Corporate Governance
Introduction
The Board of Directors (the "Board") is committed to ensuring that the highest standards of corporate governance are practised throughout Mun Siong Engineering Limited (the "Company") and its subsidiaries (the "Group"), as a fundamental part of its responsibilities to protect and enhance shareholder value and the financial performance of the Group. In this respect, the Company adopts the practices based on the principles and guidelines as set out in the Code of Corporate Governance 2005 ("2005 Code").
This report describes the Group's corporate governance practices and structures that were in place during the financial year ended 31 December 2010.
(A) Board matters
Board's Conduct of its Affairs
Principle 1: Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the success of the company. The Board works with Management to achieve this and the Management remains accountable to the Board.
The Board's primary role is to protect and enhance long-term shareholder value. To fulfill this role, the Board is responsible for the overall corporate governance of the Group including:
- Providing entrepreneurial leadership, set strategic aims, and ensuring the necessary financial and human resources are in place for the Group to meet its objectives;
- Overseeing internal control processes, financial reporting and compliance, including the release of financial results and announcements of material transactions;
- Establishing a framework of prudent and effective controls which enables risk to be assessed and managed;
- Reviewing management's performance; and
- Setting the Group's values and standards, and ensure that obligations to shareholders and others are understood and met.
Information on each of the three Committees is set out below. The Board accepts that while these Committees have the authority to examine particular issues and will report back to the Board with their decisions and/or recommendations, the ultimate responsibility on all matters lies with the entire Board.
The Board will meet at least four times a year. Fixed and optional meetings are scheduled at the start of each year and optional meetings convened as scheduled only when there are matters requiring the Board's decision at the scheduled time. Ad hoc meetings are called when there are pressing matters requiring the Board's consideration and decision in between the scheduled meetings.
Matters which are specifically reserved for decision by the Board include those involving business plans, material acquisitions and disposals of assets, corporate or financial structuring, corporate strategy, share issuance, dividends, and shareholder matters.
The number of Board and Board Committee meetings held in the current financial year and the attendance of directors during these meetings is as follows:
Board of Directors |
Audit Committee |
Nomination Committee |
Remuneration Committee |
|||||||||
| Number of meetings |
Number of meetings |
Number of meetings |
Number of meetings |
|||||||||
| Position | Held | Attended | Position | Held | Attended | Position | Held | Attended | Position | Held | Attended | |
| Executive Director | ||||||||||||
| Cheng Woei Fen | C | 1 | 1 | NA | 1 | 1# | NA | - | - | NA | - | - |
| Quek Chiau Liong | M | 1 | 1 | NA | 1 | 1# | NA | - | - | NA | - | - |
| Lin Yan | M | 1 | 1 | NA | 1 | 1# | NA | - | - | NA | - | - |
| Lim Choon Wah | M | 1 | 1 | NA | 1 | 1# | NA | - | - | NA | - | - |
| Non - executive Director | ||||||||||||
| Gan Lai Chiang | M | 1 | 1 | C | 1 | 1 | M | -* | -* | M | -* | -* |
| Peter Sim Swee Yam | M | 1 | 1 | M | 1 | 1 | C | -* | -* | M | -* | -* |
| Tan Chee Meng | M | 1 | 1 | M | 1 | 1 | M | -* | -* | C | -* | -* |
| * | There were no Remuneration and Nomination Committee meetings held during the financial year as the Committees were only formed on 11th October 2010. |
| # | By invitation |
| NA | Not applicable |
A formal letter is provided to each director upon his appointment, setting out the director's duties and obligations. The Group also conducts an orientation programme for new directors to familiarise them with the business activities of the Group. Training for all directors has also been provided by the Group's Corporate Governance Advisor on good corporate governance practices.
Board Composition and Balance
Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from Management. No individual or small group of individuals should be allowed to dominate the Board's decision making.
