Corporate Governance Code 2018: Independent Directors & Charters

Legal Framework: Corporate Governance Code 2018

Independent Directors

The Code mandates specific requirements for the appointment, qualifications, and roles of independent directors. According to Condition 1.2 of the Corporate Governance Code 2018, the number of independent directors shall be at least one-fifth (1/5) of the total number of directors. An independent director must meet stringent criteria to ensure their independence from management and significant shareholders, as detailed in Condition 1.2(a). Their role is crucial in providing objective judgment and oversight.

Audit Committee

Condition 6 of the Corporate Governance Code 2018 mandates the establishment of an Audit Committee. This committee must consist of at least three members, all of whom shall be non-executive directors, and at least one of whom must be an independent director. The chairman of the Audit Committee shall be an independent director. The Code specifies the responsibilities of the Audit Committee, including overseeing the financial reporting process, reviewing internal controls, and monitoring the audit process. The Audit Committee must have a written charter outlining its scope, responsibilities, and reporting structure, as per Condition 6(6).

Nomination and Remuneration Committee (NRC)

the applicable NRC provisions of the Corporate Governance Code 2018 requires the formation of a Nomination and Remuneration Committee (NRC). This committee shall consist of at least three members, all of whom shall be non-executive directors, and at least one of whom must be an independent director. The chairman of the NRC shall be an independent director. The NRC is responsible for formulating the criteria for determining qualifications, positive attributes, and independence of a director, and recommending to the Board a policy relating to the remuneration of the directors, key management personnel, and other employees. Similar to the Audit Committee, the NRC must also have a written charter, as per the applicable NRC charter condition.

Compliance Procedures

1. Board Composition Review: Ensure the Board of Directors meets the independent director ratio as per Condition 1.2 of the Corporate Governance Code 2018.
2. Independent Director Appointment: Identify and appoint qualified independent directors who meet the criteria specified in Condition 1.2(a) of the Corporate Governance Code 2018.
3. Audit Committee Formation: Constitute an Audit Committee with at least three non-executive directors, including at least one independent director, and an independent director as chairman, as per Condition 6(1) of the Corporate Governance Code 2018.
4. NRC Formation: Constitute a Nomination and Remuneration Committee (NRC) with at least three non-executive directors, including at least one independent director, and an independent director as chairman, as per the applicable NRC condition of the Corporate Governance Code 2018.
5. Charter Drafting & Approval: Develop comprehensive written charters for both the Audit Committee and the NRC, clearly defining their scope, responsibilities, and reporting mechanisms, as required by Condition 6(6) and the applicable NRC charter condition of the Corporate Governance Code 2018, respectively. These charters must be approved by the Board.
6. Regular Meetings: Ensure both committees hold regular meetings as stipulated in their respective charters and the Code (e.g., Audit Committee to meet at least quarterly, as per Condition 6(4)).
7. Reporting: The Audit Committee and NRC must report their findings and recommendations to the Board of Directors.
8. Annual Compliance Report: The company must prepare and submit an annual compliance report on corporate governance to the BSEC and shareholders, as per Condition 9 of the Corporate Governance Code 2018.