Corporate Governance
The Straits Trading Company Limited (the “Company”) is committed to high standards of corporate governance. This report describes the Company's corporate governance policies and practices during the financial year ended 31 December 2011 (“FY2011”) with specific reference to the Code of Corporate Governance 2005 (the “Code”).
Board's Conduct of Affairs (Principle 1)
The Board, comprising a majority of independent Directors, provides policy direction and entrepreneurial leadership, approves the development and implementation of corporate strategies, and ensures that the necessary financial and human resources are in place for the Company to meet its objectives.
The Board also sets the Company's values and standards, and ensures that its obligations to all stakeholders are met and understood. While the Board remains responsible for providing oversight in the preparation and presentation of the financial statements, it has delegated to the Management the task of ensuring that the financial statements are drawn up and presented in compliance with the relevant provisions of the Singapore Companies Act, Cap. 50 and the Singapore Financial Reporting Standards.
With the appointment of the CEOs for each of the business divisions, the Board has appointed the Chairman as Executive Chairman to oversee the Management, and the Lead Independent Director to ensure continued good governance. Supported by four Board Committees, namely the Audit Committee, Remuneration Committee, Nominating Committee and Finance Committee, the Board also approves the Group's appointment of Board members, key business initiatives, major investments and funding decisions, and interested person transactions.
The Board met nine times in FY2011. Meetings by means of a conference telephone or similar communication equipment are permitted in the Company's Articles of Association. The Directors' attendance at the Board and various committee meetings during FY2011 are as follows:
Legend:
A: Number of meetings attended in FY2011.
B: Number of meetings held in FY2011.
Board Composition and Guidance (Principle 2)
The Board comprises eight Directors, seven of whom are non-executive. The Nominating Committee considers Tan Sri Dato' Dr Lin See-Yan, Mr Razman Ariffin, Mrs Elizabeth Sam, Mr Yap Chee Keong and Mr Tham Kui Seng to be independent. The Directors provided objective and independent judgement to the decision making of the Board. The non-executive Directors of the Company participated constructively and reviewed the Group's operations, budgets and strategies. They also assessed the effectiveness of the Board's processes and activities in meeting set objectives and corporate governance standards.
The Board as a group has the core competencies, such as accounting or finance, business or general management, legal and industry knowledge, and strategic planning experience.
Executive Chairman
The Board is led by Ms Chew Gek Khim as the Executive Chairman. Ms Chew assumed the Chair on 24 April 2008 and was appointed Executive Chairman on 1 November 2009.
As Chairman of the Board, Ms Chew's duties include leading the Board, setting the Board agenda and ensuring that all Directors receive sufficient relevant information (both financial and non-financial) to enable them to participate and contribute effectively in Board discussions and decisions. She aims to promote constructive relations between the Board members, and between the Board and the Management, and ensures effective communication with shareholders. Ms Chew also advocates high standards of corporate governance.
As the Executive Chairman, Ms Chew takes on executive oversight of the Management of the business divisions and is assisted by senior key personnel within the Company. The Management is responsible for the daily management of the businesses and implementation of the Board's policies and decisions as well as ensuring compliance with the corporate governance policies of the Company as these relate to the respective business divisions. The Management reports to the Board and is managed through the strategies adopted and monitored through the key performance indicators set for them.
Lead Independent Director (Principle 3)
In line with the recommendations set out in the Code, Mr Yap Chee Keong, currently an independent and non-executive Director as well as the Audit Committee Chairman, was appointed the Lead Independent Director of the Company on 1 November 2009.
As the Lead Independent Director, Mr Yap's role includes being available to shareholders to address any of their concerns and acting as the principal liaison between the independent Directors and the Executive Chairman on critical issues.
Board Membership (Principle 4)
The Company has adopted a formal and transparent process for the appointment of new Directors through the Nominating Committee which reviews the background of all appointees and makes recommendations accordingly to the Board for approval.
The Nominating Committee, chaired by Mrs Elizabeth Sam, comprises three Directors, the majority of whom are independent, including the Chairman. The other members of the Nominating Committee are Ms Chew Gek Khim and Tan Sri Dato' Dr Lin See-Yan.
In accordance with Guideline 4.1 of the Code, the Chairman of the Nominating Committee is not directly associated with any substantial shareholder of the Company. The functions of the Nominating Committee include the evaluation of the Board's effectiveness, each Director's contributions and independence, as well as making recommendations on the appointment and re-nomination of Directors for the Board and Board Committees. The role and functions of the Nominating Committee are set out in its Terms of Reference.
Board Performance (Principle 5)
The Company has in place a process to assess the Board's effectiveness as a whole. The evaluation is carried out annually with each Director making his assessment by providing feedback to the Nominating Committee through a Board assessment questionnaire.
Access to Information (Principle 6)
Information is important to the Board's understanding of the Group's businesses and essential to preparing the Board members for effective meetings. Where required, the Management supplements the meeting papers with presentations on active operations and strategic issues to provide Directors with a better understanding of the Group's operations. Senior management were also invited to attend the meetings to answer enquiries from the Directors.
