Corporate Governance - Code

Banyan Tree Holdings Limited (“BTH” or the “Company”, and together with its subsidiaries, the “Group”) remains committed to observing and maintaining high standards of corporate governance and sound corporate practices to promote accountability and transparency.

This report sets out BTH’s main corporate governance practices which are substantially in line with the principles set out in the Code of Corporate Governance 2005 (“Code”). The Company has noted the revisions to the Code in May 2012 and while the revised Code will only be applicable to BTH from its financial year commencing 1 January 2013, BTH has already voluntarily started to implement a number of the key new recommendations under the revised Code, and will continue to adopt relevant changes during the course of the year where appropriate.

(A) Board Matters

Principle 1: The Board's Conduct of its Affairs

The Board’s principal functions include the formulation of the Group’s strategic direction, setting its values and standards; reviewing and approving annual budgets and financial plans, and monitoring the Group’s performance; approving major investments, divestments and fund-raising exercises; reviewing the Group’s financial performance; approving the adequacy and effectiveness of internal controls including financial, operational, compliance and information technology controls, risk management and corporate governance practices; approving remuneration policies and guidelines as well as succession planning for the Board and Senior Management, appointment and re-appointment of Directors; and ensuring the Group’s compliance with all laws and regulations as may be relevant to its businesses.

The Group has adopted a set of internal controls and guidelines setting out financial authorisation and approval limits for borrowings, investments, acquisitions, disposals, capital and operating expenditures. The Board’s approval is required for all transactions where the value of the transaction exceeds these approval limits and on specific matters such as the issue of shares, dividend distributions, and other returns to shareholders.

Two Board Committees, namely the Audit and Risk Committee (“ARC”) and Nominating and Remuneration Committee (“NRC”), have been constituted with defined Charters to assist the Board in the execution of its responsibilities. These Charters are reviewed on a regular basis to ensure their continued relevance. The members of both the ARC and NRC are all Independent Directors.

The Board and the Board Committees conduct regular scheduled meetings on a quarterly basis. Ad-hoc meetings are convened when circumstances require. The Independent Directors also set aside time to meet, without the presence of Management (including Executive Directors), to review the latter’s performance in meeting goals and objectives. Where necessary, the Directors also participate in Board meetings via telephonic attendance and video conferencing, as permitted under the Company’s Articles of Association. Details of each Director’s attendance at Board and Board Committee meetings held during the year are provided below.

Upon appointment, each new Director is issued with a formal letter of appointment setting out his duties and obligations along with materials pertaining to his obligations in relation to disclosure of interests in securities, conflicts of interest and restrictions on dealings in securities. Orientation programmes are also conducted for new Directors to familiarize themselves with the Group’s businesses, operations, strategic directions, organization structure and get acquainted with Senior Management. When a Director is appointed to a Board Committee, he is provided with a copy of the Charter of the Board Committee.

The Company also provides the Board with updates on developments in laws and regulations or changes in regulatory requirements and financial reporting standards, which are relevant to or may affect the Group’s businesses. In August 2012, the Company invited its external legal consultants to conduct a briefing to the Board on the changes to the Code. In addition, the Directors are also encouraged to attend appropriate relevant external programmes such as those conducted by the Singapore Institute of Directors.

Principle 2: Board Composition and Balance

Currently, the Board comprises 7 Directors, 5 of whom are independent. As such, there is a strong and independent element in the Board. The Independent Directors are Mr Chia Chee Ming Timothy, Mrs Fang Ai Lian, Mrs Elizabeth Sam, Mr Chan Heng Wing and Mr Tham Kui Seng.

The two Executive Directors are Mr Ho KwonPing, Executive Chairman, and Mr Ariel P Vera, Group Managing Director.

Each year, the NRC reviews the size and composition of the Board and Board Committees, and the skills and competencies of their members, to ensure that each member has the appropriate mix of expertise, skills and attributes to discharge his/her responsibilities effectively. The NRC also ensures that there is an appropriate number of independent directors for the Board and each Board Committee. Taking into account the nature and scope of the Group’s businesses and the regulatory requirements, the NRC is of the opinion that the current composition and size of the Board, as well as of each Board Committee, is appropriate and adequate.

The profile of each Director is given on pages 20 to 23 of this Annual Report.

