I REFER to the letter ‘Wrong message from SGX on conflict of interest’ (BT, March 29).

The writer asks whether it makes much of a difference when an independent director is redesignated as a non-independent one.

As a matter of public interest, the Singapore Institute of Directors (SID) would like to emphasise that the proper classification of a director as independent or non-independent is an important cornerstone for good corporate governance.

The test of independence is one of both form and substance. Admittedly, it is sometimes a difficult test to administer as there is no obvious litmus test to indicate independence.

Therefore, nominating committees and Boards must be vigilant in identifying when circumstances change such as to cause a director to lose his independence and not hesitate to take appropriate action promptly to reclassify the director.

The independence of a director and any conflict of interest of his are connected but separate issues. Regardless of whether a director is independent or non-independent, he will have to disclose any conflicts of interest and the company must address the conflict to protect shareholders’ interests.

In dealing with the conflict, the director and the company should pay close attention to the requirements of the Companies Act, the SGX Listing Rules and the company’s Articles of Association.

The SID has in fact published a Statement of Good Practice on ‘Conflicts of Interest’ (SGP No 5/2006) to assist members and directors on this issue, which may be accessed by the public at www.sid.org.sg/web_about/good_practise_52006.

Sovann Giang
Executive Director
Singapore Institute of Directors