Our primary role as the manager of CRCT (Manager) is to set the strategic direction of CRCT and make recommendations to HSBC Institutional Trust Services (Singapore) Limited, in its capacity as trustee of CRCT (Trustee), on any investment opportunities for CRCT and the enhancement of the assets of CRCT in accordance with the stated investment strategy for CRCT. The research, evaluation and analysis required for this purpose are coordinated and carried out by us as the Manager.
As the Manager, we have general powers of management over the assets of CRCT. Our primary responsibility is to manage the assets and liabilities of CRCT for the benefit of the unitholders of CRCT (Unitholders). We do this with a focus on generating rental income and enhancing asset value over time so as to maximise returns from the investments, and ultimately the distributions and total returns to Unitholders.
Our other functions and responsibilities as the Manager include:
The Manager also considers sustainability issues (including environmental and social factors) as part of its responsibilities. CRCT’s environmental sustainability and community outreach programmes are set out on pages 54 to 57 of this Annual Report.
CRCT, constituted as a trust, is externally managed by the Manager. The Manager appoints experienced and well qualified personnel to run its day-to-day operations.
The Manager was appointed in accordance with the terms of the trust deed constituting CRCT dated 23 October 2006 (as amended, varied or supplemented from time to time) (Trust Deed). The Trust Deed outlines certain circumstances under which the Manager can be removed, including by notice in writing given by the Trustee upon the occurrence of certain events, or by resolution passed by a simple majority of Unitholders present and voting at a meeting of Unitholders duly convened and held in accordance with the provisions of the Trust Deed.
The Manager is a wholly owned subsidiary of CapitaLand Limited (CL) which holds a significant unitholding interest in CRCT. CL is a long-term real estate developer and investor, and has strong inherent interests in the performance of CRCT. CL’s significant unitholding in CRCT ensures its commitment to CRCT and as a result, CL’s interest is aligned with that of other Unitholders. The Manager’s association with CL provides the following benefits, among other things, to CRCT:
OUR CORPORATE GOVERNANCE CULTURE
The Manager aspires to the highest standards of corporate governance. The Manager is committed to continuous improvement in corporate governance. It has developed and, on an ongoing basis, maintains sound and transparent policies and practices to meet the specific business needs of CRCT and to provide a firm foundation for a trusted and respected business enterprise. The Manager remains focused on complying with the substance and spirit of the principles of the Code of Corporate Governance 2012 (Code) while achieving operational excellence and delivering CRCT’s long-term strategic objectives. The Board of Directors (Board) is responsible for the Manager’s corporate governance standards and policies, underscoring their importance to the Manager.
This report sets out the corporate governance practices for financial year (FY) 2016 with reference to the principles of the Code. Where there are deviations from any of the guidelines of the Code, an explanation has been provided within this Annual Report.
Principle 1: Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the long-term success of the company. The Board works with Management to achieve this objective and Management remains accountable to the Board.
The Manager is led by the Board which presently comprises a majority of non-executive independent directors. This exceeds the recommendations in the Code. The Board has a diversity of skills and knowledge, experience and educational background. Each Director brings to the Board skills, experience, insights and sound judgement which, together with his strategic networking relationships, serve to further the interests of CRCT.
The Board oversees the affairs of the Manager in furtherance of the Manager’s primary responsibility to manage the assets and liabilities of CRCT for the benefit of Unitholders. The Board provides leadership to the Chief Executive Officer (CEO) and the management team (Management) and sets the strategic vision, direction and long-term objectives for CRCT. The CEO, assisted by Management, is responsible for the execution of the strategy for CRCT and the day-to-day operations of CRCT’s business.
The Board provides leadership to Management, sets strategic directions and oversees the management of CRCT. The Board establishes goals for Management and monitors the achievement of these goals. It ensures that proper and effective controls are in place to assess and manage business risks and compliance with requirements under the Listing Manual, the Property Funds Appendix, as well as any other applicable guidelines prescribed by the SGX-ST, MAS or other relevant authorities, and applicable laws. It also sets the disclosure and transparency standards for CRCT and ensures that obligations to Unitholders and other stakeholders are understood and met.
The Board has reserved authority to approve certain matters and these include:
The Board has established various Board Committees to assist it in the discharge of its functions. These Board Committees are the Audit Committee (AC), the Corporate Disclosure Committee (CDC) and the Executive Committee (EC). Each of these Board Committees operates under delegated authority from the Board, with the Board retaining overall oversight, and has its own terms of reference. The composition of the various Board Committees is set out on page 46 of this Annual Report.