Principle 3: Role of Chairman and Chief Executive Officer

The Company has an Executive Chairman and a Group Managing Director. The Executive Chairman and the Group Managing Director are not related to each other. The Executive Chairman is responsible for leading the Board in charting the strategic direction and growth of the Group. He also facilitates and ensures active and comprehensive Board discussions on Company matters, monitors the translation of the Board’s decisions into executive actions, and fosters constructive dialogue with shareholders at the Company’s Annual General Meeting (”AGM”). The Group Managing Director reports to the Executive Chairman, and oversees the execution of the Company’s corporate and business strategies and policies, and the conduct of the Group’s businesses. The Board has appointed Mr Chia Chee Ming Timothy as the Lead Independent Director on 28 February 2007 to lead and co-ordinate the activities of the Independent Directors.

Principle 4: Board Membership

The NRC is chaired by Mr Chia and comprises Mrs Fang, Mrs Sam, Mr Chan and Mr Tham, all of whom are Independent Directors. Mr Chia is not associated with any substantial shareholder.

The NRC’s functions, which are set out in the Charter, include making recommendations to the Board on new Board appointments. The NRC’s selection process for candidates to be proposed to the Board for new appointments takes into account various factors including the relevant expertise and experience of the candidates and how these would augment the Board and its existing Directors. Names of potential candidates are sought through networking contacts and recommendations. The NRC also makes recommendations to the Board on the re-appointment of Directors based on their contributions, a review of the range of expertise, performance, skills and attributes of current Board members and the needs of the Board.

The NRC also determines annually the independence of the Directors. The process includes the use of a self-assessment questionnaire which each Independent Director is required to complete and submit to the NRC for review. In its annual review, the NRC, having considered the guidelines set out in the Code including the requirements under the Principle 2 of the revised Code and its Guidelines has confirmed the status of the Directors as follows:

Mr Ho KwonPing (Non-Independent)

Mr Ariel P Vera (Non-Independent)

Mr Chia Chee Ming Timothy (Independent)

Mrs Fang Ai Lian (Independent)

Mrs Elizabeth Sam (Independent)

Mr Chan Heng Wing (Independent)

Mr Tham Kui Seng (Independent)

Mr Chia has served on the Board for more than 9 years. However, his stint on the Board as an Independent Director has been since 2006, after the Company’s initial public offering, a period of approximately 7 years. The NRC and the Board consider that he is independent from Management and has no business or other relationships with substantial shareholders, the Company or its related corporations which could interfere with the exercise of his independent business judgement, as stated under the Code. The NRC and the Board are of the opinion that his detailed knowledge of the Group’s business continues to be of significant benefit to the Company, and his external experience sitting on the boards of other listed companies provides useful expertise and diversity to the Board.

Mrs Fang is the chairman of Great Eastern Holdings Limited (“Great Eastern”), which also insures certain policies taken up by the Group. The NRC and the Board consider Mrs Fang an Independent Director as these insurance policies with Great Eastern were taken up on the recommendation by the Group’s insurance broker based on its competitive rates. Mrs Fang has abstained and will continue to abstain from any decision relating to the choice of insurers.

Mrs Sam is also an independent director of Boardroom Limited, a company listed on the Singapore Exchange Securities Trading Limited (the “SGX-ST”). Boardroom Corporate & Advisory Services Pte. Ltd., a subsidiary of Boardroom Limited, is the share registrar and transfer agent of the Company since the Company’s initial public offering in 2006. Notwithstanding this, the NRC and the Board consider Mrs Sam independent, as the aggregate payments made to Boardroom Corporate & Advisory Services Pte. Ltd. for each of the immediately preceding and current financial year were not considered significant as defined in paragraph 2.3 (d) of the Code.

Although some Directors have multiple board representations, the NRC has considered and is satisfied that each of these Directors has dedicated sufficient time and attention to, is able to perform and has adequately performed his/her duties as a Director of the Company.

The Company’s Articles of Association require that every Director retires once every three years and that one-third of Directors shall retire and subject themselves to re-election by shareholders at every AGM. Directors who are over 70 years of age are subject to annual re-appointment pursuant to the requirements of the Companies Act. New directors appointed by the Board during the year shall also submit themselves for re-election at the next AGM.

