Mandate of the Special Representative of the Secretary-General (SRSG) on

the Issue of Human Rights

and Transnational Corporations and other Business Enterprises

CORPORATE LAW TOOLS PROJECT

JURISDICTION: SINGAPORE

FIRM: COTTY VIVANT MARCHISIO & LAUZERAL

DATE: SEPTEMBER 2009

This report was submitted to the SRSG as part of his corporate law tools

project, as explained in his press release of 23 March 2009:

http://www.reports-and-materials.org/Corporate-law-firms-advise-Ruggie-23-

Mar-2009.pdf. It is the sole work of Cotty Vivant Marchisio & Lauzeral (CVML)

and does not necessarily represent the SRSG’s views. The SRSG is grateful to

CVML for providing this report and for participating in the corporate law tools

project.

If you have any questions about this report, please contact Philippe Taverne

Partner at CVML, at p.taverne@cvml.com or Arthur Dethomas, Partner at

CVML, at a.dethomas@cvml.com. If you have questions more generally

about the corporate law tools project, please contact Vanessa Zimmerman,

(Legal Advisor to the SRSG), at vanessa_zimmerman@hks.harvard.edu.

A NOTE FROM THE UN SPECIAL REPRESENTATIVE ON BUSINESS AND HUMAN RIGHTS

OCTOBER 2009

This report forms part of a project on corporate law and human rights under my mandate as Special

Representative of the UN Secretary-General on Business and Human Rights: the “Corporate Law

Tools Project”. I am delighted that nineteen leading corporate law firms from around the world are

participating in the project, and thank them for their engagement. The willingness of so many firms

to provide their services pro bono in order to expand the common knowledge base indicates that

corporate law firms worldwide appreciate that human rights are relevant to their clients’ needs.

It is important at the outset though to understand how this project fits into my wider work. I was

appointed in 2005 by then UN Secretary-General Kofi Annan with a broad mandate to identify and

clarify standards of corporate responsibility and accountability regarding human rights, including the

role of states. In June 2008, after extensive global consultation with business, governments and civil

society, I proposed a policy framework for managing business and human rights challenges to the

United Nations Human Rights Council (Council).

The Framework of “Protect, Respect, Remedy” rests on three differentiated yet complementary

pillars: the state duty to protect against human rights abuses by third parties, including business,

through appropriate policies, regulation, and adjudication; the corporate responsibility to respect

human rights, which in essence means to act with due diligence to avoid infringing on the rights of

others; and greater access for victims to effective remedy, judicial and non-judicial. You can read

more about the Framework in my 2008 and 2009 reports to the Human Rights Council, available at:

(2008) http://www.reports-and-materials.org/Ruggie-report-7-Apr-2008.pdf; (2009)

http://www.business-humanrights.org/Links/Repository/715771.

The Council unanimously welcomed the Framework and extended my mandate by another three

years, tasking me with “operationalizing” the Framework—that is, to provide “practical

recommendations” and “concrete guidance” to states, businesses and others on the Framework’s

implementation. There has already been considerable uptake of the Framework by all relevant

stakeholders: unanimous backing in the Council; strong endorsements by international business

associations and individual companies; and positive statements from civil society.

A key aspect of the first pillar, the state duty to protect, is that states should foster corporate

cultures respectful of rights both at home and abroad, through all available avenues. In particular, I

have been exploring the opportunities and challenges that corporate and securities law can provide

in this regard. Corporate law directly shapes what companies do and how they do it. Yet its

implications for human rights remain poorly understood. The two have often been viewed as distinct

legal and policy spheres, populated by different communities of practice.

The Corporate Law Tools Project will allow me to explore this area further by mapping in over 40

jurisdictions how national laws and policies dealing with incorporation and listing; directors’ duties;

reporting; stakeholder engagement; and corporate governance more generally currently require,

facilitate or discourage companies from respecting human rights. I have asked the firms to explore

not only what laws currently exist, but also how corporate regulators and courts apply the law to

require or facilitate consideration by companies of their human rights impacts and preventative or

remedial action where appropriate.

The project thus formally comprises part of my work on the state duty to protect. It will assist me to

understand whether and how national corporate law principles and practices currently encourage

companies to foster corporate cultures respectful of human rights. I will in turn consider what, if

any, policy recommendations to make to states in this area, following consultation with all relevant

stakeholders. However it is just one element of my work on the state duty to protect, which also

looks at other areas of the law and national policies which might help states to encourage

companies to respect human rights.

The project will also support my work on the corporate responsibility to respect and access to

remedy. In relation to the responsibility to respect, I have explained that in addition to compliance

with national laws, the baseline responsibility of companies is to respect human rights. To discharge

the responsibility, I have recommended that companies conduct ongoing human rights due diligence

whereby they become aware of, prevent, and address adverse human rights impacts. The

responsibility exists even where national laws are absent or not enforced because respecting rights

is the very foundation of a company’s social license to operate. It is recognized as such by virtually

every voluntary business initiative, including the UN Global Compact, and soft law instruments such

as the International Labour Organization Tripartite Declaration and the OECD Guidelines on

Multinational Enterprises. Nevertheless, an understanding of national laws, including corporate law,

is still relevant to ensure companies understand their national legal obligations. Moreover,

corporate law may provide guidance as to what constitutes appropriate human rights due diligence.

For the original press release for this project listing all applicable jurisdictions and participating firms,

please see: http://www.reports-and-materials.org/Corporate-law-firms-advise-Ruggie-23-Mar-

2009.pdf. The template I asked the firms to follow for the project is available at:

http://www.reports-and-materials.org/Ruggie-template-for-corporate-law-tools-project-May-

2009.pdf; and a summary report of a June 2009 meeting of the participating firms is available at

http://www.reports-and-materials.org/Ruggie-corporate-law-tools-meeting-summary-30-Jun-

2009.pdf.

An overarching trends paper will soon be available, bringing together the main themes from all of

the firms’ reports. That paper as well as all reports will be available as completed at:

http://www.business-

humanrights.org/SpecialRepPortal/Home/Materialsbytopic/Corporatelaw/CorporateLawTools.

My thanks again to all participating firms.

