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Good afternoon.
1. Before I plunge into my remarks today, I thought I should mention that I made similar comments at a closed-door event about two weeks ago. And during that meeting, the very first question posed to me in relation to my comments came from a Company Secretary. And she was very quick on the draw, posing her question literally seconds after I spoke.
2. That was when it dawned on me that those matters would actually be of the greatest interest to this audience. So, I look forward to even more lightning fast reactions from you to my comments today.
Virtual reality and Q&As
3. The year has passed quickly and as we approach the last month of the calendar year, I am sure many here already have your focus squarely on the next Annual General Meeting (AGM) season. And it looks like the next round of AGMs is either going to be virtual or is going to have a virtual element.
4. With another round of virtual general meetings looking likely, we are going to have to tackle one of the feedback we have been receiving, which is that shareholders are not getting the chance to ask questions before they vote. Or that they are having their questions answered only AFTER they have submitted their proxy forms.
5. Much digital ink has been spilt about how shareholder questions can be better dealt with under current circumstances. So before the next round of general meetings starts, I thought it important for me to provide a preview, if you like, of some of the changes we are looking to introduce to improve how useful Q&As are to shareholders.
6. As you may recall, the spread of COVID-19 in early 2020 even as the AGM season kicked in meant a certain amount of urgency to introduce measures to ensure the safety of the public. However, many companies were unable to hold virtual AGMs or EGMs because their company documents contained language that clearly envisages physical meetings.
7. To overcome this, emergency legislation was passed to enable companies to hold virtual meetings, regardless of what a company’s articles or bylaws say.
8. This legislation is the COVID-19 (Temporary Measures) Act, which enables three things:
i. It enables companies to hold virtual AGMs and EGMs.
ii. It enables live question and answer.
iii. It enables live voting.
9. Now is important to note one thing here. The Act does not require live Q&A, it does not require live voting, it enables companies to do it.
10. SGX and MAS subsequently published a joint statement on the conduct of general meetings, and again while we encourage companies to allow live Q&A and live voting at the general meeting, we do not require this.
11. What we do require is for companies to give shareholders an opportunity to ask questions and for the company to answer all substantial and relevant questions.
12. Now almost all the GMs this year did not use live voting; only 1 or 2 companies had live voting. This means that almost all the voting was done by way of submitting proxy forms in advance of the meeting.
13. Companies did try to answer the questions from shareholders, by posting the answers on SGXNet, or by answering them at the GM itself, and we notice an increasing number of companies that allow live Q&A, which is great.
14. However, the feedback we are getting from shareholders is that sometimes the answers to the questions submitted in advance, are posted too late on SGXNet, only after the shareholders have already sent in their proxy form to vote.
15. And for companies that answer the questions at the GM itself, or even for those that allow live Q&A, all this takes place only AFTER the shareholders have voted so the shareholders do not have the benefit of getting the answers before they vote.
16. It is therefore not surprising that we have received feedback that, the whole point of the question and answer, is to help shareholders decide how to vote. That is why, as all of us know, at a physical general meeting, the Q&A happens first BEFORE you vote.
17. Here, we need to address 2 issues.
i. The issue of some companies posting their answers on SGXNet too late, and therefore investors not having answers to their questions before sending in their proxy votes.
Currently the only prescribed timeline relating to voting is that the proxy forms need to be submitted by shareholders 72 hours before the GM (General Meeting). This is in the Companies Act; no other timeline has been prescribed.
Going forward, we are going to prescribe additional timelines for the Q&A. The new timeline is that companies must post the answers to the questions they receive 72 hours before the deadline for shareholders to submit their proxy votes, if the notice period is 21 days. If the notice period is only 14 days, the timeline is 48 hours.
For example, if the notice period is 21 days and the meeting is on 23 January, the deadline to submit proxy forms is 20 January, and the answers to questions must be posted on SGXNet 72 hours before that, by 17 January. If the notice period is 14 days, and the meeting is on 16 January, then the deadline to submit proxy forms is on 13 January and the answers must be posted on SGXNet 48 hours before that, on 11 January. This is to ensure that the shareholders have sufficient time to review the answers to questions posed, and digest them before voting.
We recognise that shareholders must also play their part and send in the questions on time. So, companies can set a deadline for questions to come in. However, this deadline should be reasonable and in any event no earlier than 7 calendar days after the notice of general meeting. Using the earlier example of the meeting on 23 January and notice period being 21 days, the deadline for questions to come in should be 14 January, which is 72 hours before the deadline for the company to answer questions on 17 January, to give the company sufficient time to consolidate the questions and give proper answers. If the notice period is 14 days, then the deadline for questions can be no earlier than 8 January, which is 7 calendar days after the notice of meeting on 1 January.
ii. Turning now to the second issue: shareholders are unable to interact with the management or board before voting.
We have noticed a very good trend of companies holding a virtual information session, or VIS, for their EGMs. In these VIS sessions, management or the board can take questions live on the very important issue or issues to be voted on at the EGM at some later date.