Principle 5: Board Performance

The NRC has the responsibility of evaluating the Board’s and Board Committees’ effectiveness. During the year, the NRC evaluated the Board’s performance based on a set of performance criteria, including the structure, size and processes of the Board and the Board’s access to information, Management and external experts outside meetings, as well as the effectiveness of the Board’s oversight of the Company’s performance. Each Director completes a Board Evaluation Questionnaire to facilitate the NRC in its assessment of the Board’s performance as a whole. The NRC reviews the feedback received and presents the findings to the Board. The assessment of the performance of the Executive Chairman and the Group Managing Director was undertaken by the NRC based on both qualitative and quantitative performance criteria, comprising profits, revenue growth and economic value added. There was no individual assessment for the Independent Directors. Each member of the NRC abstained from making any recommendations and/or participating in any deliberation of the NRC and voting on any resolution in respect of the assessment of his own performance or re-nomination as a Director.

Principle 6: Access to Information

The Directors are provided with Board Papers in advance of each Board and Board Committee meeting to enable them to be properly informed of matters to be discussed and/or approved. These include reports relating to the financial and operational performance of the Group, as well as matters for the decision or information of the Board. The Directors are also given research analysts’ reports so that they are apprised of analysts’ views on the Company’s performance.

Each Director has separate and independent access to Senior Management and the Company Secretary. The Company Secretary attends all Board and Board Committee meetings and is responsible for, among other things, ensuring that Board procedures are observed and that applicable rules and regulations are complied with and is also responsible for advising the Board on all matters relating to corporate governance. The appointment and the removal of the Company Secretary is a matter for the Board as a whole. The Board takes independent professional advice as and when necessary to enable it or the Independent Directors to discharge their responsibilities effectively and such costs are borne by the Company.

(B) Remuneration Matters

Principle 7: Remuneration Policies

The NRC reviews matters concerning remuneration of the Board, Senior Management and other employees who are related to the controlling shareholders and/or our Directors. The NRC has access to the Head of Human Resources and may also seek expert advice from external consultants on executive compensation. This is to ensure competitive compensation and progressive policies, with suitable and attractive long-term incentives, are in place. No Director is involved in deciding his own remuneration or the remuneration of any employees who are related to them.

Principle 8: Level and Mix of Remuneration

Principle 9: Disclosure of Remuneration

The employment contracts of the Executive Chairman and the Group Managing Director are automatically renewed every year, unless otherwise terminated by either party giving not less than six months’ notice in writing. The terms of these employment contracts do not provide for benefits upon termination of employment with the Company.

The remuneration of the Independent Directors is paid by way of Directors’ Fees in cash only although they are also eligible to participate in the Company’s share-based incentive schemes. All Directors’ Fees are subject to shareholders’ approval at the Company’s AGM. The amount of Directors’ Fees payable is dependent on the respective Independent Director’s level of responsibility and contributions. The framework for determining Independent Directors’ Fees was as follows:

Executive Directors do not receive Directors’ Fees from the Company. Their remuneration comprises a base salary, bonus and, in the case of the Group Managing Director only, participation in the Company’s share-based incentive schemes. The level and mix of remuneration for each of the Executive Directors in bands of S$250,000 are set out below. The names of the top 5 key executives (who are not Directors or the CEO) earning remuneration which falls within bands of S$250,000 are also set out below.

The aggregate amount of the total remuneration paid to the top 5 key executives (who are not Directors or CEO) is S$2,284,890.

During the year, there were three employees, namely Mr Ho KwonCjan (brother), Ms Claire Chiang (spouse) and Mr Ho Ren Hua (son) who are immediate family members of the Executive Chairman. The disclosure of the remuneration of Mr Ho KwonCjan and Ms Claire Chiang which is made within bands of S$50,000 is shown above. Mr Ho Ren Hua’s remuneration falls within the band of S$150,000 to S$200,000. Mr Ho KwonPing was not involved in the determination of his family members’ remuneration.

Long-Term Share Incentives

The NRC sets the remuneration guidelines of the Group for each annual period including the Banyan Tree Share Option Scheme and the Banyan Tree Performance Share Plan (the “Plan”). The Plan comprises the Performance Share Plan (“PSP”) and Restricted Share Plan (“RSP”). The PSP and RSP were introduced to strengthen the Company’s competitiveness in attracting and retaining talented key executives. The PSP and RSP are also aimed at aligning the interests of key executives with that of shareholders, improving performance and achieving sustainable growth for the Company, and fostering an ownership culture among key executives. The Plan contemplates the award of fully paid shares or their cash equivalent, when and after pre-determined performance or service conditions are met. The selection of a participant and the number of shares to be awarded under the PSP or RSP are determined at the discretion of the NRC. The NRC reviews and sets performance conditions and targets where it thinks appropriate and after considering prevailing business conditions. Details of the Company’s PSP and RSP can be found in the Directors’ Report and Note 46 to the financial statements.