John G. Ruggie

Special Representative of the UN Secretary-General on Business and Human Rights

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EXECUTIVE SUMMARY

1. SETTING THE LEGAL LANDSCAPE

In Singapore, human rights protection and obligations for businesses are to be found mainly in domestic law.

2. REGULATORY FRAMEWORK

Singapore belongs to the common law legal tradition. The Application of English Law Act 1993 sets out the rules for the application of English law in Singapore. The city-state has several oversight authorities competent in specific areas of the economy. One of these authorities, the Singapore Exchange is both a regulator and a listed company.

3. INCORPORATION AND LISTING

Both “limited liability” and “separate legal personality” concepts exist in Singapore. The Singapore Stock Exchange itself does not provide any SRI/CSR Index but a Shariah compliant index was launched in 2006.

4. DIRECTORS’ DUTIES

A committee has been set up recently which should clarify directors’ duties and thus substantially modify the analysis currently made by Singaporean courts. However, under the legislative framework in place at the moment, even if directors do not have to take into account impacts on non-shareholders, it is, however, deemed advisable in many cases to do so, whether the impacts occur inside or outside the jurisdiction.

5. REPORTING

There is no specific obligation to disclose the impacts of company operations on non-shareholders. However, as soon as these impacts may have financial consequences on the company annual reports or on the price of the company securities, the obligation to disclose reappears. The fulfilment of these obligations by companies is controlled both internally (audit committees are compulsory for listed companies) and externally with the nomination of an independent auditor.

6. STAKEHOLDER ENGAGEMENT

Whereas there does not seem to be any limitation regarding the content of shareholder proposals, practical obstacles in the circularization process may deter shareholders in doing so. As regards institutional investors, although no specific provision requires them to consider impacts on non-shareholders, nothing prevents them from doing so. Indeed, certain funds and sovereign wealth funds do take these impacts into account, to a certain extent.

7. OTHER ISSUES OF CORPORATE GOVERNANCE

The government has so far taken a leading role to enhance the domestic level of corporate governance. As is usually the case in Singapore, this is done mainly through incentives and schemes. However, the opening up of the city-state to the world and the attractiveness of Singapore force the city-state to constantly improve its standards, including with respect to corporate social responsibility. There are no specific rules requiring any kind of representation on company boards. However, the Constitution prohibits discrimination.

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DISLCAIMER

Please note that this report does not constitute a legal opinion and proper legal advice should be sought when dealing with an actual case related to the subject matters reviewed under this report.

1. BRIEFLY EXPLAIN THE BROADER LEGAL LANDSCAPE REGARDING BUSINESS AND

HUMAN RIGHTS

1.1. In Singapore, laws emanate from a variety of sources which may be classified as

written (“enacted”) or unwritten (“unenacted”) law1. In descending order of legal authority, written law consists of the Constitution, acts of Parliament and subsidiary legislation, whereas unwritten law comes from case law and custom. In the event of conflict, written law generally prevails over unwritten law.

1.2. The Constitution is silent on whether or not international law2 forms part of the local legal system and the local practice requires that an international treaty must be first incorporated into domestic law before having effect in Singapore. Accordingly, Singaporean courts have no power to incorporate international treaties into the local legislation or to give superiority to such treaties over national laws and no citizen can refer directly to an international treaty before courts. Courts adopt a slightly different position in relation to customary international law: even if the customary international law was only referred to for interpretational purposes and never as a free-standing rule, recent cases demonstrated a willingness to recognize international norms as part of the common law of Singapore.

1.3. Considering the way Singapore incorporates international law into its own domestic system, legal sources of human rights are principally found in domestic law, namely the Constitution and the acts enacted by Parliament.

1.4. Constitutional Human Rights The Constitution notably sets out fundamental rights of the individual vis-à-vis the state, inter alia, liberty of a person, prohibition of slavery and forced labour, equal protection, freedom of speech, assembly and association, and freedom of religion. The Constitution is the supreme law of Singapore and any law which conflicts with it is void. The Constitutional Tribunal and the Presidential Council of Minority Rights (“PCMR”) may safeguard against unconstitutional laws. However, such institutions only have the power to impugn or prevent potential legislation as being contrary to the Constitution.

1.5. Although the determination of the constitutionality of a statutory law falls within the jurisdiction of the courts, there has been no instance where the court struck down a statutory provision as unconstitutional and therefore void. Singapore Courts adopt a

1 Please refer to question 2 for further details regarding the legal tradition of Singapore. 2 Examples of UN International treaties relating to human rights ratified by Singapore:

• Convention on the Elimination of All Forms of Discrimination against Women (CEDAW), 4 Nov 1995; • Convention on the Rights of the Child (CRC), 5 Oct 1995; • Convention for the Suppression of the Traffic in Persons and of the Exploitation of the Prostitution of

Others, 26 Oct 1966;

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strong presumption of constitutionality of legislative provisions. However, a real evolution stands out through the recent case of Nguyen Tuong Van v. Public Prosecutor (2005), where the Court of Appeal, while applying the presumption of constitutionality, argued that this presumption could be rebutted rendering the “legislative judgment insupportable”. It must be noted that the Constitution may still rely on law to enforce the principles contained therein and consequently, enacted laws may have an influence on the scope of a right provided for by Constitution. For instance, it is stated that “No person shall be deprived of his life or personal liberty save in accordance with law”. It has been held in most cases that any law, since it has been passed by Parliament, shall be considered as valid and binding and that the courts are not concerned with whether it is also fair, just and reasonable.

1.6. Human rights in domestic law

Singapore has reformed or enacted domestic legislation in order to incorporate international treaties within its own legal system. As an illustration, the Women’s Charter has been amended in order to incorporate the Convention for the Suppression of the Traffic in Persons and of the Exploitation of the Prostitution of Others, ratified in 1966. The government has also considered that existing laws and policies in force in Singapore were already in compliance with Singapore’s international obligations, for example those arising out of the Convention on the Elimination of all Forms of Discrimination Against Women or the Convention on the Rights of the Child.

