The Board of Directors (“the Board”) is committed to ensuring that the highest standard of corporate governance is 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 2005 (“the Code”) as annexed to the Listing Manual of the Singapore Exchange Securities Trading Limited (“SGX–ST”), 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 in compliance with the principles and spirit of the Code.
1. Board of Directors
Responsibilities
The Board’s role is to oversee the management of the Company on behalf of all shareholders.
It delegates specific areas of responsibilities to six Board Committees (Nominating, Executive, Audit, Executive Resource and Compensation, Enterprise Risk Management, and Approval Committees). 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, rests 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 are in line with Board-approved Business Plan and Budget, are subject to the approval of the Executive Committee and/or the Board.
Board Composition
On 1 November 2006, Dr Thomas Held was appointed to the Board contemporaneous with his appointment as Group President and Chief Executive Officer.
On 26 December 2006, three Non-Executive Directors (Messrs Bobby Chin Yoke Choong, Simon Claude Israel and Tan Pheng Hock) were appointed to the Board.
As required under the Companies Act, all four new directors will be standing for re-election at the Company’s Annual General Meeting (“AGM”) in April 2007.
NOL currently has 13 Directors, 12 of whom (including the Chairman) are non–executive and 11 are independent. The Chairman is independent except in relation to transactions involving the Temasek Group. Mr Simon Claude Israel is non–independent. Collectively, the Directors contribute a range of relevant skills, including accounting, legal, finance, human resource, business, management, industry knowledge, strategic planning and customer-based experience or knowledge, 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’s Articles of Association provides for one–third of the Board, including the Group Chief Executive Officer (“CEO”), to retire at each AGM and, where applicable, to submit themselves for re-election.
Chairman and the Chief Executive Officer
The Chairman, Mr Cheng Wai Keung, chairs the Board and Executive Committee meetings. He guides the Board in its discussion on significant issues. In addition, he guides the Management towards achieving the Group’s objectives. The CEO, Dr Thomas Held, is responsible for the business directions and operational decisions of the Group.
The Chairman and CEO are not related.
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 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 they deem it 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 and each of its Committees as a whole.
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 allows a Board meeting to be conducted by way of teleconference or video-conference. During the financial year under review, the Board convened eight meetings (including four special meetings), which were fully attended.
The Chairman ensures that Board meetings are held as and when necessary. He approves the Board meeting agenda upon 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 six Board Committees:
(i) Nominating Committee
(ii) Executive Committee
(iii) Audit Committee
(iv) Executive Resource and Compensation Committee
(v) Enterprise Risk Management Committee
(vi) Approval Committee
i. Nominating Committee (“NC”)
The members of the NC are Messrs Ang Kong Hua (Chairman), Cheng Wai Keung and James Connal Scotland Rankin, all of whom are Non-Executive and Independent Directors.
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 and the independent status of each of the Directors.
During the financial year, the NC had two meetings. Full attendance was recorded for the meetings.
ii. Executive Committee (“Exco”)
The Exco comprises four Non-Executive Directors, Mr Cheng Wai Keung (Chairman), Mr Ang Kong Hua, Dr Friedbert Malt and Mr Simon Claude Israel (appointed on 27 February 2007) and one Executive Director (Dr Thomas Held). Mr Cheng is independent except in relation to transactions involving the Temasek Group, while Mr Israel is non-independent.
Co-opted to attend the Exco Meetings as Observers are Mr Cedric Foo, Group Deputy President & Chief Financial Officer, Mr Ronald Widdows, CEO Liner, Mr Brian Lutt, President Logistics, and Ms Wu Choy Peng, Group Chief Information Officer.
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 business transactions recommended by Management subject to a limit of US$100 million per transaction; reviewing and recommending major business transactions for the Board’s approval, wherever required; reviewing and monitoring the financial performance and progress of the Group; and evaluating the performance and determining the employment terms and compensation package (salary, bonus, share options, performance shares and benefits-in-kind) for the Executive Director.
Over and above the general functions described above, the Exco may from time to time be delegated powers by the Board to oversee specific matters and/or projects.
The Exco held four meetings during the financial year and these were fully attended, except for one where a member was absent.
iii. Audit Committee (“AC”)
The AC consists of four Non-Executive Directors, all of whom are independent. Chaired by Mr Christopher Lau Loke Sam (elected Chairman on 19 April 2006), the other three members of the Committee are Mr Robert Holland, Jr, Mr Peter Wagner and Mr Bobby Chin Yoke Choong (appointed on 26 December 2006).