The Company has not issued any options to eligible participants pursuant to the Banyan Tree Share Option Scheme.

Founder’s Grant

Prior to official listing on the SGX-ST, as stated in the prospectus dated 26 May 2006 for the Company’s initial public offering, the independent shareholders of the Company approved the incentive for the Executive Chairman, Mr Ho KwonPing, which has been included in his employment agreement. Pursuant to the incentive, Mr Ho shall be entitled to, for each financial year for a period of ten years beginning from the financial year ended 31 December 2010, an amount equivalent to 5% of the profit before tax of the Group, such amount to be payable in cash or in shares at the sole discretion of the Company (“Founder’s Grant”). The Founder’s Grant aims to secure the continuing commitment of Mr Ho to the Group and to reward him for founding, leading and building up the Group. FY2010 was the first financial year in which the Founder’s Grant was paid. For FY2012, Mr Ho shall be paid a Founder’s Grant of S$1,300,888 in cash.

Details of the Founder’s Grant can be found in the Directors’ Report and Note 46 to the financial statements.

(C) Accountability & Audit

Principle 10: Accountability

The Board, through its announcements of quarterly and full-year results, aims to provide shareholders with a balanced and clear assessment of the Group’s performance and prospects on a quarterly basis.

Principle 11: Audit and Risk Committee

The ARC is chaired by Mrs Fang and comprises Mr Chia, Mrs Sam, Mr Chan and Mr Tham, all of whom are Independent Directors.

The ARC usually meets with the Head of Internal Audit first, followed by the External Auditors, prior to the commencement of each ARC meeting without the presence of Management. These meetings enable both the Head of Internal Audit and External Auditors to raise issues encountered in the course of their work directly to the ARC.

The ARC reviews, with the Head of Internal Audit and External Auditors, their audit plans, the system of internal controls, audit reports, management letter and the Company’s management response. The ARC also reviews the quarterly, half-year, and full-year results, as well as financial statements of the Group and Company before submission to the Board for its approval, focusing in particular on changes in accounting policies and procedures, major operating risk areas and overview of all Group risks on an integrated basis, including all matters affecting the Group’s performance and the effectiveness of the Group’s key internal controls including financial, operational, compliance and information technology controls. The ARC also reviews all interested person transactions.

The ARC commissions and reviews the findings of internal investigations into matters on suspected fraud, irregularity, failure of internal controls, and the infringement of any law, rule or regulation which has or is likely to have a material impact on the Company’s results and/or financial position.

The ARC oversees the Group’s Whistle-Blowing Policy which provides the mechanism by which employees and the public may, in confidence, raise concerns about possible improprieties. The ARC is satisfied that arrangements are in place for the independent investigations of such improprieties and for appropriate follow-up actions and resolutions.

The ARC has full access to and the co-operation of Management and full discretion to invite any Director or the Company’s Senior Management to attend its meetings. The Company has an Internal Audit team that, together with the External Auditors, reports its findings and recommendations independently to the ARC. In the year under review, the ARC assessed the strength of the internal audit team and confirmed that the team is adequately resourced and suitably qualified to discharge its duty.

The ARC has undertaken a review of the nature and extent of all non-audit services performed by the External Auditors during the year and is satisfied that such services have not affected their independence. It recommends the re-appointment of the External Auditors. In addition, the ARC also reviewed the appointment of different auditors for its subsidiaries or significant associated companies to ensure that the appointment would not compromise the standard and effectiveness of the audit of the Company or its subsidiaries or significant associated companies.

In the opinion of the Directors, the Group complies with the Code’s guidelines on audit committees as well as Rule 716 of the SGX-ST Listing Manual.

Principles 12 and 13: Internal Controls & Internal Audit

Internal audit is an independent function within the Company. The Head of Internal Audit reports directly to the ARC with a dotted-line relationship to the Group Managing Director of the Company for administrative matters. The Internal Audit Department (“IAD”) is staffed by suitably qualified professional staff with the requisite skill sets and experience with 8 audit executives, including the Head of Internal Audit. The IAD assists the ARC and the Board by performing regular evaluations of the Group’s internal controls, information technology, financial and accounting matters, compliance, business and risk management policies and procedures and ensuring that internal controls are adequate to meet the Group’s requirement.

