The Board of Directors ("the Board") is committed to
ensuring that the highest standards of corporate governance
are practised throughout Neptune Orient Lines Limited
("NOL" or "the Company") and its subsidiaries (collectively
known as "the Group"). This is fundamental to the discharge
of its responsibilities to protect and enhance shareholder
value and to ensure transparency in reporting the financial
performance of the Group. In its support of the Code of
Corporate Governance ("the Code") as annexed
to the Singapore Exchange Securities Trading Limited
("SGX-ST")'s Listing Manual, the Board has established
various self-regulatory and monitoring mechanisms to
ensure that effective corporate governance is practised.
Outlined below are the policies, processes and practices
adopted by the Group to comply with the principles and
spirit of the Code.
1. Board of Directors
(a) Responsibilities
The Board delegates day-to-day operations of the Group
to Management. It also delegates specific responsibilities
to five committees (Nominating, Executive, Audit, Executive
Resource and Compensation, and Approval), details of
which are set out in Section 4 below. These committees
have the authority to examine particular issues and report
back to the Board with their recommendations where
appropriate. The ultimate responsibility for the final decision
on all matters, however, lies with the entire Board.
Matters which are specifically reserved for decision of the full
Board include those involving corporate plans and budgets,
material acquisitions and disposals of assets, corporate or
financial restructuring, share issuances, dividends and other
returns to shareholders.
Major investments or expenditures, other than operational
expenditures that are required in the normal course of
business and that have been provided for in the Capital
Expenditure Budget approved by the Board, are subject to
the approval of the Executive Committee and/or the Board.
(b) Board Composition
In 2004, an Independent Director, Mr Christopher Lau,
was appointed to the Board. He will be standing for
re-election at the Company's Annual General Meeting
("AGM") in April 2005.
NOL has 13 directors, 11 of whom are non-executive
(including the Chairman). All Non-Executive Directors,
except for Mr Gan Chee Yen, a senior executive of the
Company's majority shareholder, Temasek Holdings
(Private) Limited, are independent. The Executive Directors
are the Chief Executive Officer ("CEO") and the Chief
Financial Officer ("CFO"). Collectively, the Directors
contribute a range of relevant skills, including accounting,
finance, human resource, business, industry knowledge and
strategic planning, to the global operations of the Group.
Key information on the Directors can be found in the "Board
of Directors" section of the Annual Report.
As part of Board renewal, in the appointment of Directors
process, the Nominating Committee considers the
required mix of skills and experience of the Board
members, including the core competencies of each of the
Non-Executive Directors.
To comply with the requirement in the Code that all Directors
should submit themselves for re-nomination and re-election
at regular intervals, the Company has amended its Articles
to require the CEO to submit himself for re-nomination
and re-election.
(c) Chairman and the Chief Executive Officer
The Chairman, Mr Cheng Wai Keung, chairs the Board,
Nominating Committee and Executive Committee ("Exco")
meetings. He guides the Board in its discussion on
significant issues. In addition, he guides and motivates
the Management towards achieving the Group's objectives.
The CEO, Mr David Lim, is responsible for the business
directions and operational decisions of the Group.
The Chairman and CEO are not related.
(d) Directors' Training Needs
NOL conducts an orientation programme for new Board
Members to familiarise them with the Group's businesses
and governance practices, including policies on disclosure
of interests in securities, prohibitions on dealing in the
Company's securities and restrictions on disclosure of
price-sensitive information.
Directors are at liberty to request for further explanations,
briefings or informal discussions on any aspect of
the Group's operations or business issues from the
Management.
The Company also arranges for its Board members to
be kept abreast of developments in the shipping and
logistics industry through lunch talks and media updates.
To keep pace with the fast-changing laws, regulations
and commercial risks, Directors have an on-going budget
to receive further relevant training of their choice in
connection with their duties as Directors. They are also given
unrestricted access to professionals for consultations as and
when necessary at the expense of the Company.