1.7. In addition, Singapore has adopted domestic legislation protective of human rights such as the Employment Act (non-discrimination, prohibition of employment of children, etc), the Women’s Charter, the Penal Code (prohibition of slavery and forced labour, sanctions in case of genocide, pollution of the air, etc), the Environmental Protection and Management Act, the Prevention of Corruption Act, etc.

1.8. To conclude, while the Constitution does not contain any obligations relating to companies, it is expressly provided for in domestic law (e.g. Penal Code) that a company may be held criminally liable where an offence is committed in the course of the company’s business by a person in control of its affairs to such a degree that the company may be considered as acting through such person so that his acts are the acts of the company.

1.9. Corporate and securities law Companies in Singapore are governed by the Companies Act and in specific cases by other acts such as, but not limited to, the Insurance Act, the Banking Act and the Trust Companies Act.

1.10. The Securities and Futures Act (“SFA”) is the primary source of securities law in Singapore. It contains provisions against prohibited conduct such as false trading, market rigging, market manipulation, fraudulently inducing persons to deal in securities, and insider trading. The SFA is supplemented by the Securities and Futures Regulations 2005. Besides the SFA, the Financial Advisers Act covers the provision of advice on investment products and the marketing and distribution of collective investment products.

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1.11. Lastly, the following additional regulations are applicable: (i) listed companies are

required to comply with the Listing Manual of the Singapore Stock Exchange (“Listing Manual”) which sets out their continuing obligations to disclose information necessary to avoid the establishment of a false market in the companies’ securities or information likely to materially affect the price of its securities; (ii) the Code of Corporate Governance 2005 (“Code of Corporate Governance”), covering areas such as board matters, remuneration, accountability and audit and timely and effective communication with shareholders, upon which all listed companies shall give a complete description of their corporate governance practices with references to each rule set out in the Code of Corporate Governance and, in the event where they deviate from such rules, they should disclose the non-compliance with appropriate explanations3; and (iii) the Singapore Code on Take-overs and Mergers (“Take-over Code”), applicable to listed companies and unlisted public companies with more than 50 shareholders and net tangible assets of more than S$5 million4, setting out the requirements to be followed by the parties concerned in a take-over or a merger.

2. TO WHAT LEGAL TRADITION DOES THE JURISDICTION BELONG; I.E., CIVIL/COMMON

LAW, MIXED?

2.1. Singapore belongs to the common law tradition. The foundation of the law of

Singapore is thus to be found in the principles of English common law and equity as well as English statutes received via the Application of English Law Act 1993 (the “Application Act”) which represents the current position regarding the reception of English common law and statutes in Singapore.

2.2. Firstly, the Application Act deals with the application of common law and equity: (i) so far as the common law of England was part of the law of Singapore before 12 November 1993, it shall continue to be part of the law of Singapore and, (ii) such English principles and rules shall continue to be in force in Singapore subject to the concepts of modification and suitability. Secondly, the Application Act specifies the English statutes, enacted before 12 November 1993, with the necessary modifications, which apply or continue to apply in Singapore. Thirdly, the Application Act details specific amendments to be made to specific local (Singaporean) acts.

3. ARE CORPORATE/SECURITIES LAWS REGULATED FEDERALLY, PROVINCIALLY OR BOTH?

3.1. As Singapore is not organised federally or provincially, corporate and securities law is regulated at a national level.

4. WHO ARE THE GOVERNMENT CORPORATE/SECURITIES REGULATORS AND WHAT ARE

THEIR RESPECTIVE POWERS?

4.1. Since April 2004, the Accounting and Corporate Regulatory Authority (“ACRA”) is Singapore’s corporate regulator as well as the independent regulator for public accountants. The ACRA is a statutory body under the supervision of the Ministry of Finance.

3 “comply or explain approach”. 4 For further details regarding the non-compliance with the Take-over Code, please refer to 4.5.

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4.2. The Monetary Authority of Singapore (‘MAS”), which is Singapore’s central bank, was established under the Monetary Authority of Singapore Act in 1971. The MAS is empowered to make rules interpreting the SFA.

4.3. MAS supervises the securities market, the futures market as well as the banking and insurance industries. Accordingly, the MAS has a general power of intervention and investigation to ensure the market is well-run as it considers necessary. Furthermore, the MAS has specific powers to require disclosure of information concerning securities and futures contracts. Lastly, MAS may provide assistance to foreign counterparts in the course of investigations and enforcement procedures.

4.4. The Security Industry Council (“SIC”), set up in 1973, is a non-statutory body

consisting of representatives from the MAS and private and public sectors. It oversees the administration and enforcement of the Take-over Code. Failure by any party to adhere to the Take-over Code is not a criminal offence but may be relied upon by any party to civil or criminal proceedings to establish liability considered in the proceedings. The SIC can censure or suspend a person from the use of the market facilities.

4.5. The Singapore Exchange (“SGX”), both a regulator of the market and a listed company, has powers to investigate and inspect broker-dealers under the SGX Rules: in the event of a violation of the SFA, SGX Rules or any other SGX requirements, disciplinary proceedings may be commenced. However, broker regulation is progressively falling under the scope of the MAS. The SGX has also supervisory functions, including the supervision of listed companies, admission of members, market surveillance and risk management for the clearing of securities and derivatives trades.

4.6. Lastly, the Commercial Affairs Department (“CAD”), constituted under the Ministry of Home Affairs, is in charge of investigating white collar crime and the Corrupt Practices Investigation Bureau (“CPIB”), established under the Prevention of Corruption Act and under the direct supervision of the Prime Minister, investigates corruption in private and public sectors.

5. DOES THE JURISDICTION HAVE A STOCK EXCHANGE(S)?

5.1. The SGX, which is considered as the front-line regulator of the stock market, was established in 1999 when the Stock Exchange of Singapore and the Singapore International Monetary Exchange were demutualised and became wholly owned subsidiaries of the SGX under a company holding structure. Both have been respectively renamed Singapore Exchange Securities Trading (“SGX-ST”) and Singapore Exchange Derivatives Trading (“SGX-DT”).

5.2. As at June 2008, the total number of listed companies on SGX stood at 762 companies with a total market capitalization of S$658 billion (SGX annual report 2008).