The ARC reviews IAD’s reports on a quarterly basis. The ARC also reviews and approves the annual internal audit plans which are made in consultation with, but independent of, Management to ensure that IAD has the necessary manpower and resources to adequately perform its functions. These annual internal audit plans include inter alia the list of business units to be audited, type of audit, scope, resources and deliverables.

The Head of Internal Audit has met the standards as set out by nationally or internationally recognised professional bodies including the Standards for the Professional Practice of Internal Auditing set by The Institute of Internal Auditors.

The Company’s structure of internal controls consists of policies and procedures established to provide reasonable assurance on the effectiveness of the Group’s system of internal controls in light of key business and financial risks affecting the operations.

The ARC reviews the proposed scope of the internal audit function and assesses its adequacy annually. The IAD’s summary of findings and recommendations are reviewed and discussed at the ARC meetings.

The Board and Management of the Group attach a high importance to having a sound system of internal controls and have been continuously expanding the Group’s internal audit capacities through additional staffing and/or outsourcing.

For FY2012, the ARC on behalf of the Board, has reviewed the effectiveness of the Group’s system of internal controls including financial, operating, information technology and compliance controls, risk management policies and systems established by Management. Based on the IAD’s reports and the various controls put in place by Management, the Board has reviewed, and is satisfied with the adequacy of the Group’s internal controls to provide reasonable assurance of the integrity, effectiveness and efficiency of the Company in safeguarding the Shareholders’ investment and the Group’s assets.

The Group has in place a formal risk management process to identify, evaluate and manage significant risks impacting the Group. The Group Risk Management Committee, which is not a Board Committee and comprises certain members of Senior Management, reports to the ARC, on an annual basis, the Group’s strategic risks and the measures taken to address them. On a quarterly basis, all significant risks to the Group and/or properties are highlighted at the ARC meetings.

(D) Communication with Shareholders

Principles 14 and 15: Communication with Shareholders and AGM

The Company adopts the practice of regularly communicating major developments in its businesses and operations through SGXNET and, where appropriate, directly to shareholders, other investors, analysts, the media, the public and its employees. The Company holds quarterly media and analysts’ briefing upon the release of its quarterly and full-year results. It has an investor relations team that communicates with its shareholders and analysts regularly and attends to their queries. The team also manages the dissemination of corporate information to the media, the public, as well as institutional investors and public shareholders, and promotes relations with and acts as liaison for such entities and parties. Material information is published on SGXNET and through media releases.

Shareholders of the Company receive notices of general meetings which are also advertised in the newspapers and issued via SGXNET. The Board recognises that the AGM is an important forum at which shareholders have the opportunity to communicate their views and raise any queries with the Board and Management regarding the Company and its operations.

A registered shareholder may appoint one or two proxies to attend the AGM and vote. Voting in absentia by mail, facsimile or email is currently not permitted to ensure proper authentication of the identity of shareholders and their voting intentions.

At general meetings, separate resolutions will be set out on distinct issues for approval by shareholders.

The Board and Management will be in attendance at the Company’s general meetings to address questions by shareholders. The external auditors and legal advisers are also present at the AGM to assist the Board and Management in addressing shareholders’ queries.

Dealing in Securities

The Company has adopted an internal code on securities trading, which provides guidance and internal regulation with regards to dealings in the Company’s securities by its Directors and officers. The Company’s internal code is modelled on Rule 1207(19) of the SGX-ST Listing Manual. The Company’s internal code prohibits its Directors and officers from dealing in listed securities of the Company while in possession of unpublished, material and 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 Company’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 with the Company’s securities on short-term considerations. They are also advised to be mindful of the law on insider trading and ensure that their dealings in securities do not contravene the laws on insider trading under the Securities and Futures Act, and the Companies Act.

Interested Person Transactions

Shareholders have adopted a Shareholders’ Mandate in respect of interested person transactions of the Company. The Company has established procedures to ensure that all transactions with interested persons are reported in a timely manner to the ARC, and that the transactions are carried out on normal commercial terms and will not be prejudicial to the interests of the Company and its minority shareholders. The Company’s disclosure in respect of interested person transactions for the year is set out on page 96 of this Annual Report.