|The Board’s Conduct of its Affairs
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.
Composition of the Board: The current Board comprises eight (8) Non-Executive Directors and the Chief Executive Officer/Executive Director (the “CEO/ED”). All Independent Directors as well as those nominated by the two (2) major shareholders, namely China National Aviation Fuel Group Corporation (“CNAF”) and BP Investments Asia Limited (“BP”), were appointed on the strength of their expertise, experience and stature.
The Board is composed of members who are diverse in terms of education, skills, regional and industry experience, geographical origin, interpersonal skills, race, gender and age. Details including the academic and professional qualifications and major appointments of each Director are provided under the “Board of Directors” section of this Annual Report.
The Board recognises and embraces the importance of Board diversity which aims to cultivate a broad spectrum of demographic attributes and personal characteristics in the boardroom, leveraging on differences in thought, perspective, knowledge, skill, regional and industry experience, cultural and geographical background to ensure that the Company retains its competitive advantage.
The Board believes that a diverse Board will contribute to the achievement of its strategic and commercial objectives which will include: (i) driving better business performance and results; (ii) making corporate governance more effective; (iii) ensuring higher quality and responsible decision making capability; (iv) ensuring sustainable growth and development of the CAO Group; and (vii) enhancing corporate reputation and investor relations by establishing the Company as a responsible corporate citizen.
During the year, the Board adopted the Internal Policy Guidelines on Board Diversity to provide guidance to the Nominating Committee in reviewing and assessing the appropriate mix of diversity, skills, experience and expertise required on the Board and the Board Committees of the Company, and the extent to which the required skills and core competencies are represented on the Board. In carrying out its responsibilities in accordance with the said Internal Policy Guidelines on Board Diversity, the Nominating Committee will take into account the Company’s diversity objectives as well as the need to maintain flexibility to effectively address succession planning at Board level and to ensure that the Company continues to attract and retain highly qualified individuals to serve on the Board and Board Committees.
Role of the Board: The Directors are collectively responsible to the Company’s shareholders for the long-term success of the CAO Group and for its overall strategic direction, its values and its governance. They provide the Company with the core competencies and the leadership necessary for the CAO Group to meet its business objectives within the framework of its systems of internal controls and processes.
All members of the Board are aware of their responsibility to take decisions objectively which promote the success of the CAO Group for the benefit of shareholders.
The CAO Corporate Governance Policy sets forth the matters reserved for the Board’s decision, and provides clear directions to Management on matters that must be approved by the Board. In addition, Management has the responsibility for overseeing the implementation by the CAO Group’s operating subsidiaries of the policies and strategy set by the Board, and for creating the framework for their successful day-to-day operation.
Some of the businesses that the Board transacts include:
a) setting, reviewing and approving corporate strategies, annual budgets and financial plans;
b) reviewing the adequacy and integrity of the Company’s internal controls, risk management systems, financial reporting systems and monitoring the performance of the CAO Group and the Management;
c) ensuring that the CAO Group and Management comply with all laws, regulations, policies, directives, guidelines and internal code of conduct;
d) considering and approving the nominations of suitable candidates to the Board of Directors; and
e) ensuring accurate, adequate and timely reporting to, and communication with shareholders.
Key matters that are specifically reserved for the Board’s consideration and decision include, but are not limited to, corporate planning, material acquisitions and disposals of assets, corporate or financial restructuring, formulation of any dividend policy or the change of such dividend policy, declaration of dividends, interested person transactions and any appointment, re-appointment or removal of the Chairman of the Board.
Apart from matters specifically reserved for Board’s consideration and decision, the Board will approve transactions exceeding certain threshold limits, whilst delegating authority for transactions below those limits to Board Committees and the Management for approval.
Delegation of Authority to Board Committees: To ensure the efficient discharge of its responsibilities and to provide independent oversight of Management, various Board committees namely, the Audit Committee, the Nominating Committee, the Remuneration Committee and the Risk Management Committee have been constituted with clear written terms of reference. Each Committee has the authority to examine issues relevant to their terms of reference and to make recommendations to the Board for action. The ultimate responsibility and decision on all matters still lies with the Board.