The Board comprises seven members, three of whom are non-executive directors (including the Chairman of the Audit Committee). All non-executive directors, are also independent (i.e. they have no relationship with the Company, its related companies or their officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director's independent business judgment with a view to the best interests of the Group), and they are able to exercise objective judgment on corporate affairs independently from Management. The list of directors is as follows:
| Name | Date of Appointment | Designation |
| Cheng Woei Fen | 31 October 1981 | Executive Director |
| Quek Chiau Liong | 28 June 1993 | Managing Director |
| Lin Yan | 13 February 2009 | Executive Director |
| Lim Choon Wah | 1 October 2009 | Executive Director |
| Gan Lai Chiang | 11 October 2010 | Non-executive Director, Independent |
| Peter Sim Swee Yam | 11 October 2010 | Non-executive Director, Independent |
| Tan Chee Meng | 11 October 2010 | Non-executive Director, Independent |
The Nominating Committee reviews the size of the Board on an annual basis, and considers the present Board size as appropriate for the current scope and nature of the Group's operations. As independent and non-executive directors make up almost half of the Board, no individual or group is able to dominate the Board's decision-making process. There is also balance in the Board because of the presence of independent, non-executive directors of the calibre necessary to carry sufficient weight in Board decisions. Although all the directors have an equal responsibility for the Group's operations, the role of these independent non-executive directors is particularly important in ensuring that the strategies proposed by Management are constructively challenged, fully discussed and examined, and take account of the long term interests, not only of the shareholders, but also of employees, customers, suppliers and the many communities in which the Group conducts business.
Whilst the Company is controlled by major shareholders, the investment of minority shareholders is fairly represented through the representation of independent directors.
Executive Chairman and Managing Director
Principle 3: There should be a clear division of responsibilities at the top of the company - the working of the Board and the executive responsibility of the company's business - which will ensure a balance of power and authority, such that no one individual represents a considerable concentration of power.
The roles of the Executive Chairman and Managing Director are separate to ensure an appropriate balance of power, increased accountability and greater capacity of the Board for independent decision making. The Executive Chairman, Cheng Woei Fen, is responsible for leading the Board and facilitating its effectiveness. She promotes high standards of corporate governance on the Board and within the Group.
The Managing Director, Quek Chiau Liong, is an executive director responsible for the business direction, strategic positioning and business expansion of the Group.
The Executive Chairman ensures that Board meetings are held as and when necessary. She leads the Board to ensure its effectiveness and approves the agenda of each Board meeting in consultation with the Managing Director. The Executive Chairman reviews most Board papers before they are presented to the Board and ensures that Board members are provided with accurate, timely and clear information. Management staffs who have prepared the papers, or who can provide additional insight into the matters to be discussed, are invited to present the paper or attend at the relevant time during the Board meeting. The Executive Chairman monitors communications and relations between the Company and its shareholders, between the Board and Management, and between independent and non-independent directors, with a view to encouraging constructive relations and dialogue amongst them. The Executive Chairman works to facilitate the effective contribution of non-executive directors. The foregoing responsibilities of the Executive Chairman are included in the abovementioned guidelines endorsed by the Board.
Quek Chiau Liong is the stepson of Cheng Woei Fen. As the above practice is a deviation from the principle, and pursuant to the recommendation by the 2005 Code, the Board has appointed Gan Lai Chiang, an independent non-executive director, as our Lead Independent Director. Mr. Gan is available to shareholders where they have concerns which contact through the normal channels of the Chairman, Managing Director or the Chief Financial Officer has failed to resolve or for which such contact is inappropriate.
Nomination Committee
Principle 4: There should be a formal and transparent process for the appointment of new Directors to the Board.
The Nomination Committee comprises the following non-executive and independent directors:
Mr Peter Sim Swee Yam (Chairman)
Mr Gan Lai Chiang
Mr Tan Chee Meng
The Nomination Committee was set up on 11 October 2010. The Chairman of the Nomination Committee is neither a substantial shareholder of the Company nor directly associated with a substantial shareholder of the Company.
The Nomination Committee has a term of reference endorsed by the Board that sets out its duties and responsibilities. Its responsibilities include the following:
-
Making recommendations to the Board on all board appointments. In its search, nomination and selection process for new directors, the Nomination Committee identifies the key attributes that an incoming director should have, based on a matrix of the attributes of the existing Board and the requirements of the Group.
