Company Law

1. INTRODUCTION

A study (Dieleman, Wiwattanakantang, & Jungwook, 2011)on SGX-listed companies in 2010 states that family-owned company constituted 52 percent of the 743 SGX-listed companies. Another study conducted by Credit Suisse shows an even larger majority that 63% of SGX-listed companies are family-owned. (Credit Suisse, 2011) These studies further reinstated the importance of family-owned companies to Singapore economy. Ironically, it was to be note that despite their importance, good governance practice was not complied with as family-owned companies scored poorly on GTI index with only 3 companies in Top 20. (Tan J. , 2012) Furthermore, key positions in the companies are mostly held by own family members. This resulted in them holding the centralised power which raised issue on abuse of power at the expense of the minority shareholder.

The recent revisions to Code of Corporate Governance (the “Code”) made key changes to areas of director independence, board composition, alternate directors and roles of nominating committee seeks to address this issue.

2. DIRECTOR INDEPENDENCE

Role of Independent Director- It was to be note that independent director was a widely accepted mechanism used to strengthen corporate governance by the companies. Independent directors could play a monitoring role in the company operation, management and also provide advice or recommendation to the management when necessary. (Tan C. H., 2004) They are to be able to act independently in the best interest of the company and all shareholders. Thus, independent director could be seemed as a “representative” of minority shareholder in the context of a family-owned business.

Revised code- The revised the Code stated in guideline 2.3 adopted the widely accepted concept of independence from substantial shareholders which was previously rejected in the last revision of the Code. Non-independent director will covered a border area including substantial shareholder and its immediate family. In addition, threshold of a non-independent director will be raised from 5% to 10% and period of transaction will be tightened to current or immediate past financial year.

Implications- It has significant impact to those family-owned businesses where shareholding are concentrated on the hands its family members (i.e. they are the dominating shareholders). The revision seeks to address situation where the family member of a director is appointed as independent director and further strengthen their controlling power of the company at the expense of the minority. It act as safeguard against dominating shareholders and allow minority shareholder interest to be better represented by an independent director. A percentage of 10% is of a more meaningful percentage as it is the threshold for shareholder to convene general meetings. In addition, by disassociate independence from substantial