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6. DO THE CONCEPTS OF “LIMITED LIABILITY” AND “SEPARATE LEGAL PERSONALITY”

EXIST? 6.1. The concept of limited liability

In Singapore, the concept of limited liability is recognized under the Companies Act: a company may be limited by shares or by guarantee. If limited by shares, a member cannot be required to pay more than the amount unpaid on his shares when the company is wound up. If he has paid in full for his shares, he cannot be asked for any further contribution and the creditors of the company are not entitled to take a member’s personal assets in satisfaction of corporate liabilities. Where limited by guarantee, a member shall contribute at most the amount he agreed to guarantee.

6.2. The concept of separate legal personality

The Companies Act provides for general effects of incorporation but does not expressly mention the concept of separate legal personality. Nevertheless, the whole scheme of the Companies Act is predicated upon a company’s separate existence and cases have clearly established that, as a corporate body, a company has an existence and identity separate from that of its members, and thus a distinct personality that is recognized.

6.3. However, there are exceptions to the separate legal personality doctrine. Statutory exceptions may be mainly found in the Companies Act (e.g. (i) where debts are contracted without any reasonable or probable expectation that the company would be able to pay the debts, (ii) if in the course of the winding up of a company, any business of the company has been carried on with intent to defraud creditors of the company or any other person or for any fraudulent purpose or, (iii) where dividends are paid in absence of available profits – that is considered as a prejudice for the creditors of the company).

6.4. In addition to the statutory exceptions, common law exceptions have been developed by the courts mainly in the following cases: (i) if an individual has existing legal obligations but attempts to use the corporate vehicle to evade them, the company’s separate personality shall be ignored, (ii) where a company is employed as an agent for its members, (iii) where the company is a facade or, (iv) where the court is asked to exercise an equitable discretion.

7. DID INCORPORATION OR LISTING HISTORICALLY, OR DOES IT TODAY, REQUIRE ANY

RECOGNITION OF A DUTY TO SOCIETY, INCLUDING RESPECT FOR HUMAN RIGHTS?

7.1. Under the Companies Act, the registrar may refuse to incorporate a company if the

company is likely to carry out an unlawful activity or one that is prejudicial to public peace, welfare or good order in Singapore, or contrary to national security.

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8. DO ANY STOCK EXCHANGES HAVE A RESPONSIBLE INVESTMENT INDEX, AND IS

PARTICIPATION VOLUNTARY?

8.1. The SGX does not have a responsible investment index. However, private entities offer a wide range of services linked with corporate social responsibility and socially responsible investments. Firms like the Dow Jones Group or the FTSE Group provide indexes whose constituents are sometimes companies listed in Singapore. One private entity, OWW Consulting, provides a SRI Index specifically dedicated to Singapore5.

8.2. We should note the existence of a Shariah compliant index, the FTSE/SGX Shariah Index Series, recently launched by the SGX6 that may be compared to a responsible investment index. Under the rules governing the index7, eligible securities should exclude stocks whose core activities are or are related to, inter alia, banking or any other interest related activity, alcohol, tobacco, gaming or arms manufacturing. Participation to the Index is not voluntary. Companies are selected by Yasaar Research Inc. – an independent Shariah screening organisation – in the FTSE stock database.

9. TO WHOM ARE DIRECTORS’ DUTIES GENERALLY OWED (I.E. TO THE COMPANY, NON-

SHAREHOLDERS ETC)?

9.1. The Companies Act does not provide any itemized list of directors’ duties – it simply provides in Section 157 that directors are required to, at all times, act honestly and use reasonable diligence. Other duties are found within the common law where directors have fiduciary duties towards the company. These include the duty (i) to act bona fide in what directors consider to be the company’s interests, (ii) to avoid conflicts of interests and (iii) to act for the proper purpose.

9.2. It is noteworthy that Section 157 of the Companies Act further provides that the section is in addition to and not in derogation of any other written law or rule of law relating to the duty or liability of directors. Consequently, statutory duties covered by Section 157 and fiduciary duties may overlap.

9.3. A steering committee has been set up recently under the authority of the Ministry of

Finance to explore possible revisions to the Companies Act, in particular the possibility of clarifying directors’ duties by either creating a list of directors’ duties or providing some details through practice directions or guidance notes.

5 http://www.sri-asia.com/products/index-products-2.html. 6 Following the signature of an agreement in January 2006 between the SGX, FTSE Group and Yasaar Research. 7 FTSE, Ground Rules for the Management of the FTSE SGX Shariah Index Series, February 2006.

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9.4. Towards the company

All the duties listed above are primarily owed to the company and the company’s interest is the yardstick for all decisions taken by directors. However, case law shows that courts, when assessing the respect by the directors of their duties toward the company, can consider one of the following interests as representing the company’s overriding interest:

- interests of the company as a corporate entity; - interests of shareholders and employees8; - interests of creditors; - interests of the group (to which the company belongs).

9.5. Towards the shareholders

In addition, case law acknowledges that directors owe fiduciary duties directly to the shareholders in particular factual situations, either because a special relationship exists between the directors and the shareholders or because matters arise where the shareholders necessarily have to rely on what directors say or do. However, the principle remains that directors owe their duties to the company.

10. ARE THERE DUTIES TO AVOID LEGAL RISK AND DAMAGE TO THE COMPANY’S

REPUTATION? IF SO, ARE THEY DUTIES IN THEIR OWN RIGHT OR ARE THEY

INCORPORATED INTO OTHER DUTIES?

10.1. Under current legislation, none of the duties listed in the answer to question 9 above directly prescribe the obligation for a director to avoid legal or reputational risk. As a result, duties to avoid legal risk and damage to the company’s reputation are not duties in their own right but may be found in some of the duties listed above, especially in the duty of skill, care and diligence.

10.2. However, a brief study of cases in Singapore shows that the principle upon which a court shall not substitute its own judgment for the decision of a director is likely to limit the liability such director may face under his duties of care, skill and diligence.9

10.3. The issue concerning the directors’ consideration of legal risks and/or potential

damage to the company’s reputation – if the damage is measurable and might affect the accounts – can also be appreciated through the accounting obligations of the directors. It is the responsibility of the directors to ensure that accounts are properly prepared (Section 201 Companies Act). In this regard, under the Financial Reporting Standard FRS 37 related to “Provisions, Contingent Liabilities and Contingent Assets”, when “there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources”, directors must disclose the contingent liabilities in the annual report.