After endorsement by the Board of the key attributes, the Nomination Committee taps on the resources of directors' personal contacts and recommendations of potential candidates, and goes through a short-listing process. If candidates identified from this process are not suitable, executive recruitment agencies are appointed to assist in the search process. Interviews are set up with potential candidates for Nomination Committee members to assess them, before a decision is reached. -
Making recommendations to the Board on the re-nomination of directors at regular intervals and at least once every three years for each director, as required by the Articles of Association of the Company.
In its deliberations on the re-nomination of existing directors, the Nomination Committee takes into consideration the directors' contribution and performance (including, if applicable, his contribution and performance as an independent director). The assessment parameters include attendance record, preparedness, intensity of participation and candour at meetings of the Board and Committees as well as the quality of intervention and special contributions. The Chairman of the Board will give feedback to the Nomination Committee on the appointment of new directors or retirement or resignation of existing directors, following the outcome of an annual performance evaluation of individual directors, and the Nomination Committee will take into consideration his views in this regard. - Determining the independence of directors annually. In doing so, the Nomination Committee takes into account the circumstances set forth in Guideline 2.1 of the 2005 Code and any other salient factors. Following its annual review, the Nomination Committee has endorsed the independent status of the independent non-executive directors.
Principle 5: There should be a formal assessment of the effectiveness of the Board as a whole and the contribution by each Director to the effectiveness of the Board.
The Board has implemented a process for assessing its effectiveness as a whole and for assessing the contribution by each director to the effectiveness of the Board.
The assessment utilizes a confidential questionnaire, covering areas such as the effectiveness of the Board in its monitoring role, is completed by each director individually. The completed qualitative assessment questionnaires are collated for the Nomination Committee's discussion. The results, conclusions and recommendation are then presented to the Board by the Nomination Committee.
The assessment of individual directors is done through both self-assessment, in each case through a confidential questionnaire completed by directors individually. The assessment parameters for such individual evaluation include attendance and contributions during Board meetings as well as commitment to their role as directors. The completed questionnaires are then collated for the Nomination Committee's deliberation.
The assessment of the Board and the directors are carried out annually.
Access to information
Principle 6: In order to fulfill their responsibilities, Board members should be provided with complete, adequate and timely information prior to board meetings and on an on-going basis.
All directors receive a set of Board papers prior to the Board meeting. This is generally issued to them at least seven days prior to the meeting in sufficient time to enable the directors to obtain further explanations, where necessary, in order to be briefed properly and prepare for the meeting.
As part of good corporate governance, key matters requiring decision are reserved for resolution at Board meetings rather than by circulation to facilitate discussion. Key analysts' reports on the Group are forwarded to the directors on an ongoing basis. In addition, the Board receives from Management quarterly management accounts which present a balanced and understandable assessment of the Group's performance, position and prospects.
The directors have separate and independent access to the Group's senior management, including the Executive Chairman, Managing Director, Chief Financial Officer and other executive officer, as well as the Group's internal and external auditors. Queries by individual directors on circulated papers are directed to Management who will respond accordingly. Where relevant, directors' queries and Management's responses are circulated to all Board members for their information.
All directors have separate and independent access to the advice and services of the Company Secretary. The Company Secretary attends all meetings of the Board and ensures that Board procedures are followed and that applicable rules and regulations are complied with. The Company Secretary also attends all meetings of the Audit Committee, Remuneration Committee and Nomination Committee. Under the direction of the Chairman, the Company Secretary is responsible for ensuring good information flows within the Board and its Committees and between senior management and non-executive directors, as well as facilitating orientation and assisting with professional development as required.
Under the Articles of Association of the Company, the decision to appoint or remove the Company Secretary can only be taken by the Board as a whole.
(B) Remuneration matters
Procedures for developing remuneration policies
Principle 7: There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual Director. No Director should be involved in deciding his own remuneration.
Remuneration Committee
The Remuneration Committee comprises the following non-executive and independent directors:
Mr Tan Chee Meng (Chairman)
Mr Gan Lai Chiang
Mr Peter Sim Swee Yam
The principal responsibilities of the Remuneration Committee include:
- Reviewing and recommending to the Board for endorsement, a framework for computation of directors' fees of the Board, as well as remuneration of executive directors and senior management grade or its equivalent and above. For executive directors and other senior management, the framework covers all aspects of executive remuneration (including but not limited to directors' fees, salaries, allowances, bonuses, options and benefits-in-kind); and
- Recommending the specific remuneration packages for each director and other senior management
No Director is involved in deciding his own remuneration, except in providing information and documents if specifically requested by the Remuneration Committee to assist in its deliberations.
