management
with the capability and moral authority to engage Management in constructive
debate on various matters, including strategic issues and business
planning processes.
The President & CEO is a Board member and has full executive responsibilities
over the business directions and operational decisions of the Group.
BOARD MEMBERSHIP
Principle 4: There should be a formal and transparent process for
the appointment of new directors to the Board. As a principle of good
corporate governance, all directors should be required to submit themselves
for re-nomination and re-election at regular intervals.
Our Policy and Practices
We believe that Board renewal must be an ongoing process, to both
ensure good governance, and maintain relevance to the changing needs
of the company and business. The President & CEO, where he is
also a Board member, must also subject himself to retirement and re-election
by shareholders as part of Board renewal. Nominations and election
of board members are the prerogative and proper rights of all shareholders.
The Nominating Committee is responsible for identifying and selecting
new directors. The Nominating Committee comprises Mr Peter Seah as
Chairman, Mr Tan Guong Ching, Dr Philip Pillai with Mr Ng Kee Choe
as co-opted Member. They are also members of the ERCC.
It is appropriate that the members of the Nominating Committee are
the same as the ERCC, who, in the course of its search for talent,
is in touch with individuals who can be potential director candidates.
The Special Member, the Minister for Finance (Incorporated) has veto
power over Board appointments.
Our Articles of Association require one-third of our directors to
retire and subject themselves to re-election by shareholders at every
AGM ("one-third rotation rule"). In other words, no director
stays in office for more than three years without being re-elected
by shareholders.
We had, at our last Annual General Meeting, altered our Articles of
Association to provide for the CEO Board member to be subject to the
one-third rotation rule. This is to separate the CEO from his position
as a Board member, and to enable shareholders to exercise their full
right to select all Board members.
In addition, a newly-appointed director will submit himself for retirement
and re-election at the Annual General Meeting immediately following
his appointment. Thereafter, he is subject to the one-third rotation
rule.
BOARD PERFORMANCE
Principle 5: There should be a formal assessment of the effectiveness
of the Board as a whole and the contribution by each director to the
effectiveness of the Board.
Our Policy and Practices
We believe that Board performance is ultimately reflected in the performance
of the Group. The Board should ensure compliance with applicable laws
and Board members should act in good faith, with due diligence and
care in the best interests of the Company and its shareholders. In
addition to these fiduciary duties, the Board is charged with two
key responsibilities: setting strategic directions and ensuring that
the Company is ably led. The measure of our Board's performance is
also tested through its ability to lend support to management especially
in times of crisis and to steer the Group in the right direction with
the support of its subsidiaries' boards, including the sensitive but
most important issue of CEO succession.
The financial indicators set out in the Code as guides for the evaluation
of directors are, in our opinion, more of a measure of management's
performance and hence are less applicable to directors. In any case,
such financial indicators provide a snapshot of a company's performance,
and do not fully measure the sustainable long term wealth and value
creation of the Company.
The Board through the delegation of its authority to the Nominating
Committee, has used its best efforts to ensure that directors appointed
to our Board possess the background, experience and knowledge in technology,
business, finance and management skills critical to the Company's
business and that each director with his special contributions brings
to the Board an independent and objective perspective to enable balanced
and well-considered decisions to be made.
Informal reviews of the Board's performance are undertaken on a continual
basis by the Nominating Committee with inputs from the other Board
members and the President & CEO. Renewals or replacement of Board
members do not necessarily reflect their contributions to date, but
may be driven by the need to position and shape the Board in line
with the medium-term needs of the Group and its business.
ACCESS TO INFORMATION
Principle 6: In order to fulfil their responsibilities, Board members
should be provided with complete, adequate and timely information
prior to Board meetings and on an ongoing basis.
Our Policy and Practices
We believe that the Board should be provided with timely and complete
information prior to Board meetings and as and when the need arises.
New Board members are fully briefed on the business of the Group.