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’s duties include:
a) |
Reviewing with the external auditors the audit plan, the scope of the audits, the evaluation of the internal accounting controls, the audit reports and any matters which the external auditors wish to discuss (in the absence of Management, where necessary). |
b) |
Reviewing the cost-effectiveness and the independence and objectivity of the external auditors. Where the auditors also supply a substantial volume of non-audit services to the Group, the AC keeps the nature and extent of such services under review, seeking to balance the maintenance of objectivity and value for money. |
c) |
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. The internal control systems include financial controls, operational and compliance controls and risk management policies and systems established by the Management. The AC should ensure that a review of the effectiveness of the Group’s internal controls is conducted at least annually. Such review can be carried out by the internal and/or public accountants, provided that where the public accountant is also the external auditor of the Company, the AC should satisfy itself that the independence of the public accountant is not compromised by any other material relationship with the Group. |
d) |
Reviewing the effectiveness of the Group’s internal audit function. |
e) |
Reviewing the assistance given by the Group’s officers to the auditors. |
f) |
Reviewing the significant financial reporting issues and judgements to ensure the integrity of the financial statements of the Group. |
g) |
Reviewing the Group’s quarterly and year-end financial statements prior to submission to the Board and/or release to SGX–ST, focusing on: – going concern assumption – compliance with accounting standards and regulatory requirements – any changes in accounting policies and practices – significant issues arising from the quarterly review and year-end audit – major judgmental areas. The Company has put in place procedures to ensure that the financial information from its operations are not false and misleading in order to increase the assurance level of the AC in its review of the quarterly financial statements. In addition, the Company has also obtained negative assurance confirmation from its various key business and operational/functional heads within the Organisation/Group that nothing has come to their attention that would render the financial results to be false or misleading. |
h) |
Reviewing arrangements by which staff of the Company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. The AC ensures that arrangements are in place for the independent investigation of such matters and for appropriate follow-up action. To allow staff to raise concerns about improprieties, the Company has in place a whistle- blowing hotline managed by the Company’s Internal Audit Department. |
i) |
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. |
j) |
Meeting with the external auditors, and with the internal auditors, without the presence of the Management, at least annually. |
k) |
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 quarterly announcements and annually to shareholders via the Annual Report. |
l) |
Undertaking any other functions agreed by the AC and the Board. |
The AC conducts an annual review of the independence and objectivity of Ernst & Young, the Company’s external auditors. For FY2006, 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. The AC was satisfied that such services did not affect the independence of the external auditors. The AC also reviewed the cost-effectiveness of the audit conducted by the external auditors.
The AC convened five meetings during the financial year with full attendance from all members. The attendees at these meetings included the Group CEO, Group Chief Financial Officer (“CFO”), Vice President of Group Finance and Group Internal Auditor. The external auditors attend these meetings, where required.
Internal Audit (“IA”)
The IA’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. The IA reports directly to the Chairman of the AC on audit matters, and to the CEO on administrative matters.
The AC reviews IA’s reports on a quarterly basis. The AC also reviews and approves the annual IA plan and resources. The AC is satisfied that IA has adequate resources to perform its functions, and has appropriate standing within the Company.
iv. Executive Resource and Compensation Committee (“ERCC”)
The ERCC performs critical roles in support of sound Corporate Governance principles in the areas of Board compensation and executive reward management.
In particular, it recommends to the Board a framework of remuneration for the Non-Executive Directors and members of the senior executive team (except CEO).
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 James Connal Scotland 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, Mr Yasumasa Mizushima, Mr Timothy Charles Harris and Mr Tan Pheng Hock (appointed on 26 December 2006).
In the delivery of its role, 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); |
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Service contracts for senior executives; |
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Recruitment specifications and appointments; |
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Development assignments; and |
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Succession criteria and candidates. |
In framing the Group’s remuneration policy, the ERCC receives advice from external consultants.
Four meetings were convened by the ERCC during the financial year, with full attendance.
The remuneration for the Non-Executive Directors includes directors’ fees and share options.
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 rewards framework is benchmarked against the external market that includes the Company’s competitive market for talent, worldwide. Pay surveys, conducted by external consultants, are used to verify that the packages are competitively positioned.
Annual incentive bonuses are linked to the achievement of overall corporate, business unit and individual objectives. Performance shares are awarded on the basis of meeting financial goals and key performance indicators. Stock options are awarded on the demonstration of leadership competencies.
By aggressively managing the fixed cost elements of remuneration, such as salaries and benefits, the Group retains the necessary flexibility to stay competitive in a cyclical industry. This also enables NOL to adjust pay–at–risk components (such as bonuses and share plans) to appropriately reward, motivate and retain the top talent that it needs to drive success.
v. Enterprise Risk Management Committee(“ERMC”)
The ERMC was established on 11 August 2005 for the purpose of guiding and providing direction on building up risk management capability within the NOL Group. Chaired by Mr Robert Holland, Jr, the other members of the ERMC are Messrs Christopher Lau Loke Sam, Timothy Charles Harris, Peter Wagner and Simon Claude Israel (appointed on
26 December 2006).
In 2006, the ERMC convened five meetings, which were fully attended.
vi. 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, 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 CEO, whose approvals are sought by way of resolutions-in-writing.
5. Communication with Shareholders
The Group values dialogue with its investors. The CEO and CFO hold discussions with the news media and analysts upon the announcement of the Company’s second quarter 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 Notices of General Meetings. The Notices are also advertised in the newspaper and made available on the Company’s website: www.nol.com.sg.
Whilst the Company’s Articles currently provide for a limit of up to two proxies for all shareholders, including nominee companies, the Company has, in compliance with the spirit of the Code, allowed nominee companies to specify, in writing, the names of the beneficial shareholders of the Company who are attending the Company’s General Meetings as observers. However, only one vote per shareholder is counted where voting is conducted via a show of hands.
At each AGM, the Company presents the progress and performance of the business and encourages shareholders to participate in the question and answer session. The CEO and the Chairmen of the NC, Exco, AC, ERCC and ERMC, and external auditors are available to respond to shareholders’ questions during the meeting.
Each item of business included in the notice of the AGM is, where relevant, accompanied by an explanation of the effects of the proposed resolution. Detailed information is incorporated in the Annual Report and annexures that were circulated to shareholders together with the notice of meeting. Separate resolutions are proposed for substantially separate issues at the meeting.
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 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’