10.4. The obligation to disclose certain contingent liabilities does not mean that directors have any kind of direct duty to avoid legal or reputational risks but may give, under

8 For further details, see 11.2 below. 9 “The problem with the informal or weak form of business judgment rule presently applicable in Singapore is that it does not expressly deal with the more extensive duty of care that has seeped into Commonwealth cases”, (H. Tjio, Rationalisation of directors’ duties in Singapore).

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certain circumstances, the director a great incentive to avoid any sort of legal risk or damage to the company’s reputation.

11. MORE GENERALLY, ARE DIRECTORS REQUIRED OR PERMITTED TO CONSIDER THE

COMPANY’S IMPACTS ON NON-SHAREHOLDERS, INCLUDING HUMAN RIGHTS IMPACTS

ON THE INDIVIDUALS AND COMMUNITIES AFFECTED BY THE COMPANY’S OPERATIONS?

IS THE ANSWER THE SAME WHERE THE IMPACTS OCCUR OUTSIDE THE JURISDICTION? CAN OR MUST DIRECTORS CONSIDER SUCH IMPACTS BY SUBSIDIARIES, SUPPLIERS AND

OTHER BUSINESS PARTNERS, WHETHER OCCURRING INSIDE OR OUTSIDE THE

JURISDICTION?

11.1. Are directors required or permitted to consider impacts on non-shareholders, including human rights impacts on the individuals and communities affected by the company’s operation? Generally speaking, the company, as a legal person, must comply with all national laws. This implies that they must respect the different statutes that may contain provisions aiming at protecting specific interests or persons, including those described in question 1 which relate to human rights. And as part of their general duties as suggested in questions 9 and 10 above, directors should ensure that their companies are abiding by the law.

11.2. In addition, if it is in the company’s interests to consider impacts on non-shareholders, a director shall take them into account. Moreover, under the Companies Act, directors are strongly advised to consider impacts on the company’s employees. The Companies Act makes a specific reference to the interests of the company’s employees as one of the “matters the directors of a company are entitled to have regard in exercising their powers”. Regarding how the boards of listed companies are to conduct affairs, the Code of Corporate Governance10 states that “the Board’s role is to: (...) (d) set the company’s values and standards, and ensures that obligations to shareholders and others are understood and met.” Unfortunately, the Code does not give any definition of “others”. The UK equivalent of the Code has a similar definition of the board’s role and some internal companies’ codes on corporate governance in the UK and in Singapore use the same sentence. However, none of these codes spells out the ways this specific function of the board is fulfilled. Nothing prevents directors to take into consideration company’s impacts on non shareholder. Such impact could be in the interest of the company if so decided by the shareholders for example.

11.3. Is the answer the same where the impacts occur outside the jurisdiction?

Provided that Singaporean Courts are competent and Singaporean law applicable, the answer shall be the same. Issues regarding the applicable law may especially arise for listed companies not incorporated in Singapore.

.

11.4. Can or must directors consider such impacts by subsidiaries, suppliers and other business partners, whether occurring inside or outside the jurisdiction? Directors shall only consider such impacts by subsidiaries, suppliers and other business partners, whether occurring inside or outside the jurisdiction, when the

10 For the binding force of the Code of Corporate Governance, please refer to 1.11 above. Moreover, please note that the Code applies only to listed companies.

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company’s interests require such impacts to be reviewed.

12. IF DIRECTORS ARE REQUIRED OR PERMITTED TO CONSIDER IMPACTS ON NON-SHAREHOLDERS TO WHAT EXTENT DO THEY HAVE DISCRETION IN DETERMINING HOW

TO DO SO?

12.1. Directors are required to consider impacts on non-shareholders only as long as these considerations comply with the standard to which directors’ deeds must be assessed, generally the interest of the company and the scope of their duties as described in the articles of association and any document setting out their duties and powers (shareholders decisions for example). In addition, within the scope of their powers and provided that they are acting in good faith in what they consider to be the company’s interest, directors usually enjoy great discretion in managing the business of the company.

13. WHAT ARE THE LEGAL CONSEQUENCES FOR FAILING TO FULFIL ANY DUTIES DESCRIBED

ABOVE; AND WHO MAY TAKE ACTION TO INITIATE THEM? WHAT DEFENSES ARE

AVAILABLE?

13.1. From 1975 to 2003, 86 cases involved directors for breach of their duties. Case law

shows that the company initiated the action against the directors (directly or through a shareholder) in only 19% of all the cases whereas 22% were initiated by the Attorney General and 21% by the creditors11.

13.2. Liability towards the company12 As a director owes his duties to the company and not to the members of the company individually, only the company may commence legal proceedings against him for breach of duty (“proper plaintiff” rule). The company may sue a director for damages (negligence or breach of statutory duty), for return of specific property (misapplication of property), or claim any profit that the director has made. Furthermore, where a director has entered into contracts with his own company in breach of his fiduciary duty, such contracts may be void at the instance of the company.

13.3. Liability towards shareholders13

Notwithstanding the foregoing, a shareholder has personal remedies against a director and may sue him to restrain him from entering into a transaction in breach of his fiduciary duty, where there is an oppression of a shareholder, where a shareholder’s interests are disregarded or where there is a resolution or act that unfairly discriminates against or is otherwise prejudicial to a shareholder. This is the oppression remedy provided for by the Companies Act which is an action that may be brought personally by a shareholder (unlike the derivative action, as explained below, which may be brought by a shareholder on behalf of the company).

11 A study of cases against directors in Singapore, Corporate Governance and Financial Reporting Center, NUS Business School, April 2004. 12 22% of all the cases initiated by the company between 1975 and 2003, ibid. 13 17% of all the cases initiated by shareholders between 1975 and 2003, ibid.