2. Board Performance
The Board performance evaluation process involves
questionnaires being sent out, on an annual basis, to
the Non-Executive Directors to secure their feedback on
the effectiveness of the Board as a whole, as well as the
Committees of the Board.
From the comments of Board members, an executive
summary is prepared and tabled for discussion by the
Nominating Committee. The salient points, including
proposed course of action in response to the feedback,
are subsequently tabled for the Board's information.
3. Board's Conduct of its Affairs
The Board meets at least four times a year, with additional
meetings convened as and when necessary. The Articles of
Association of the Company allow a Board Meeting to be
conducted by way of teleconference or video-conference.
During the financial year under review, the Board convened
seven meetings, five of which were fully attended. Three of
the meetings were for the purpose of deliberating on the
Cash Offer for all the shares of the Company ("the Offer") by
Lentor Investments Pte. Ltd., a wholly-owned subsidiary of
Temasek Holdings (Private) Limited. In addition, a number
of Board members were appointed to deal with the
operational details relating to the said Offer.
The Chairman ensures that Board Meetings are held as
and when necessary. He also prepares the Board meeting
agenda in consultation with the CEO. The Chairman ensures
that Board members are provided with adequate and timely
information. Management staff who are involved in the
preparation of Board papers, or who can provide additional
insight into the matters to be discussed, are invited to
present the papers or attend the Board Meetings.
To address the competing time commitments of Directors,
Board and Board Committee meeting dates are scheduled
in advance, before the beginning of each calendar year.
4. Board Committees
The Company has five Board Committees:
(a) Nominating Committee
(b) Executive Committee
(c) Audit Committee
(d) Executive Resource and Compensation Committee
(e) Approval Committee
(a) Nominating Committee ("NC")
The members of the NC are Messrs Cheng Wai Keung
(Chairman), Ang Kong Hua and Gan Chee Yen, who are
Non-Executive Directors. Except for Mr Gan, all members
are independent.
The NC makes recommendations to the Board on all
Board appointments and re-appointments. It also decides
on the appointments of the members of the various
Board Committees.
During the financial year, the NC had two physical meetings.
Full attendance was recorded for the meetings.
(b) Executive Committee ("Exco")
The Exco comprises three Non-Executive and Independent
Directors, Messrs Cheng Wai Keung and Ang Kong Hua and
Dr Friedbert Malt, and two Executive Directors Messrs David
Lim and Lim How Teck. Mr Cheng chairs the Committee.
The Exco is delegated with all the powers of the Board
to conduct and supervise the business of the Company
and its staff. Its responsibilities include: providing overall
strategic direction to the Management and guiding
development policies and strategies for the Group;
reviewing and approving major investments recommended
by Management subject to a limit of US$100 million per
transaction; reviewing and recommending larger investments
for the Board's approval; reviewing and monitoring the
financial performance and progress of the Group; and
evaluating the performance and determining the employment
terms and compensation for the Executive Directors. Over
and above the general functions described above, the
NOL Exco may from time to time be delegated powers by
the Board to oversee specific matters and/or projects.
The Exco held five meetings during the financial year and
these were fully attended.
(c) Audit Committee ("AC")
The AC consists of four Non-Executive Directors, all of
whom are independent except for Mr Gan Chee Yen.
Chaired by Mr Willie Cheng, the other two members of the
Committee are Mr Lock Sai Hung and Mr Christopher Lau
(appointed on 18 May 2004).
The AC is authorised by the Board to investigate any activity
within its terms of reference. It has unrestricted access to
information relating to the Group, to both the internal and
external auditors, and to the Management and staff. It has
full discretion to invite any Director or executive officer
to attend its meetings. It is also authorised by the Board
to obtain external legal or other independent professional
advice as necessary and at the expense of the Group.