So, for example, CapitaLand held a VIS before shareholders voted on their restructuring, SembCorp Marine held a VIS before shareholders voted on their rights issue and SPH held a VIS before shareholders voted on spinning off their media business.
This VIS is held before the EGM and before the deadline for shareholders to send in their votes so that the questions and answers can inform the voting.
We think this is an excellent practice and a very practical way of solving the problem, especially where shareholders are voting on a very difficult or potentially contentious issue and they should have the chance to ask questions before they vote.
So, going forward, for certain corporate actions, we are going to require companies to hold a VIS before the deadline for shareholders to vote and therefore, before the EGMs themselves.
The list of corporate actions which require a virtual info session includes rights issues, privatizations, schemes of arrangement, IPTs, major transactions and RTOs, which we think are the sort of corporate actions where shareholders will really benefit from having an opportunity to ask questions before they vote.
When companies start applying these improvements, we believe the next round of AGMs will be significant.
Why using the two-tier rule should be exceptional
18. Another reason why AGMs in 2022 will be important is because next year is when the so-called 9-year rule for independent directors, or IDs, comes into effect. To recap, this refers to the rule that IDs who have served 9 years or more are no longer considered independent.
19. There is an option open to the company to retain the ID beyond the 9 years, though here I advise caution, in anticipation of some of my subsequent remarks. I am referring to the so-called two-tier vote at the AGM in support of retaining the relevant ID.
20. A few companies have already been eagerly passing 2-tier votes in advance, this year, even though the 9- year rule only kicks in next year. This means their directors can continue to be independent even though they would have served more than 9 years by the time the rule comes into effect next year. This is of concern to SGX RegCo. I realise it is early days yet but already we have seen in one study that at least 300 IDs might have had their terms extended using the 2-tier vote.
21. Companies are expected to use the 2-tier rule sparingly. In other words, only in exceptional cases should companies call for a 2-tier vote. Yet, we saw companies that simply extended their 9-year directors without bringing in anyone new.
22. One of the reasons for the 9-year rule is to promote renewal and succession planning. That is why alongside the 9-year rule we also have hardcoded in the listing rules the requirement that 1/3 of the board must be independent. And in the CG Code, if the chairman is not independent, majority of the board must be IDs.
23. In turn, one of the outcomes of the renewal and succession planning, we hope, is better board diversity, which we think is very important, which is why earlier this year, we issued a public consultation on requiring the disclosure of diversity targets and a roadmap to achieve these diversity targets.
24. If a company brings in new IDs and extends the existing 9-year directors, because these IDs are also the Audit Committee chair, or Risk Committee chair, and the company wants a good transition, this would be understandable.
25. But retaining an entire slate of IDs using the 2-tier vote without any renewal in sight is another thing altogether, and something that we will be watching very closely.
26. In the meantime, I urge all Nominating Committees to use the 2-tier vote very judiciously and consider how they are going to set and achieve diversity targets if there is no renewal of directors. I think today’s conference is an important forum for me to say this because Company Secretaries help set the agenda for board meetings. And the matters I have broached today are issues that members of the CSIS are ideally placed to surface, even emphasise, andstructure into board discussions.
Expect climate reporting and diversity disclosures
27. As all of you are probably aware, we issued a public consultation on requiring companies to disclose data in relation to climate impact and diversity targets and a roadmap to achieve all of these. We are keen to see these implemented as soon as possible.
28. Now there have been no shortage of skeptics asking me how climate disclosures by themselves will solve the problem of global warming and climate change. The key is not to look at climate disclosures in isolation, but as an essential piece to a much bigger puzzle. Let me illustrate this with three developments from the most recent COP26:
i. The International Financial Reporting Standards Foundation (IFRS Foundation) announced the creation of the International Sustainability Standards Board (ISSB), to standardize how climate measures are disclosed. This marks more progress towards global ESG reporting standards.
ii. There was also progress towards a global price for carbon.
iii. And finally, by 2030, we will require US$4 trillion of investment in clean energy to meet our climate objectives.
29. What all these mean for companies is
i. Investors will be able to compare carbon accounts and other climate data across companies and industries.
ii. Investors can price in how companies are cutting emissions to avoid the looming carbon tax.
iii. And investors will also want to know how companies are taking advantage of the massive opportunities that clean energy offers.
30. In the grand scheme of things, all of these and more will work together to make things change.
Conclusion
31. In closing, let me summarise the three key areas I think CSIS members such as yourselves will have a key role to play.
i. Please convey to your boards and management that scrutiny is to be expected if they use the 2-tier rule.
ii. Responses to shareholder questions must be made available at least 72 hours before the deadline for proxy votes. For certain corporate actions, virtual information sessions should be conducted, well in advance of any deadline for proxy votes and the EGM.
iii. Finally, let me make clear, we feel strongly that better board diversity and the start of climate reporting are very important.
32. So, I hope that you and your fellow members feel well-placed now to understand the expectations we have. And that you are all ready to work with us to keep standards high in 2022. On this note, thank you for your attention and time.