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13.4. As directors owe duties only to the company, only the company may commence

legal proceedings against the wrongdoer (“proper plaintiff” rule). However, what happens in the case where the directors who have breached their duties are also a majority of the board and thus have the power to decide whether or not to enforce the company’s rights? In Singapore, besides the personal remedies described above in 13.3 above, the courts have recognised the right for a shareholder to bring an action on behalf of the company (and thus to get round the disadvantages of the “proper plaintiff” rule) to restrain the ultra vires act of a director or if a fraud has been committed against the minority shareholders and the wrongdoer is in control of the company. This is the common law derivative action where it must be shown that the controllers of the company have abused their powers by using them or omitting to use those powers for a collateral purpose.

13.5. In addition, a statutory derivative action, which has been introduced into the Companies Act, allows a shareholder to apply to a court for permission to bring or to intervene in an action in the name of the company. Unlike the common law derivative action, the costs of the action will be borne by the company and it needs only be shown prima facie that the action has been brought in the interests of the company. This action is only available to shareholders of unlisted companies. Shareholders of listed companies shall use the common law derivative action.

13.6. In both derivative actions (common law and statutory), complainant shareholders rely not on a cause of action which belongs to them personally, but on a cause of action belonging to the company. Furthermore, unlike the oppression action, if compensation is granted by the courts, it will be paid directly to the company and not to the complainant shareholders.

13.7. Liability towards third parties14 If a director acts in a manner that prejudices the creditors, customers or suppliers, the court may hold the director personally liable in tort. In particular in the course of the winding-up or in any proceedings against the company, if it appears that any business of the company has been carried on with the intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the court may, on the application of the liquidator or any creditor of the company, declare the director personally liable for any and all debts or any other liabilities of the company. Furthermore, where a director has entered into contracts on behalf of the company with a third party in breach of his fiduciary duty, the contract may be void if the other contracting party – the third party – knew or ought to have known of the director’s breach of duty.

13.8. Criminal Liability and disqualification A breach of his duties may render the director criminally liable. For instance, in a case where a director breaches his statutory duties, the director, if found guilty, is liable for a maximum fine of S$5,000 or imprisonment for a maximum of 1 year. In addition, a director who has been convicted of certain offences may be disqualified: it will then be an offence for the disqualified person to be a director of a company or to

14 9% of all the cases initiated by customers/suppliers and 21% by creditors between 1975 and 2003, ibid.

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manage companies, whether directly or indirectly. Actions can be brought either by the Attorney General15 or by the plaintiff. There are other instances where director’s liability can be sought in accordance with specific laws and regulations (see 14.2).

13.9. Subject to limitations, please note that, under common law, the shareholders of a company acting together may generally release a director from liability for breach of his fiduciary duty. In addition, a court has in certain cases the power to release a director from the consequences of his negligence, default, breach of duty or breach of trust.

14. ARE THERE ANY OTHER DIRECTORS’ DUTIES WHICH MIGHT ENCOURAGE A CORPORATE

CULTURE RESPECTFUL OF HUMAN RIGHTS?

14.1. There are other guidelines and regulations relating to corporate governance which

might encourage directors to foster a corporate culture respectful of human rights. As an illustration, even though the Listing Manual does not include an obligation to disclose corporate practices respectful of rights, it does oblige listed companies to disclose their corporate governance practices. The relevance of corporate governance codes and guidelines as well as the Listing Manual is discussed more in question 22 as well as in the reporting questions below..

14.2. It should be noted that, in addition to corporate and securities law16, the laws of Singapore dealing with areas such as the environment, corruption, discrimination or labour rights also impose obligations on companies. Hence, a director may specifically be held liable under those laws for offences committed by a company if it is proven that the offence has been committed with the consent or connivance of, or attributable to any neglect on part of such director.

15. FOR ALL OF THE ABOVE, DOES THE LAW PROVIDE GUIDANCE ABOUT THE ROLE OF

SUPERVISORY BOARDS IN CASES OF TWO TIER BOARD STRUCTURES, AS WELL AS THAT

OF SENIOR MANAGEMENT?

15.1. In Singapore, companies comprise three organs (outsider-based model of corporate

governance): the shareholders meetings, the board of directors and management. The law does not require any particular board structure and companies are free to structure their boards as they wish (with the requirement that every company has one director who is ordinarily resident in Singapore). As such, two-tier board structure (supervisory board and management board) is not imposed by law.

15.2. However, listed companies are to comply with the Code of Corporate Governance which

sets out requirements regarding the board structure. Firstly, the roles of chairman and CEO should be separate to ensure a balance of power and greater capacity for independent decision-making. Secondly, there should be a strong and independent element on the board: independent directors17 shall represent at least one-third of the

15 22% of all the cases initiated by the Attorney General between 1975 and 2003, ibid. 16 Please refer to § 1. 17 An independent director is one who has no relationship with the company, its related companies or its officers that could interfere with the reasonable exercise of the director’s independent business judgment with a view to the best interests of the company.

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board. Lastly, the Code of Corporate Governance also requires the existence of three committees: the Nominating Committee (making recommendations on all board appointments), the Remuneration Committee (determining the remuneration of directors) and the Audit Committee (reviewing the scope, result and cost effectiveness of audits and the independence and objectivity of external auditors). Independent directors shall comprise a majority of the members of these committees.

16. ARE COMPANIES REQUIRED OR PERMITTED TO DISCLOSE THE IMPACTS OF THEIR

OPERATIONS (INCLUDING HUMAN RIGHTS IMPACTS) ON NON-SHAREHOLDERS, AS

WELL AS ANY ACTION TAKEN OR INTENDED TO ADDRESS THOSE IMPACTS, WHETHER

AS PART OF FINANCIAL REPORTING OBLIGATIONS OR A SEPARATE REPORTING

REGIME?

16.1. In Singapore, companies (whether listed or not) are required to annually disclose

their annual accounts, management report and, if any, consolidated accounts and group management report. In such annual reports, companies shall mention any liabilities affecting their financial situation, including liabilities arising from the impact of their operations on non-shareholders. In addition, under the Listing Manual, listed companies are required to describe in their annual reports their corporate governance practices with specific reference to the principles of the Code of Corporate Governance, as well as to disclose and explain any deviation therefrom.