The Management is required to provide adequate and timely information
to the Board on Board affairs and issues that require the Board's
decision as well as ongoing reports relating to operational and financial
performance of the Group/Company. The Articles of Association of ST
Engg provide for directors to convene meetings by teleconferencing
or videoconferencing. Where a physical Board meeting is not possible,
timely communication with members of the Board is effected through
electronic means which include electronic mail, teleconferencing and
videoconferencing. Alternatively, Management will arrange to personally
meet and brief each director before seeking the Board's approval.
The Board has separate and independent access to the senior management
and the Company Secretary at all times. The Board also has access
to independent professional advice where appropriate.
Likewise, the Audit Committee must also meet the external and internal
auditors separately at least once a year, without the presence of
the President & CEO and other senior management members, in order
to have free and unfiltered access to information that it may require.
(B) REMUNERATION MATTERS
Procedures for Developing Remuneration Policies
Principle 7: There should be a formal and transparent procedure for
fixing the remuneration packages of individual directors. No director
should be involved in deciding his own remuneration.
Level and Mix of Remuneration
Principle 8: The level of remuneration should be appropriate to attract,
retain and motivate the directors needed to run the company successfully
but companies should avoid paying more for this purpose. A proportion
of the remuneration, especially that of executive directors, should
be linked to performance.
Our Policy and Practices
We believe that a framework of remuneration for the Board and key
executives should not be taken in isolation. It should be linked to
the development of management bench strength and key executives to
ensure that there is a continual development of talent and renewal
of strong and sound leadership for the continued success of the business
and the Group. For this reason, the members of the ERCC and the Nominating
Committee are the same as highlighted in our Policy and Practices
under Principle 4.
The ERCC performs the role of the Remuneration Committee. All the
members of the ERCC are independent of management. From time to time,
we may co-opt an outside member into the ERCC to provide a global
perspective of talent management and remuneration practices.
The ERCC conducts, on an annual basis, a succession planning review
of the CEO and selected key positions in the Group. Potential internal
and external candidates for succession are reviewed for different
time horizons of immediate, medium-term and longer-term needs.
The ERCC reviews the remuneration of its non-executive directors,
executive director and senior executives, as well as major human resource
management and compensation policies and practices for the rest of
the Group.
The ERCC is chaired by a non-executive director who is independent
of management, and comprises two independent non-executive directors
and a co-opted member who was a past Director. The co-opted member
is not on the management team of the Group. There are no management
members on the ERCC.
While the Chairman of the ERCC is not regarded as independent within
the context of the definition of "independence" in the Code,
he is a non-executive director independent of Management with a clear
separation of his role from Management in deliberations of the ERCC.
The ERCC has access to expert professional advice on human resource
matters whenever there is a need to consult externally. In its deliberations,
the ERCC takes into consideration industry practices and norms in
compensation. The CEO is not present during the discussions relating
to his own compensation, and terms and conditions of service, and
the review of his performance.
The President & CEO will be in attendance when the ERCC goes through
the discussions on policies and compensations of his senior team and
key staff, as well as major compensation and incentive policies such
as share options, share purchase schemes, framework for bonus, staff
salary and other incentive schemes.
The ERCC's scope of responsibilities include:
-
-
- |
Overseeing
the development of leadership and management talent in the Group.
Ensuring that companies in the Group have appropriate remuneration
policies.
Designing of compensation package with a view to providing competitive
packages but with focus on long-term sustainability of business
and long-term shareholders' return. |
The ERCC meets
among its members without the presence of Management, at least once
a year. The President & CEO as executive director does not receive
director's fees. He is a lead member of Management.
His compensation consists of his salary, allowances, bonuses, options
and performance share awards conditional upon his meeting certain
performance targets. The details of his compensation package are
found on pages 95, 96 and 179 of the Annual Report.
Non-executive Directors have remuneration packages which consist
of a directors' fee component pursuant to the Company's Directors'
Fee policy, an attendance fee component and a share options component
pursuant to the ST Engg Share Option Plan. The basis of allocation
of the number of share options takes into account a director's contributions
and additional responsibilities at Board committees and other Board
appointments at the subsidiary level.