The Remuneration Committee's review covers all aspects of remuneration, including salaries, fees, allowances, bonuses and benefits-in-kind. The Remuneration Committee's recommendations are submitted for endorsement by the entire Board.
Level and Mix of Remuneration
Principle 8: The level of remuneration should be appropriate to attract, retain and motivate the Directors needed to run the company successfully but companies should avoid paying more than necessary for this purpose. A significant proportion of executive Directors' remuneration should be structured so as to link rewards to corporate and individual performance.
The remuneration package of executive directors and other senior management grade or its equivalent and above ("Senior Management") consists of the following components:
-
(a.) Fixed Component
Fixed pay comprises basic salary, statutory employer's contributions to the Central Provident Fund, and fixed allowances. To ensure that key executives' remuneration is consistent and comparable with market practice, the Remuneration Committee also regularly benchmarks remuneration components against those of comparable companies, while continuing to be mindful that there is a general correlation between increased remuneration and performance improvements.
-
(b.) Variable Component
This component comprises variable bonus based on the Group's and the individual's performance, as well as monthly variable component of the basic salary. To link rewards to performance, the more senior the executive is in the Group, the higher is the percentage of the variable component against total compensation. A comprehensive and structured assessment of the performance of Senior Management, against selected key performance indicators, is undertaken each year. Bonuses payable to Senior Management are reviewed by the Remuneration Committee and approved by the Board to ensure alignment of their interests with those of shareholders.
-
(c.) Benefits
Benefits provided are consistent with market practice and include medical benefits, flexible benefits and car allowance. Eligibility for these benefits will depend on individual salary grade and length of service.
Directors fees are subject to the approval of the shareholders at the Annual General Meeting. Factors such as level of contribution, effort and time spent, and responsibilities and leadership of the Non-Executive Directors are considered when determining their level of fees.
Disclosure on Remuneration
Principle 9: Each company should provide clear disclosure of its remuneration policy, level and mix of remuneration, and the procedure for setting remuneration, in the company's annual report. It should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to Directors and key executives, and performance.
The remuneration of directors and key executives is set out below. The disclosure is provided to enable investors to understand the link between the remuneration paid to the directors and key executives, and corporate and individual performance.
| Salary % |
Variable Bonus % |
Director's Fees % |
Benefits % |
Total % |
|
| Directors Above $500,000 but below $750,000 |
|||||
| Cheng Woei Fen | 31% | 65% | 0% | 4% | 100% |
| Above $250,000 but below $500,000 | |||||
| Quek Chiau Liong | 33% | 61% | 0% | 6% | 100% |
| Lim Choon Wah | 39% | 56% | 0% | 5% | 100% |
| Below $250,000 | |||||
| Lin Yan | 59% | 38% | 0% | 3% | 100% |
| Gan Lai Chiang | 0% | 0% | 100% | 0% | 100% |
| Peter Sim Swee Yam | 0% | 0% | 100% | 0% | 100% |
| Tan Chee Meng | 0% | 0% | 100% | 0% | 100% |
| Key Executives Below $250,000 |
|||||
| Lim Boon Kiang | 100% | 0% | 0% | 0% | 100% |
| Chong Siew Lian | 100% | 0% | 0% | 0% | 100% |
| Wei Qian | 100% | 0% | 0% | 0% | 100% |
| Ker Bee Bee | 100% | 0% | 0% | 0% | 100% |
The aggregate remuneration of the two employees who are immediate family members of our Chairman and Managing Director was approximately $72,000 for the relevant financial year.
The Company had on 6 October 2010, entered into a service agreement with Cheng Woei Fen and Quek Chiau Liong in relation to their appointment as the Chairman and the Managing Director respectively. The service agreements took effect from the date of the Company's admission to the Official List of the SGX-ST, being 22 October 2010, for an initial period of three years, and shall be renewable automatically on an annual basis thereafter. The Remuneration Committee is responsible for reviewing the compensation commitments in the event of an early termination.