16.2. A listed company has an obligation, except under certain circumstances, to immediately disclose information that may have an effect on the market, and as such, information relating to their activities affecting non-shareholders, including human rights impacts, if they have an effect on the market.

16.3. We do not note any other obligation to disclose the impact of the company’s operations on non-shareholders; as an illustration, laws and regulations on the environment or corruption do not provide a statutory obligation to report or disclose. However, nothing prevents companies from communicating, through their corporate annual reports or through a separate stand-alone report, any other information relating to the impact of their activity on non-shareholders, including human rights impacts18.

17. DO REPORTING OBLIGATIONS EXTEND TO SUCH IMPACTS OR ACTIONS OUTSIDE THE

JURISDICTION; TO THE IMPACTS OR ACTIONS OF SUBSIDIARIES, SUPPLIERS AND OTHER

BUSINESS PARTNERS, WHETHER OCCURRING INSIDE OR OUTSIDE THE JURISDICTION?

17.1. The reporting obligations mentioned in question 16 above do not make any

distinction between impacts that arise inside or outside the jurisdiction.

17.2. Companies are required, under the Companies Act, to disclose consolidated accounts for the group in their annual reports. In addition, information having an effect on the market that must be immediately disclosed by listed companies (please refer to 16.2 above) not only concern the company itself, but also its subsidiaries or associated

18 For instance, Singapore Airlines communicates information relating to impacts on the environment by publishing an environmental report each year: http://www.singaporeair.com/saa/en_UK/docs/company_info/environment/SIA_EnvReport2007-08.pdf.

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companies.

18. WHO MUST VERIFY THESE REPORTS; WHO CAN ACCESS REPORTS; AND WHAT ARE THE

LEGAL CONSEQUENCES OF FAILING TO REPORT OR MISREPRESENTATION?

18.1. Financial reporting obligations

Company reports, especially financial statements, shall be audited by an independent auditor to be appointed at the annual general meetings. In the case of listed companies, an internal audit shall be conducted by the Audit Committee19.

18.2. The annual reports must be released to the public, which means that anybody can

access them. If the accounts in the annual report of the company do not present a true and fair view of the state of affairs of the company and, if applicable, the group of companies, the directors may be prosecuted. In addition to a criminal offence, a director may also be held to have breached his fiduciary duty towards the company if he has caused the company accounts to be misstated. In an extreme case, a director may be convicted of criminal conspiracy to cheat if the accounts are “window-dressed” in order to deceive customers and other persons dealing with the company.

18.3. Information affecting the market As stated above, listed companies have an obligation to keep the market immediately informed of any material information that may affect the market. Before disclosure to the SGX, information must not be divulgated to any person in such way as to place him in a privileged dealing position. Once the SGX has been informed, disclosure shall be public and made by an announcement released to the SGX via a financial network (MASNET) operated by the MAS. To facilitate the dissemination of the information, copies of the announcement may be provided simultaneously to newspapers. Announcements shall be prepared and verified by a director or an executive officer of the company who is familiar with the matter to be disclosed and the Listing Manual. Failure by a company to disclose material information could render it liable to pay civil fines or to criminal prosecution where the failure is intentional.

19. ARE THERE ANY RESTRICTIONS ON CIRCULATING SHAREHOLDER PROPOSALS WHICH

DEAL WITH IMPACTS ON NON-SHAREHOLDERS, INCLUDING HUMAN RIGHTS IMPACTS?

19.1. Nothing in the Companies Act prevents a member from proposing any sort of resolution or statement related to a matter referred to in any proposed resolution or business to be dealt with at the meeting. The Companies Act does not directly address questions concerning the content of shareholders propositions.

19.2. Nevertheless, the circulation process may deter shareholders from issuing proposals. Members have a statutory right to propose any resolution which may be properly adopted at a general meeting. Members holding not less than 5% of the total voting rights of all members, or at least 100 members holding shares on which an average of at least $500 per member has been paid up, may request that the company circulate

19 For further details, please refer to § 15.2.

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(at the member’s expense) a notice of the proposed resolution and any statement of not more than 1000 words with respect to the matter referred to in it. However, if the proposed resolution relates to a matter which is ultra vires the general meeting, then the company and its directors are not required to include the resolution in the agenda of the general meeting. For instance, if the proposed resolution relates to a question on which, under the articles of association or under the law, only the directors have powers, the resolution is deemed ultra vires20.

20. ARE INSTITUTIONAL INVESTORS, INCLUDING PENSION FUNDS, REQUIRED OR

PERMITTED TO CONSIDER SUCH IMPACTS IN THEIR INVESTMENT DECISIONS?

20.1. There is no general provision in Singapore requiring any institutional investors to consider impacts on non-shareholders in their investment decisions. However, institutional investors are permitted to consider such impacts. For instance, according to the Association for Sustainable and Responsible Investment in Asia, there are 14 sustainable and responsible investment funds (“SRI”) in Singapore, 10 of which are Shariah funds whose constituents are companies complying with Islamic principles.

20.2. Regarding some specific institutional investors in Singapore, it is interesting to note that Singapore has two Sovereign Wealth Funds (“SWFs”): Government of Singapore Investment (“GIC”) and Temasek Holding. Under its investment mandate set out by the Ministry of Finance, GIC’s objective is “to achieve a reasonable rate of return above global inflation, with due regard to risks, over an investment horizon of 20 years”. Temasek Holding, whose mission is currently to create and maximize long-term shareholder value as an active investor and shareholder of successful enterprises, has four investment themes:

(i) transforming economies (investing in industry sectors that correlate with the economic transformation of the country),

(ii) growing middle class (finding opportunities in companies and industries whose growth is fuelled by the increasing purchasing power of the middle class),

(iii) deepening comparative advantages (tapping the potential of competitively-positioned companies),

(iv) emerging champions (identifying companies proving to be the best-in-class, be it regionally or globally).

These investment themes, especially the first two objectives, refer directly to impacts on non-shareholders.