The Directors have separate and independent access to the services of the company secretaries, who are responsible for ensuring that Board procedures are followed and applicable rules and regulations are complied with. The company secretaries also assist the Chairman by ensuring good information flows within the Board and its committees, and between senior management and the non-executive Directors. The company secretaries attended all board meetings and their appointments or removals are subject to the Board's approval.
In the furtherance of their duties and if the Management's explanations are not satisfactory, the Directors may seek independent professional advice at the Company's expense.
Procedures for Developing Remuneration Policies (Principle 7)
The Board has a Remuneration Committee comprising three non-executive Directors, the majority of whom are independent. Mr Razman Ariffin chairs the Remuneration Committee and Tan Sri Dato' Dr Lin See-Yan and Ms Chew Gek Hiang are the other two members.
The functions of the Remuneration Committee include the recommendation of a framework of remuneration for the Board and senior executives of the rank of senior vice president and above, and the recommendation of specific remuneration package for the Executive Chairman, for the Board's approval. The role and functions of the Remuneration Committee are set out in the Terms of Reference of the Remuneration Committee.
Level and Mix of Remuneration (Principle 8)
The Company adopts a performance-based approach to compensation where employees' remuneration is linked to individual and corporate performances. The Remuneration Committee sees the importance of a market competitive remuneration strategy to attract, retain and motivate employees to high performance that creates value for the shareholders. Remuneration is determined according to the following general components: salary, contractual bonus and incentive bonus.
During the year under review, the Remuneration Committee met, discussed and approved the compensation for the senior executives of the Group. Presently, the Company does not have any share option scheme.
Taking into account the performance of the Group and the responsibilities and performance of the Directors, directors' fees (for the Board and the various Board Committees) were set in accordance with a remuneration framework comprising responsibility fees and attendance fees. The Executive Chairman does not receive directors' fees. Non-executive Directors are paid directors' fees, subject to approval at the Annual General Meeting. The non-executive Directors have no service contracts. No individual Director fixes his own remuneration.
Disclosure on Remuneration (Principle 9)
Summary compensation table for the Directors of the Company in all capacities for the year ended 31 December 2011:
There are no employees of the Group who are immediate family members of a Director earning more than S$150,000 a year.
The bands of remuneration of the top five key executives (who are not also Directors) for FY2011 were as follows:
Accountability (Principle 10)
In presenting the annual financial statements and quarterly announcements to shareholders, it is the aim of the Board to provide shareholders with detailed analysis, explanations and assessment of the Company's and the Group's financial position and prospects.
The Management currently provides the Board with balanced and understandable accounts of the Company's performance, financial position and business prospects on a regular basis.
Audit Committee (Principle 11)
The Audit Committee comprises three non-executive Directors and is chaired by Mr Yap Chee Keong. The other two members of the Audit Committee are Tan Sri Dato' Dr Lin See-Yan and Ms Chew Gek Hiang.
All members of the Audit Committee are financially literate and have accounting or related financial management expertise or experience.
The role of the Audit Committee is documented in a Charter (Terms of Reference) approved by the Board. The Charter, amended by the Board in 2005 to facilitate the Company's compliance with the Code, defines the purpose, authority and responsibilities of the Audit Committee. The Audit Committee is authorised to investigate any matters specified in the Charter.
In performing its functions, the Audit Committee reviews the overall scope of both internal and external audits and the assistance given by the Company's officers to the auditors. It meets with the Company's internal and external auditors to discuss the results of their respective examinations and their evaluation of the Company's system of internal accounting and financial controls on a quarterly basis.
The Audit Committee reviews interested person transactions to ensure that they are carried out on normal commercial terms and are not prejudicial to the interests of the Company and its minority shareholders. The Audit Committee also reviews the consolidated financial statements and the auditors' report, as well as related announcements to shareholders and The Singapore Exchange Securities Trading Limited before submission to the Board.
The AC has reviewed and is satisfied that the independence and objectivity of the external auditors have not been compromised by the provision of non-audit services. Accordingly, it has recommended to the Board the nomination of the external auditors, Messrs Ernst & Young LLP, for re-appointment at the forthcoming Annual General Meeting to be held on 27 April 2012. In 2011, the AC met with the external auditors and internal auditors without the presence of the Management twice.
In appointing the audit firms for the Group, the Audit Committee is satisfied that the Company has complied with the Listing Rules 712 and 715.
Finance Commitee
The Finance Committee comprises the following Directors:
Ms Chew Gek Khim (Chairman)
Mr David Goh Kay Yong
Mr Yap Chee Keong
Mr Tham Kui Seng
Established on 23 February 2010, the Finance Committee's responsibilities include reviewing and recommending to the Board for approval the annual business plans and budgets for business divisions and entities within the Group. It also reviews and approves certain transactions of the Group within its delegated authority limits, such as financing plans and borrowings, acquisitions and disposals and capital expenditure.
Internal Controls and Risk Management (Principle 12)
The Board recognises its role in ensuring that the Management maintains a sound system of internal controls to safeguard shareholders' investments and the Group's assets. The Group has adopted a group-wide risk assessment process, which identifies the key risks facing each major business division, the potential impact and likelihood of those risks occurring, the control effectiveness and action plans being taken to mitigate those risks.