The AC carries out its functions in accordance with
Section 201B(5) of the Singapore Companies Act, including
the following:
-
Reviewing with the external auditors the audit plan,
the evaluation of the internal accounting controls, audit
reports and any matters which the external auditors
wish to discuss (in the absence of Management,
where necessary);
- Reviewing with the internal auditors the Internal Audit
plan, the scope and the results of internal audit
procedures and their evaluation of the overall internal
control systems;
- Calling for and reviewing any internal investigation
into cases of fraud and/or significant irregularities and
submitting its findings to the Board as deemed necessary;
- Making recommendations to the Board on the
appointment of external auditors and their audit fee;
- Reviewing and approving the appointment, replacement,
reassignment or the dismissal of internal auditors;
- Monitoring Interested Person Transactions and conflict
of interest situations that may arise within the Group,
including any transaction, procedure or course of action
that raises questions of management integrity. The AC
is also required to ensure that Directors report such
transactions quarterly via SGX-ST's quarterly
announcements and annually to shareholders via the
Annual Report;
- Reviewing quarterly financial reporting to SGX-ST and
year-end annual financial statements of the Group
before submission to the Board, focusing on:
- Going concern assumption
- Compliance with accounting standards and
regulatory requirements
- Any changes in accounting policies and practices
- Significant issues arising from the audit
- Major judgmental areas;
- Undertaking any other functions agreed by the AC and
the Board.
The AC conducts an annual review of the independence and
objectivity of the external auditors, PricewaterhouseCoopers.
For FY2004, the AC undertook a review of the volume of
non-audit services provided by the external auditors to
assess whether the nature and extent of those services
might prejudice the independence and objectivity of the
auditors before confirming its re-nomination. The AC was
satisfied that such services did not affect the independence
of the external auditors. The AC also reviewed the costeffectiveness
of the audit conducted by the external auditors.
The AC convened four meetings during the financial year
with full attendance from all members, except for one where
a member was absent. In attendance at these meetings
were the Group CFO, Group Controller and Internal Auditor.
The external auditors attend these meetings, where required.
Internal Audit
The Internal Audit's functions include assisting the AC
and the Board in the evaluation of the internal controls,
financial and accounting matters, compliance, business
and financial risk management. Internal Audit reports
directly to the Chairman of the AC on audit matters, and
to the CEO on administrative matters.
The AC reviews Internal Audit's reports on a quarterly basis.
The AC also reviews and approves the annual Internal
Audit plan and resources. The AC is satisfied that Internal
Audit has adequate resources to perform its functions,
and has appropriate standing within the Company.
The Group Internal Auditor is a member of The Institute of
Internal Auditors, Inc. ("IIA"), and has adopted the Standards
for Professional Practice of Internal Auditing set by the IIA.
(d) Executive Resource and Compensation
Committee ("ERCC")
The ERCC performs three critical roles in support of sound
Corporate Governance principles in the area of executive
reward management:
- It ensures compliance with the Singapore Code of
Corporate Governance in the area of executive and
Board compensation;
- In particular, it recommends to the Board a framework
of remuneration for the Board and members of the
senior executive team;
- It has responsibility to ensure that appropriate
recruitment, development and succession planning
programmes are in place for the senior executives.
The ERCC is chaired by Mr Connal Rankin, an Independent
and Non-Executive Director. The other members, who are
also Non-Executive and Independent, are Mr Cheng Wai
Keung, Dr Friedbert Malt and Mr Lock Sai Hung.
In its delivery of the three critical roles listed above, the
principal responsibilities of the ERCC include:
- Endorsement of the reward philosophy, strategy and
guiding principles relevant to NOL senior executives;
- Authorisation of all remuneration arrangements that
involve the issuance of shares;
- Overall market positioning of the remuneration
packages, individual base salaries and increases;
- Benefit entitlements (including retirement and pension
arrangements);
- Service contracts for senior executives;
- Recruitment specifications and appointments;
- Development assignments;
- Succession criteria and candidates.
In framing the Group's remuneration policy, the ERCC
receives advice from external consultants.
Five meetings were convened by the ERCC during the
financial period, with full attendance.