The details of Directors' shareholdings and share options of the
Company and its related corporations are found on pages 95 to 102
of the Annual Report. The Directors' Fee policy is based on a scale
of fees divided into basic retainer fees as director and additional
fees for attendance. Details of the Directors' Remuneration are
found on page 179 of the Annual Report. Directors' fees for non-executive
directors are subject to the approval of shareholders at AGM.
DISCLOSURE ON REMUNERATION
Principle 9: Each company should provide clear disclosure of its
remuneration policy, level and mix of remuneration, and the procedure
for setting remuneration, in the company's annual report.
Our Policy and Practices
The Company adopts an incentive compensation plan based on Economic
Value Added ("EVA"), or EVA-based incentives. Under the
terms of the plan, incentive compensation for eligible employees
is tied to the creation of EVA.
The purpose of the incentive plan is to use incentive compensation
to motivate performance which is consistent with the creation of
shareholder value over the long term. An EVA bonus is only declared
if the Group earns more than its Cost of Capital in the year or
at the very least, the Group is moving in that direction. The plan
thus makes participants accountable not only for the earnings which
the Group generates, but also for the economic cost of capital the
Group employs to generate those earnings.
Individual incentive compensation is linked by way of a formula
to the EVA created by the Company. Depending on the individual's
role in the Company, this may be tied to EVA at the Group level,
or at a divisional/subsidiary level, or a combination of the two.
Certain other adjustments may also be made, to ensure that the individual's
incentive compensation properly reflects his contribution to EVA.
The ERCC will evaluate the extent to which the EVA bonus based on
the Group's performance has been achieved and approve the bonus
pool for distribution to staff. The actual allocation is based on
the performance of the individual using a relative ranking exercise
for each Management/Executive grade across the whole Group. A bonus
bank concept is used to defer incentive compensation over a sufficiently
long time horizon to ensure that the individual is motivated to
generate sustainable shareholder value over the long term. Monies
credited to the bonus bank are at risk, in that future EVA performance
may either reduce or increase the balance in the bonus bank. Typically,
one-third of the available balance is paid out in cash each year,
with the balance carried forward to the following year.
Rather than set out the names of the top five key executives who
are not also directors of the Company, we have shown a group-wide
cross-section of executives' remuneration by number of employees
from $100,000 upwards in bands of $50,000 up to $250,000 and subsequently,
in bands of $250,000 at page 42 of the Annual Report. This should
give a macro perspective of the remuneration pattern in the Group,
while maintaining confidentiality of staff remuneration matters.
(C) ACCOUNTABILITY AND
AUDIT ACCOUNTABILITY
Principle 10: The Board is accountable to the shareholders while
the Management is accountable to the Board.
Our Policy and Practices
We have always believed that we should conduct ourselves in ways
that deliver maximum sustainable value to our shareholders.
We promote best practices as a means to build an excellent business
for our shareholders. We are accountable to shareholders for the
Group's performance. Prompt fulfillment of statutory reporting requirements
is but one way to maintain our shareholders' confidence and trust
in our capability and integrity.
As we seek to grow our business globally, and seek to widen our
shareholder base internationally, we implemented voluntary quarterly
reporting before the Code made it a requirement. The Company was
the first listed company in Singapore to introduce quarterly reporting
in 2000.
This was the first of many steps to build scalable systems and improve
our capacity to grow in a sustainable and manageable manner, while
minimising execution and oversight risks. The Company discharges
its continuing obligations of prompt disclosures in a responsive
way.
AUDIT COMMITTEE
Principle 11: The Board should establish an Audit Committee ("AC")
with written terms of reference which clearly set out its authority
and duties.
Our Policy and Practices
Our internal policy requires the AC to have at least three members
(preferably four), all of whom shall be non-executive and independent
of both management and principal shareholder(s).
The AC consists of three directors all of whom are independent directors.
The members bring with them invaluable managerial and professional
expertise in the financial, legal and IT domain. The AC has a set
of Terms of Reference defining its scope of authority which includes
review of the annual audit plan, internal audit process, the adequacy
of internal controls, and Interested Person Transactions for which
there is a shareholders' mandate renewable annually.