During the year, a review and assessment on the adequacy of the terms of reference of each of the Board Committees had been undertaken. The terms of reference of each of the Board Committees had been fine-tuned to better align with the requirements of the 2012 Code and the CAO Corporate Governance Policy.
To optimise operational efficiency, the Company has put in place financial authorisation and approval limits for purchases and expenses requisitions as well as expenses/fees relating to costs of sales (within and outside the approved full-year budget).
Meetings of the Board and Board Committees: The Board met four (4) times in 2016. At these scheduled quarterly Board meetings for the financial year 2016, the Board: (i) reviewed and approved the release of the quarterly and full-year financial results; (ii) discussed reports by Management relating to major corporate activities; (iii) approved the annual budget; and (iv) reviewed the performance of the CAO Group’s businesses. When Directors cannot be physically present, telephonic attendance and conference via audio-visual communication at meetings of Board and Board committees are allowed under the Company’s Constitution. The number of meetings of the Board and Board Committees held in 2016 as well as the attendance of each Board member at these meetings are disclosed below:
(1) Mr Lin Wanli resigned as a Non-Executive, Non-Independent Director and Chairman of the Board on 6 February 2017. Dr Xi Zhengping, a CNAF-nominee Director, was appointed as a Non-Executive, Non-Independent Director and Chairman of the Board on 6 February 2017.
Quarterly Meetings of Board and Board Committees, Independent Directors’ Meeting and Annual General Meeting: Meetings of the Board and Board Committees, Independent Directors’ Meeting and the Annual General Meeting of the Company for each year are scheduled some time in the month of July in the preceding year to facilitate the Directors’ individual administrative arrangements in respect of any competing commitments.
Director Familiarisation Programme: A formal letter is sent to newly appointed Non-Executive Directors upon their appointment explaining their duties and obligations as a Director as well as the governance policies and practices of the CAO Group. In addition, the formal letter of appointment sets out their expected time commitment and makes clear that, by accepting the appointment, they are confirming that they are able to meet the expectations of their role. They are also required to disclose their other significant commitments to the Board prior to their appointment and to give notice of any subsequent changes.
Comprehensive and tailored training is provided for all new Directors appointed to the Board as part of their orientation to ensure that they are familiar with (i) the Company’s strategic objectives and the nature and scope of its operations; (ii) the Board’s role and the governance structure and processes of the Company; (iii) Directors’ duties and responsibilities under statute and common law; (iv) applicable legal requirements and other regulatory requirements; (v) broad overview on the rules of SGX-ST Listing Manual; and (vi) the CAO Corporate Governance Policy. Facility visits to our associated companies’ premises are also arranged to enable newly appointed Directors to acquire an understanding of the CAO Group’s business operations.
Continuing Professional Development of Directors: In line with CAO’s Policy on Director Orientation and Professional Development adopted by the Board since November 2012, continuing professional development programmes were organised for Directors to ensure that all Directors are updated on important market developments in the energy industry and issues which may have a significant impact on the businesses, financial and operational matters of the CAO Group. These programmes are conducted by external advisers, experts or senior management and these included (i) a Board Information Session relating to “Current Aviation Landscape and Trends” conducted by Deloitte & Touche LLP; (ii) a Board Information Session relating to “Aviation Fuel Supply Chains and Models” conducted by eJet International Limited; (iii) a Board Information Session on “Board Leadership-Insights Into How Best Managed Singapore-Listed Boards Are Run” and “Latest Board Leadership and Governance Trends” curated in collaboration with the Singapore Institute of Directors and jointly conducted by PricewaterhouseCoopers Singapore and WongPartnership LLP; and (iv) attendance at a seminar on “Of Enron, Entanglement and Enlightenment” organised by the Singapore Institute of Directors.