(C) Accountability and audit
Accountability
Principle 10: The Board should present a balanced and understandable assessment of the company's performance, position and prospects.
The Board is responsible for providing a balanced and understandable assessment of the Group's performance, position and prospects when presenting interim and other price sensitive public reports and reports to regulators (if required).
Audit Committee
Principle 11: The Board should establish an Audit Committee ("AC") with written terms of reference which clearly set out its authority and duties.
The Audit Committee comprises the following Directors:
Mr Gan Lai Chiang (Chairman)
Mr Peter Sim Swee Yam
Mr Tan Chee Meng
The Audit Committee held one meeting during the financial year. The meeting was attended by the Executive Directors, the Chief Financial Officer and the Financial Controller at the invitation of the Audit Committee.
The Group's external auditors were also present at the relevant junctures during the meeting. All members of this Committee are non-executive directors and are independent.
The Board is of the view that all the members of the Audit Committee are appropriately qualified to discharge their responsibilities. Mr Gan has the requisite accounting and related financial management expertise and experience while Mr Peter Sim has relevant experience from his involvement in the various committees of the SGX-listed companies that he held directorships. Mr Tan has extensive local and international exposure in the corporate world.
The Audit Committee has written terms of reference endorsed by the Board, setting out their duties and responsibilities. The Audit Committee is authorised by the Board to investigate any matter within its terms of reference and has full access to, and cooperation of Management, with full discretion to invite any director or executive officer to attend its meetings. It has adequate resources to enable it to discharge its functions properly.
During the meetings of the Audit Committee held during the financial year, the Audit Committee performed its functions and responsibilities as set out in its terms of reference, which include the following:
- Reviewing the scope, approach and results of the audit and its cost effectiveness, and the independence and objectivity of the external auditor;
- Reviewing the nature and extent of the external auditor's non-audit services to the Group as well as the extent of reliance placed by the external auditor on the internal auditor's work, seeking to balance the maintenance of objectivity and value for money;
- Reviewing the significant financial reporting issues and judgments so as to ensure the integrity of the financial statements of the Group and any formal announcements relating to the Group's financial performance:
- Reviewing the adequacy of the Group's internal financial controls, operational and compliance controls, and risk management policies and systems (hereinafter referred to collectively as "internal controls") at least annually;
- Making recommendations to the Board on the appointment, re-appointment and removal of the external auditors, and approving the remuneration and terms of engagement of the external auditors;
- Reviewing the external auditors' audit plan, audit report and the external auditors' evaluation of the system of internal accounting controls with the external auditors as well as the assistance given by Management to the external auditors; and
- Reviewing the quarterly and full-year financial reports of the Group, prior to their submission to the Board
Internal Controls and internal audit
Principle 12: The Board should ensure that the Management maintains a sound system of internal controls to safeguard the shareholders' investments and the company's assets.
Principle 13: The company should establish an internal audit function that is independent of the activities it audits.
The Board recognises the importance of sound internal controls and risk management practices to good corporate governance and has outsourced its internal audit function. The Audit Committee will review its adequacy and effectiveness each year. SK Lai & Co. has been appointed as the Internal Auditor during the year. The internal auditor reports primarily to the Audit Committee.
In assessing the design and operating effectiveness of internal controls, the Group has in place a system of internal controls to ensure:
- Assets are safeguarded;
- Fraud or errors in the accounting records are prevented or detected;
- Accuracy and completeness of accounting records are ensured;
- Reliable financial information is prepared in a timely manner; and
- Compliance with applicable internal policies, laws and regulations relating to the financial reporting process
SK Lai & Co. has been appointed the Internal Auditor during the financial year; the Internal Auditor has a direct and primary reporting line to the Chairman of the Audit Committee, with administrative reporting to the Chairman. The Internal Auditor assists the Board in monitoring risks and internal controls of the Group.
Whistle blowing programme
The Group is committed to a high standard of ethical conduct and adopts a zero tolerance approach to fraud. The Group undertakes to investigate complaints of suspected fraud in an objective manner and has put in place, with the Audit Committee's endorsement, arrangements by which staff of the Group may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. The objective for such arrangements is to ensure independent investigation of matters raised and to allow appropriate actions to be taken. The results from the investigation are reports directly to the Chairman of the Audit Committee.