The AC approves the quarterly financial statements and reviews the
half-yearly and annual financial statements and reviews the appointment
and re-appointment of auditors. The AC meets with the external and
internal auditors, without the presence of management, at least
once a year. The report of the AC for 2002 is found on page 85 of
the Annual Report.
INTERNAL CONTROLS
Principle 12: The Board should ensure that the Management maintains
a sound system of internal controls to safeguard the shareholders'
investments and the company's assets.
INTERNAL AUDIT
Principle 13: The company should establish an internal audit function
that is independent of the activities it audits.
Our Policy and Practices
We believe in the need to put in place a system of internal controls
of the Group's procedures and processes to safeguard shareholders'
interests and the Group's assets, and to manage risks. Apart from
the AC, other Board committees may be set up from time to time to
address specific issues or risks.
The AC's responsibilities in the Group's internal controls are complemented
by the work of the respective Audit Committees of the subsidiaries,
the Risk Review Committee and the Legal Committee to oversee various
aspects of controls and risk management of the Group.
The internal audit function of the Group is supported by the Group
Internal Audit ("GIA") Department of our parent company,
Singapore Technologies Pte Ltd.
The Internal Audit plans its internal audit schedules in consultation
with, but independent of Management and its plan is submitted to
the AC for approval at the beginning of each year. The AC must also
meet with the GIA team at least once a year without the presence
of management.
GIA is a corporate member of the Singapore branch of the Institute
of Internal Auditors Inc.("IIA"), which has its headquarters
in the US. GIA subscribes to, and is guided by the Standards for
the Professional Practice of Internal Auditing ("Standards")
developed by the IIA and has incorporated these standards into GIA's
operating manual.
The Standards set by the IIA cover requirements in respect of the
following:
- Independence
- Professional proficiency
- Scope of Work
- Performance of Audit Work
- Management of the Internal Auditing Department.
To ensure that the internal audits are performed by competent professionals,
GIA recruits and employs suitably qualified staff. In order that
their technical knowledge remains current and relevant, GIA identifies
and provides training and development opportunities to the staff.
In summary, the internal audit function provided by GIA meets with
the standards set by the IIA.
(D) COMMUNICATION WITH
SHAREHOLDERS
Principle 14: Companies should engage in regular, effective and
fair communication with shareholders.
GREATER SHAREHOLDER PARTICIPATION
Principle 15: Companies should encourage greater shareholder participation
at AGMs, and allow shareholders the opportunity to communicate their
views on various matters affecting the company.
Our Policy and Practices
We believe in regular and timely communication with shareholders
as part of our organisation development to build systems and procedures
that will enable us to operate globally.
ST Engg has, for the past three years, been among the first to disclose
its year-end results and has received several awards including Best
Corporate Governance Reporting award (Annual Report award) and Singapore's
Best Managed Company 2001 (Asiamoney).
Its Corporate Communications department manages investor relations
and has a series of events planned during the year to brief the
media and investment analysts on the Group's performance. The Company
also organises roadshows to keep international investors updated.
During the release of the respective quarterly, half-yearly and
year-end results, the announcement is first released by MASNET onto
the SGX website. Thereafter, the press and investment analysts meet
with the Management for a briefing while the whole proceeding is
concurrently webcast live to the public to ensure that there is
fair disclosure of information.
The online webcasting facilities also enable the public and the
international investors to access the proceedings and to email their
questions online for an immediate response by the Management.
We support the Code's principle to encourage shareholder participation.
Voting in absentia and by email may only be possible following careful
study to ensure that integrity of the information and authentication
of the identity of shareholders through the web are not compromised
and following legislative changes being put in place to recognise
electronic voting.
|
|
Our
Corporate Governance Statement
The
Code
(A) Board Matters
Board Composition And Balance
Chairman And Chief Executive Officer
Board Membership
Board Performance
Access To Information
(B) Remuneration Matters
Disclosure On Remuneration
(C) Accountability And Audit Accountability
Audit Committee
Internal Controls
Internal Audit
(D) Communication With Shareholders
Greater Shareholder Participation
|
|