Directors’ Disclosure of Interests: The Board has established the Board of Directors Conflict of Interest Policy (the “Board Conflict of Interest Policy”) which is adjunct to the Company’s overarching commitment to high levels of integrity and transparency. The Board Conflict of Interest Policy is designed to facilitate the identification of situations that present actual, perceived or potential conflicts of interest and the procedures to appropriately manage conflicts in accordance with legal requirements and the goals of accountability and transparency in the CAO Group’s operations.
All Directors are required to officially disclose their interests in the Company including any interested person transactions with the Company.
Any Director who has an interest that may present a conflict between (a) his or her obligation with the Company and his or her personal business or other interests; and/or (b) the interests of the appointing major shareholder and the interests of the Company on which he or she serves, will either recuse himself or herself from participating in the deliberations and voting on the matter or declare his or her interest and abstain from decision-making.
All Directors practise good governance by updating the Company about changes to their interests in a timely manner.
Board Composition and Balance
There should be a strong and independent element on the Board, which is able to exercise objective judgment on corporate affairs independently, in particular, from Management and Substantial Shareholders. No individual or small group of individuals should be allowed to dominate the Board’s decision making.
Composition of Independent Directors on the Board: Of the nine (9) members on the Board, six (6) are nominated by substantial shareholders and are deemed as non-independent. The three (3) Independent Directors namely, Dr Wang Kai Yuen, Mr Ang Swee Tian and Mr Li Runsheng constitute at least one-third of the Board. Currently, at least two (2) Independent Directors are resident in Singapore. These two (2) Independent Directors are Dr Wang Kai Yuen and Mr Ang Swee Tian. None of the nine (9) Board members is related to one another.
Independent Element of the Board: The Nominating Committee assesses and determines the independence of a Director upon appointment and on an annual basis. The Nominating Committee takes into consideration CAO’s Internal Policy Guidelines on Directors’ Test of Independence which set out the process for considering the independence of Directors of the Company (the “Directors’ Test of Independence Policy”). The Directors’ Test of Independence Policy (i) specifies the materiality thresholds and independence criteria which the Nominating Committee will use to assess the independence of a Director; (ii) identifies the information that the Company will collect from Directors to enable the Nominating Committee to assess the independence of Directors; and (iii) outlines the basis of disclosure to shareholders of the assessment of the independence of Directors, including the disclosure of any relationships that may be perceived to affect the independence or objectivity of a Director.
The Nominating Committee carried out the review on the independence of each Non-Executive Director in September 2016 by taking into consideration the Directors’ Test of Independence Policy and the information collected from each Director through the completion by each Director of a confirmation of independence checklist. The Director is required to declare any circumstances in which he or she may be considered non-independent. The Nominating Committee will then review the confirmation of independence checklist by applying the Directors’ Test of Independence Policy before affirming the independence of a Director.
Under the 2012 Code and in accordance with the CAO Corporate Governance Policy, the Nominating Committee is tasked with the responsibility to undertake a “particularly rigorous review” of a director’s independence after he or she has served on the Board for a continuous period of nine (9) years or longer term from the date of his or her first appointment. If the Nominating Committee decides to regard such a director independent, the Nominating Committee shall disclose its explanation in the Company’s annual report. As of the date of this report, Independent Directors namely, Dr Wang Kai Yuen and Mr Ang Swee Tian, each held office for a term of slightly under nine (9) years. Notwithstanding that none of the Independent Directors of the Company have been appointed for more than nine (9) years as at the time of the Nominating Committee’s review on the independence of each non-executive Director of the Company, and as a matter of good corporate governance practice, the Form of Directors’ Declaration relating to the Director’s Independence had been modified to include two (2) additional questions which were intended to facilitate the Nominating Committee’s assessment of the independent status of any long-tenured Independent Directors of the Company. These questions require Independent Directors of the Company to consider and provide their inputs and/or comments reaffirming their ability to make unfettered independent business judgements.
Each of Dr Wang Kai Yuen and Mr Ang Swee Tian had continued to express his individual viewpoints and objectively scrutinised and sought clarifications from Management as he considered necessary, including through direct access to the employees, external auditors and internal auditors of the CAO Group. The Board accepted the Nominating Committee’s view and affirmed the independence of these Directors.