The Board appreciates that risk management is an on-going process in which the senior management and the operational managers continuously participate to evaluate and monitor the significant risks. The internal audit department regularly reviews all significant control policies and procedures and highlights all significant matters to the senior management and the Audit Committee. The Audit Committee has reviewed the Group's risk assessment process and is satisfied that there are adequate internal controls in place to manage the significant risks identified.
The Group's subsidiary, Malaysia Smelting Corporation Berhad, has established a risk management structure, which depicts the lines of reporting and responsibility at its Board, Audit Committee and Management levels.
During FY2011, the Audit Committee reviewed the effectiveness of the Group's material internal controls, including financial, operational and compliance controls, and risk management. The processes used by the Audit Committee to review the effectiveness of the system of internal control and risk management included discussions with the Management, external and internal auditors on the risks identified and the review of significant issues arising from internal and external audits.
The Directors understand that they have responsibility for the Group's system of internal controls that covers all aspects of the business. In recognition of this responsibility, the Directors set policies and seek regular assurance that the system of internal controls is operating effectively. However, the Directors are also aware that such a system can only provide reasonable, but not absolute, assurance that the Company will not be adversely affected by any event that could be reasonably foreseen as it strives to achieve its business objectives. However, the Board also notes that no system of internal controls and risk management can provide a comprehensive assurance against human error, poor judgement in decision making, losses, fraud or other irregularities.
The Directors are of the opinion that, based on the results of the internal and external audits, the system of internal controls is operating satisfactorily. The Directors are also satisfied that problems are identified on a timely basis and there is in place a process for follow-up actions to be taken promptly to minimise unnecessary lapses. Nothing has come to the attention of the Directors to indicate that any material breakdown in the controls has occurred during the year under review.
The Directors and the Audit Committee, having reviewed the Group's system of internal controls, including financial, operational and compliance risks, are of the opinion that, in the absence of any evidence to the contrary, the system of internal controls in place is adequate in meeting the current scope of the Group's business operations.
Whistleblower Policy
The Company has a whistle-blowing procedure in place for staff to raise matters of impropriety in confidence. The policy aims to foster a workplace conducive to open communication regarding the Company's business practices and to protect employees from unlawful retaliation and discrimination for the proper disclosing or reporting of illegal or unethical conduct in good faith.
Complaints may be made to the designated officers by telephone, email or under confidential mail. All cases reported will be investigated objectively and thoroughly and appropriate action will be taken where warranted. A summary of the reports received, investigation results and subsequent actions taken will be reported to the Audit Committee on a quarterly basis. Under certain circumstances, the Audit Committee will be informed, as soon as practicable, of a reported case.
Internal Audit (Principle 13)
The Company has an internal audit department that is independent of the activities it audits. The internal auditors report directly to the Chairman of the Audit Committee on audit matters and to the Executive Chairman on administrative matters.
In discharging its functions, the Audit Committee is provided with adequate resources, has full access to and co-operation of the Management and the internal auditors, and has full discretion to invite any Director or executive officer to attend its meetings. All major findings and recommendations are brought to the attention of the Board of Directors.
The Audit Committee reviews and approves the annual internal audit plans and ensures that the internal audit functions are adequately resourced with competence, and has appropriate standing within the Group to carry out its duties effectively.
Communication with Shareholders (Principle 14)
The Company takes a serious view of maintaining full and adequate disclosure, in a timely manner, of material events and matters concerning its businesses through SGXNET, public announcements, press releases, circulars to shareholders and Annual Reports.
In addition, shareholders and the public can access information pertaining to the Company's businesses, media releases and other corporate information via its website. The Company's Corporate Affairs and Communications department also facilitates effective and unbiased communications with shareholders, analysts, fund managers and the media.
Greater Shareholder Participation (Principle 15)
The Company endeavours to provide as much and as prompt information as is possible to its shareholders, taking into account the legal and regulatory framework governing the release of material and price-sensitive information. The Company releases all price-sensitive information through SGXNET.
At the annual general meeting, shareholders are encouraged to ask questions both about the resolutions being proposed and about the Group's operations in general. The Articles of Association of the Company permit a member of the Company to appoint not more than two proxies to attend and vote instead of the member. As there is still a major concern on the security of information transmitted over the Internet, the Board has decided that it is not appropriate, for the time being, to amend its Articles of Association to allow for in absentia voting methods.
The Company ensures separate resolutions are proposed at general meetings on each distinct issue. The external auditors, the chairpersons of the various Board Committees and where necessary, the legal advisers are present to assist the Directors in addressing any relevant queries by shareholders.
Dealings In Securities
The Group has issued internal guidelines on dealings in the securities of the Company to the Directors and employees of the Company and its subsidiaries, advising them, among others, not to deal in the securities of the Company on short-term considerations. On a quarterly basis, the Directors and employees are advised of the prohibitions in dealings in the securities of the Company during the period commencing two weeks before the announcement of the Group's quarterly financial statements, and one month before the Group's full year financial statements, and ending on the respective announcement dates, and while they are in possession of material price-sensitive information which is generally not available.