Auditors' independence
The Audit Committee is satisfied with the independence and objectivity of the external auditor and recommends to the Board the nomination of the external auditor for reappointment. The Audit Committee has conducted an annual review of all non-audit services provided by the external auditor and is satisfied that the nature and extent of such services do not affect the independence of the external auditor.
Interested Person Transactions
The Group has established procedures to ensure that transactions with interested persons are properly reviewed and approved and are conducted at arm's length basis and do not prejudice the interests of the Group and its minority shareholders.
There were no interested person transactions during the financial year.
Material Contracts
There were no material contracts entered into by the Group involving the interests of any Director or controlling shareholder.
(D) Communication with shareholders
Principle 14: Companies should engage in regular, effective and fair communication with shareholders.
Principle 15: Companies should encourage greater shareholder participation at AGMs, and allow shareholders the opportunity to communicate their views on various matters affecting the company.
The Group values dialogue with its shareholders. The Group believes in regular, effective and fair communication with its shareholders and is committed to hearing shareholders' views and addressing their concerns where possible. The Group has a investor relations team which attends to their queries or concerns.
The investor relations team also manages the dissemination of corporate information to the media, public, institutional investors and public shareholders, and acts as a liaison point for such entities and parties. Shareholders can make use of a telephone or email feedback line that goes directly to the Group's investor relations team. Material information is published on SGXNET and on the Company's website www.mun-siong.com, and where appropriate, through media releases.
The Group monitors the dissemination of material information to ensure that it is made publicly available on a timely and non-selective basis. Results and annual reports are announced or issued within the mandatory period.
The Group believes in encouraging shareholder participation at general meetings. A shareholder who is entitled to attend and vote may either vote in person or in absentia through the appointment of one or more proxies. The Company's Articles of Association do not allow for other absentia voting methods such as by mail, electronic mail, fax and/or other methods. Such methods will only be implemented if the necessary security and other measures to protect against errors, fraud and other irregularities are available on a cost-effective basis and when the Board views this is of sufficient interest to the Company's shareholders.
At each Annual General Meeting, the Board will present the progress and performance of the Group and encourage shareholders to participate in the question and answer session. The external auditor will address shareholders' queries on the conduct of the audit and the preparation and content of the auditor's report. The Chairpersons of the Audit, Nomination and Remuneration Committees, or members of the respective Committees standing in for them, will be present at each Annual General Meeting, and other general meetings held by the Company, if any, to address shareholders' queries. Appropriate senior management personnel/members will also present at general meetings to respond, if necessary, to operational questions from shareholders.
Each item of special business included in the notice of the meeting will be accompanied by a full explanation of the effects of a proposed resolution. Separate resolutions are proposed for substantially separate issues at the meeting.
Dealings in securities
The Group has adopted an internal code on securities trading which provides guidance and internal regulation with regard to dealings in the Group's securities by its directors and officers. The Group's internal code prohibits its directors and officers from dealing in listed securities of the Group while in possession of unpublished material or price-sensitive information in relation to such securities and during the "closed period", which is defined as two weeks before the date of announcement of results for each of the first three quarters of the Group's financial year and one month before the date of announcement of the full year financial results. Directors and officers are also prohibited from dealing in the Group's securities on short-term considerations.
Statement of Compliance
The Company has generally complied with the principles and guidelines of the 2005 Code.
Utilisation of proceeds from IPO
The proceeds raised from the Company's IPO, after deducting listing expenses of approximately $2.5 million was approximately $18.9 million. As at the date of this report, the Company has utilised its proceeds as follows:
| Purpose | Amount raised $'000 |
Amount utilized $'000 |
Balance Amount $'000 |
| To establish a regional presence | 4,000 | 110 | 3,890 |
| To establish an engineering design centre and upgrading of existing database management system |
1,000 | 40 | 960 |
| Widening the range of services available to our customers |
12,500 | - | 1,400 |
| Working capital | 1,400 | - | 1,400 |
| Total | 18,900 | 150 | 1,875 |