The composition of the Board is reviewed annually by the Nominating Committee. The Nominating Committee is satisfied that the Board comprises Directors who as a group possess the necessary calibre, experience and core competencies for effective decision-making. Individual directors’ profiles can be found in “Board of Directors” section of the Annual Report.
All Singapore-listed companies are required to comply with Guideline 2.2 of the 2012 Code and make the necessary Board composition changes at the annual general meeting following the end of financial years commencing on or after 1 May 2016. In this regard, the Company would need to effect the Board composition changes no later than its annual general meeting in April 2018.
Considering that the Chairman of the Board is not an Independent Director of the Company, the Nominating Committee had reviewed the composition of the Independent Directors on the Board and had considered the possibility of increasing the independent element of the Board to comply with the requirements of the 2012 Code.
The rationale of Guideline 2.2 of the 2012 Code is basically intended to prevent any major shareholder from dominating the decision-making process of the Board where the Chairman of the Board and the Chief Executive Officer are both nominated by the same major shareholder. The composition of the Board of Directors of the Company presently comprises representatives from its two (2) major shareholders namely, CNAF and BP. As such, there already exists an appropriate level of checks and balances in the management and operation of the Company via the Shareholders’ Agreement. In addition, the Company had appointed the Lead Independent Director, who is also concurrently the Deputy Chairman of the Board.
Hence, considering that the safeguards for a balanced Board are already in place and in view of the recent changes to the senior management personnel of CNAF, it is likely that the present Board composition of the Company will be maintained for the foreseeable future.
Chairman and Chief Executive Officer
There should be a clear division of responsibilities between the leadership of the Board and the executives responsible for managing the company’s business. No one individual should represent a considerable concentration of power.
Separate Role of Chairman and CEO: The Chairman, with the assistance of the Deputy Chairman, is primarily responsible for overseeing the overall management and strategic development of the Company. With the assistance of the Company Secretary, the Chairman schedules Board meetings and ensures that all procedures and good governance practices are complied with. The CEO/ED consults both with the Chairman and the Deputy Chairman for their views on the agenda for Board meetings.
The CEO/ED executes the Board’s decisions and is responsible for the day-to-day running of the Company’s business, making operational decisions for the Company and implementing the Company’s business, direction, strategies and policies.
The Chairman is in constant consultation with the Deputy Chairman/Lead Independent Director as well as other members of the Board and Board committees on major issues. As such, the Board believes there are adequate safeguards in place against having a concentration of power and authority in a single individual.
The Chairman and the CEO/ED are not related to each other.
The list of responsibilities of the Chairman and the CEO/ED is available for inspection at the Company’s registered office.
Regular Meetings of Independent Directors: In accordance with the CAO Corporate Governance Policy, the Independent Directors of CAO meet at least once a year, without the presence of the other Directors, to discuss any matters relevant to the CAO Group, such as its investment criteria, risk management and internal controls, risk appetite and risk tolerance, performance of management, Board communication and performance, and strategic issues. Led by the Deputy Chairman/Lead Independent Director, the Independent Directors of CAO held their meeting on 8 December 2016. Key issued discussed by the Independent Directors of CAO included the “Code of Corporate Governance 2012”, “Flow of Information between Management and the Board” and “Recap of CAO 2020 Strategy”.
There should be a formal and transparent process for the appointment of new Directors to the Board.
Composition of Nominating Committee and Terms of Reference: The Nominating Committee was established by the Board to make recommendations for all Board appointments. The Nominating Committee comprises five (5) members, the majority of whom, including its Chairman, are Independent Non-Executive Directors:
|Wang Kai Yuen
|Ang Swee Tian
|Bella Young Pit Lai
The Chairman of the Nominating Committee is not associated with any substantial shareholder of the Company.