20.3. Statutory boards are another key player in the Singapore economy. They are

established by an act of Parliament that specifies the purpose, rights, and powers of the body. To date, there are 62 statutory boards. Their missions range from the management of temples and schools (Hindu Endowment Board) to the promotion of sustained non-inflationary economic growth and a sound and progressive financial centre (MAS).

20 See, Credit Development Pte Ltd v IMO Pte Ltd, [1993] 2 SLR 370.

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20.4. Regarding the statutory boards as a whole, the “standard investment power of statutory

bodies21” leaves the management of the body significant discretion and gives the minister in charge the possibility to issue general or special instructions regarding the investment policy of the body.

20.5. Each statutory board may thus have different investment rules depending on their Act of Incorporation as well as on the decisions of the minister in charge.

20.6. One of the most significant statutory boards is the Central Provident Fund Board

(“CPF”). Over the years, it has evolved into a comprehensive social security savings plan providing for the retirement, healthcare and housing needs of Singaporeans. In 2007, the members’ balance grew to S$136,586.9 million.

20.7. However, the CPF is not active directly on the market as CPF funds are invested mainly in government securities. Nevertheless, members are authorized to invest part of their savings in different and riskier financial products selected by the board of the CPF.

20.8. To select these financial products, the board of the CPF looks at criteria such as the capability of the fund managers, the investment philosophy of the fund, its key decision makers, the appropriateness and quality of its research and analysis and its portfolio construction and implementation. These criteria are further detailed and the board of the CPF shall also take into consideration “whether the Fund Management Company is a member or associate of the Investment Management Association of Singapore (IMAS) and subject to the Code of Ethics of IMAS”. It is stated in this Code of Ethics that “Members shall conduct themselves with integrity and professionalism and act in an ethical manner in all dealings with the public, clients, customers, employers, employees, regulators and fellow members”.

21. CAN NON-SHAREHOLDERS ADDRESS COMPANIES’ ANNUAL GENERAL MEETINGS?

21.1. There are no statutory obligations or prohibitions regarding non-shareholders addressing the annual general meetings of a company. In any case, shareholders remain free to provide in the articles of association for a right for non-shareholders to receive notice of and attend meetings.

22. ARE THERE ANY OTHER LAWS, POLICIES, CODES OR GUIDELINES RELATED TO

CORPORATE GOVERNANCE THAT MIGHT ENCOURAGE COMPANIES TO DEVELOP A

CORPORATE CULTURE RESPECTFUL OF HUMAN RIGHTS, INCLUDING THROUGH A

HUMAN RIGHTS DUE DILIGENCE PROCESS?

22.1. As mentioned above, the main legislative and regulatory corporate governance

sources may be found in the Companies Act, the SFA, the Listing Manual, and the Code of Corporate Governance. However, none of those rules or any other law go as far as to specifically encourage companies to develop a corporate culture respectful of human rights beyond what is compulsory by virtue of existing laws and compliance with such laws.

21 Interpretation Act.

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22.2. Nevertheless, even though Singapore has so far favoured a consensual approach

rather than enacting law, more and more actions are taken to enhance corporate governance and corporate social responsibility (“CSR”) via guidelines (non-binding), incentives, awards and certifications. In practice, most of the actions are taken by statutory boards and ministries.

22.3. The government is more and more active within the area of the environment. Recently, it formed an Inter-Ministerial Committee on Suitability (IMCSD) aiming to release, after public consultations, a report to encourage industries to adopt practices that are sustainable in the long term in the areas of resource management, pollution control and quality of the physical environment. In addition, the National Environment Agency has issued codes of practice and provides for tax incentives for environmentally friendly investments22.

22.4. The government also acts for better governance in the labour area where the “BizSAFE”, an initiative of the Workplace Safety Health Advisory Committee, has been launched to promote and offer assistance to small and medium enterprises in relation to improving their workplace safety and health standards notably through awarding a specific certification.

22.5. In addition, various associations – such as Singapore Compact for CSR, the Singapore Institute of Directors or the Association of Chartered Certified Accountants (ACCA) – are acting for better governance in Singapore by promoting CSR. It should be noted that Universities also take a great interest in CSR issues by organizing courses and events regarding CSR (Lien Centre for Social Innovation – Singapore Management University and Corporate Governance and Financial Reporting Centre – National University of Singapore).

22.6. Finally, it should be noted that the increase of CSR initiatives in Singapore is also driven by the city-state being opened up to the world: an important proportion of the companies that have a presence in Singapore operate worldwide and, facing pressure to go beyond domestic regulations, have to develop and pay attention to CSR issues through, for instance, voluntary standards and certification (e.g. ISO14001 Environmental System Standard or the future ISO26000 certification)23.

23. ARE THERE ANY LAWS REQUIRING REPRESENTATION OF PARTICULAR CONSTITUENCIES

(I.E. EMPLOYEES, REPRESENTATIVES OF AFFECTED COMMUNITIES) ON COMPANY

BOARDS?

23.1. To the best of our knowledge, there are no specific laws requiring representation of

particular constituencies on company boards in Singapore.

22 In November 2008, the NEA announced a new incentive scheme, the Grant for Energy Efficient Technologies (GREET), to help companies to achieve energy savings by co-funding up to 50% of the qualifying costs of energy efficient equipment or technologies or up to S$2 millions per project, whichever is lower. 23

Singapore hosts a UN Global Compact local network representative (http://www.csrsingapore.org/). There are currently 67 participants in Singapore to the UN Global Compact.

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24. ARE THERE ANY LAWS REQUIRING GENDER, RACIAL/ETHNIC REPRESENTATION; OR

NON-DISCRIMINATION GENERALLY, ON COMPANY BOARDS?

24.1. There are general provisions preventing discrimination, especially under the Singapore Constitution, which provides that “there shall be no discrimination against citizens of Singapore on the ground only of religion, race, descent or place of birth in any law or in the appointment to any office or employment under a public authority or in the administration of any law relating to the acquisition, holding or disposition of property or the establishing or carrying on of any trade, business, profession, vocation or employment.”

24.2. As a result, discrimination between members of the board for any gender, racial or ethnic reason is prohibited. Nevertheless, there is no specific provision under the Singapore law requiring minimum quotas of different ethnic group or communities on company boards.