The remuneration for Executive Directors includes salaries,
bonuses, share options and other emoluments, while that
for Non-Executive Directors includes Directors' fees, share
options and other emoluments. Other emoluments (including
benefits-in-kind) are computed based on the costs incurred
by the Group and the Company.
NOL Executive Remuneration Policy
The NOL remuneration strategy and policy was designed
to ensure a strong linkage between company performance
and individual reward elements. All policy matters on senior
executive reward come under the purview of the ERCC.
For employees in the senior management group, their total
annual remuneration is managed within a "total rewards"
framework. This reward framework is benchmarked against
the external market that includes our competitive market
for talent, worldwide. Pay surveys, conducted by external
consultants, are used to verify that our packages are
competitively positioned.
Annual incentive bonuses are linked to the achievement
of overall corporate, business unit and individual objectives.
Both stock options and performance shares are awarded
on the basis of meeting stretch financial goals, key
performance indicators and the demonstration of leadership
competencies.
By aggressively managing the fixed cost elements of
remuneration, such as salaries and benefits, we retain
the necessary flexibility to stay competitive in our cyclical
industry. This also enables us to adjust pay-at-risk
components (such as bonuses and share plans) to
appropriately reward, motivate and retain the top talent
we need to drive our success.
(e) Approval Committee
The Approval Committee was established to endorse
operational and procedural matters such as the appointment
of proxies to attend Annual General Meetings in subsidiaries
and associated companies within the Group, to grant
powers of attorney relating to appointment of agents
to handle the business operations of the Group, and to
authorise the affixing of the corporate seal.
The Committee currently consists of the Chairman and CFO,
whose approvals are sought by way of resolutions-in-writing.
5. Communication with Shareholders
The Group values dialogue with its investors. The Executive
Directors hold discussions with the news media and
analysts upon the announcement of the Company's Q2 and
financial year-end results to the SGX-ST. Presentations are
made, as appropriate, to explain the Group's strategy,
performance and major developments. However, any
information that may be regarded as undisclosed material
information about the Group will not be given without it
being announced through SGXNET.
The Group has an investor relations team which
communicates with its investors on a regular basis and
attends to their queries. All registered shareholders of the
Company receive the Annual Report and Notice of Annual
General Meeting. The Notice is also advertised in the
newspaper and made available on the Company's website:
www.nol.com.sg.
The Articles allow each shareholder of the Company to
appoint one or two proxies to attend and vote in place
of the shareholder.
At each Annual General Meeting, the Board presents the
progress and performance of the business and encourages
shareholders to participate in the question and answer
session. Executive Directors and the Chairmen of the NC,
Exco, AC and ERCC, and external auditors are available to
respond to shareholders' questions during the meeting.
Each item of special business included in the Notice
of the meeting is accompanied by a full explanation of
the effects of a proposed resolution. Separate resolutions
are proposed for substantially separate issues at the
meeting. The Chairman declares at each meeting the
number of proxy votes received both for and against each
separate resolution.
6. Dealings in Securities
The Group has adopted internal codes in relation to the
dealing of the Company's securities. Directors and officers
of the Group are prohibited from trading in the Company's
securities during the relevant blackout period prior to the
announcement of the Company's quarterly and full year
results, in accordance with the guidelines set out by the
SGX-ST from time to time. They are also not expected to
deal in the Company's securities on considerations of a
short-term nature. In addition, Directors and officers of the
Company are required, at all times, to observe the insider
trading rules outlined in the Securities and Futures Act.
To enable the Company to monitor such transactions,
Directors and officers of the Company are required to report
to the Company Secretary within 24 hours of any dealing
in the Company's securities. All securities transactions
reported by Directors are disclosed publicly within the
stipulated notice period.
7. Interested Person Transactions
The Company has also put in place an internal procedure
to track Interested Person Transactions ("IPTs") of the
Company. The Corporate Finance Department is in charge
of keeping a register of the Company's IPTs. All IPTs are
disclosed in the Company's Annual Report.