The responsibilities of the Nominating Committee include:
a) the review of the structure, size and composition of the Board and the Board Committees;
b) the review of the succession plans for the Board Chairman, Directors and Chief Executive Officer;
c) the development of a transparent process for evaluating and the performance of the Board, its Board Committees and Non-Executive Directors, including assessing whether the non-executive Directors are able to commit enough time to discharge their responsibilities and the maximum number of listed company Board representations which a Director may hold;
d) the review of the training and professional development programmes of the Board;
e) the appointment and re-appointment of all Directors (including alternate Directors, if any);
f) the review and confirmation of the independence of each Director; and
g) the review of the management structure of key operating subsidiaries of the Company and evaluation of the performance of key management personnel of these key operating subsidiaries, as and when proposed by any Director.
Board Nomination Process for the Selection and Appointment of New Independent Directors: The Nominating Committee will generally apply the Internal Guidelines for Selection and Appointment of Independent Directors of CAO (the “Internal Guidelines”) for the process of identifying, evaluating and selecting suitable candidates for appointments as new Independent Directors of the Company. In considering the overall balance of the Board’s composition, the Nominating Committee will give due consideration to the selection and evaluation criteria set out in the Internal Guidelines, having regard to the normally accepted nomination criteria which include but not limited to (i) the appropriate background, experience, industry knowledge or ability to acquire that knowledge, professional skills and qualifications; (ii) demonstrated willingness to devote the required time, including being available to attend meetings of the Board and Board Committees; and (iii) high levels of personal and professional integrity as well as business ethics.
In the case of selection and appointment of CNAF Nominee Directors and BP Nominee Directors, the Nominating Committee will not apply the Internal Guidelines. However, with regard to the nominations received from either CNAF or BP for the appointment and/or replacement of their respective nominee Directors, the Nominating Committee may apply the relevant evaluation criteria in the Internal Guidelines when assessing their suitability in complementing the core competencies of the Board at that time.
Directors’ Multiple Directorships in Listed Companies: In line with the Board adopted guiding principles for the determination of a specified maximum number of listed board representations, Directors of CAO should not, as a general guide, hold more than six (6) board representations in listed companies (the “Maximum Number of Listed Board Representations”). In addition, the following considerations are also taken into account:
(i) where the individual also holds a full-time executive position; and
(ii) where the individual is a full-time independent director.
The Nominating Committee had reviewed each Director’s external directorships as well as each Director’s attendance and contributions to the Board. Despite the multiple directorships of some Directors, the Nominating Committee is satisfied that all of the Directors of the Company have complied with the requirement on the Maximum Number of Listed Board Representations. The Nominating Committee is also satisfied that the Directors spent adequate time on the Company’s affairs and have carried out their responsibilities.
Retirement by Rotation and Re-election of Directors: Pursuant to Article 91 of the Company’s Constitution, one-third of the members of the Board of Directors shall retire by rotation at every annual general meeting of the Company (the “AGM”) and these Directors may offer themselves for re-election, if eligible. For the 23rd AGM to be held on 18 April 2017, Dr Wang Kai Yuen, Mr Ang Swee Tian and Mr Li Runsheng are due for retirement by rotation and would be eligible for re-election.
The Nominating Committee has recommended and the Board agreed that Dr Wang Kai Yuen, Mr Ang Swee Tian and Mr Li Runsheng, the Directors retiring by rotation under Article 91, be nominated for re-election at the 23rd AGM.
In accordance with Article 97 of the Company’s Constitution, Dr Xi Zhengping who was appointed as a Non-Executive Director and Chairman of the Board on 6 February 2017 will hold office as Director until the next annual general meeting of the Company and will be eligible for re-election under Article 97 at the 23rd AGM.
The Nominating Committee has recommended and the Board agreed that Dr Xi Zhengping be nominated for re-election under Article 97 at the 23rd AGM.
There should be a formal assessment of the effectiveness of the Board as a whole and its board committees and the contribution by each Director to the effectiveness of the Board.
Board Performance: The Nominating Committee evaluated the performance of each Director and the effectiveness of the Board as a whole.
Since the adoption of the CAO Corporate Governance Policy in 2012, the Board has, through the Nominating Committee, implemented a formal process annually for assessing the effectiveness of the Board as a whole and its Board Committees (the “Overall Board/Board Committees’ Performance Evaluation”). The Overall Board/Board Committees’ Performance Evaluation entailed the completion by each member of the Nominating Committee of a Board assessment and effectiveness questionnaire (the “Board Evaluation Questionnaire”).
The elements of the Board Evaluation Questionnaire included questions on (i) the Board’s composition; (ii) Board’s access to information prior to Board meetings and on an ongoing basis to enable them to properly discharge their duties and responsibilities as Directors; (iii) the expertise and experience of each member of the Board; (iv) the conduct of proceedings of meetings, participation and contributions to the Board both inside and outside of Board meetings; (v) the assessment of the performance benchmark for assessing the performance of the Board as a whole and in ensuring the continued return for shareholders; and (vi) the standard of conduct in preventing conflicts of interest and the disclosure of personal interests and abstention from voting where appropriate.
A summary of the assessment ratings on each of the elements of the Board Evaluation Questionnaire by each member of the
Nominating Committee for last three (3) preceding years were also sent to the members of the Nominating Committee.
Each member of the Nominating Committee would first carry out his own assessment and evaluation of the performance of the Board as a whole and its Board Committees using the Board Evaluation Questionnaire.
To further enhance the long-term performance of the Board and its Board Committees, a separate process for the review of the performance of individual (non-executive) directors was also adopted (the “Individual Board Member Performance Evaluation”) and conducted on an annual basis concurrently with the Overall Board/Board Committees’ Performance Evaluation.
The Individual Board Member Performance Evaluation was conducted using the 360-Degree Board Member Evaluation Form. The 360-Degree Board Member Evaluation Form was designed to facilitate the assessment of each individual (non-executive) Board member in areas such as “Leadership”, “Strategic Thinking”, “Board Contribution” and “Governance”.
The 360-Degree Board Member Evaluation Form was emailed to Directors individually by separate emails and each Board member was required to complete the 360-Degree Board Member Evaluation Form for each of the other non-executive Directors, on an anonymous basis.
A general summary of (i) the assessment ratings on each of the elements of the Board Evaluation Questionnaire by each member of the Nominating Committee; and (ii) the results of assessment and evaluation of the 360-Degree Board Member Evaluation Form for each non-executive Director of CAO, will be collated by the Company Secretary for the Nominating Committee’s deliberation and consensus at its Nominating Committee Meeting held in November each year.
The Nominating Committee is satisfied with the current composition and performance of the Board both individually and as a whole.
Access to Information
In order to fulfil their responsibilities, Directors shall be provided with complete, adequate and timely information prior to Board
meetings and on an on-going basis so as to enable them to make informed decisions to discharge their duties and responsibilities.
Information Flow: The Company has put in place enhanced communication processes between the Board and Management in terms of information flow.
Agenda for meetings and all Board papers for discussions are circulated to Directors at least ten (10) days in advance so that the Directors are prepared for the meetings. However, sensitive matters may be tabled at the meeting itself or discussed without any papers being distributed. Management and senior executives of the Company would be present during the Board meeting or Board Committee meeting, as the case may be, to present their proposals or to answer any questions that Board members may have.
The Board as a whole as well as individual Directors have direct access to Management represented by senior executive officers of CAO and the CAO Group. The Management provides the Directors with monthly updates on the operational and financial performance of the CAO Group, and also responds to regular questions from the Board or individual Directors in a timely manner.
Where the Board deems it necessary, the Board can obtain independent advice from external consultants. This enhances the Board’s ability to discharge its functions and duties.
All Board members have direct access to and the advice and services of the Company Secretary. The Company Secretary attends the meetings of the Board and Board Committees and assists the respective Chairman of the Board/Board Committees in ensuring that Board/Board Committee papers, procedures and the applicable laws and regulations are adhered to.
Information about CAO and the CAO Group are freely available to each Board member. Management will promptly supply any additional information that the Board requires.
The Board also has ready access to external professionals for consultations.