The Board may form other Board Committees as dictated by business imperatives. Membership of the various Board Committees is managed to ensure an equitable distribution of responsibilities among Board members, to maximise the effectiveness of the Board and to foster active participation and contribution from Board members. Diversity of experience and appropriate skills are considered in the composition of the respective Board Committees.
The Board has adopted a set of internal controls which establishes approval limits for capital expenditure, investments, divestments, bank borrowings and issuance of debt instruments. Apart from matters that specifically require the Board’s approval, the Board delegates authority for transactions below those limits to Board Committees and Management.
The Board meets at least once every quarter, and as required by business imperatives. Board and Board Committee meetings are scheduled prior to the start of each financial year. Where exigencies prevent a Director from attending a Board meeting in person, the Constitution of the Manager permits the Director to participate via audio or video conference. The Board and Board Committees may also make decisions by way of resolutions in writing. Except where a Director has recused himself due to a potential conflict of interest situation and is thus excused from participation, in each meeting which considers matters requiring the Board’s approval, all members of the Board participate in the discussions and deliberations. This principle of collective decisions adopted by the Board ensures that no individual unduly influences or dominates the decision making process.
A total of four Board meetings were held in FY 2016. A table showing the attendance record of the Directors at meetings of the Board and Board Committees in FY 2016 is set out on page 46 of this Annual Report. The Manager believes in the manifest contribution of its Directors beyond attendance at formal Board and Board Committee meetings. To judge a Director’s contributions based on his attendance at formal meetings alone would not do justice to his overall contributions, which include being accessible to Management for guidance or exchange of views outside the formal environment of Board and Board Committee meetings.
In view of the increasingly demanding, complex and multi-dimensional role of a director, the Board recognises the importance of continual training and development for its Directors so as to equip them to discharge the responsibilities of their office as Directors to the best of their abilities. The Manager has in place a training framework to guide and support the Manager towards meeting the objective of having a Board which comprises individuals who are competent and possesses up-to-date knowledge and skills necessary to discharge their responsibilities. The Manager also maintains a training record to track the Directors’ attendance at training and professional development courses. The costs of training are borne by the Manager. Upon appointment, each Director is provided with a formal letter of appointment and a copy of the Directors’ Manual (which includes information on a broad range of matters relating to the role and responsibilities of a Director). All Directors, upon appointment, also undergo an induction programme which focuses on orientating the Director to CRCT’s business, operations, strategy, organisational structure, responsibilities of key management personnel, and financial and governance practices.
Following their appointment, Directors are provided with opportunities for continuing education in areas such as directors’ duties and responsibilities and changes to regulations and accounting standards and industry-related matters, so as to be updated on matters that affect or may enhance their performance as Directors or Board Committee members. Directors also receive on-the-job training through being engaged in actual Board work. In FY 2016, the training and professional development programmes for Directors included forums and dialogues with experts and senior business leaders on issues facing boards and board practice.
Principle 2: There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from Management and 10% shareholders. No individual or small group of individuals should be allowed to dominate the Board’s decision making.
The Board reviews from time to time the size and composition of the Board with a view to ensuring that the size of the Board is appropriate in facilitating effective decision making, taking into account the scope and nature of the operations of CRCT and its subsidiaries (CRCT Group), and that the Board has a strong independent element.
The Board presently comprises seven Directors, four of whom are independent directors. The Chairman of the Board is an independent director. Profiles of the Directors are provided on pages 17 to 22 of this Annual Report. The recommendation in the Code for a lead independent director to be appointed does not apply to the Manager as the Chairman is an independent director, he and the CEO are separate individuals, and they are not related to each other.
The Board assesses the independence of each Director in accordance with the guidance in the Code. An independent director is one who has no relationship with the Manager, its related corporations and its shareholders who hold 10% or more of the voting shares of the Manager, or Unitholders who hold 10% or more of the Units in issue, or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of his independent business judgement. The relevant non-executive Directors, namely Mr Liew Cheng San Victor, Mr Fong Heng Boo, Mr Christopher Gee Kok Aun and Professor Tan Kong Yam, have provided declarations of their independence, which have been deliberated upon by the Board. The Board has also examined the different relationships identified by the Code that might impair the Directors’ independence and objectivity.
Mr Liew Cheng San Victor has served on the Board for more than nine years. The Code recommends that the independence of any director who has served beyond nine years be subject to rigorous view. The Board accordingly reviewed and determined that Mr Liew has continuously demonstrated strong independence in character and judgement in the discharge of his responsibilities as a Director of the Manager in FY 2016. Mr Liew has been forthcoming in expressing his individual viewpoints, active in his debate over issues concerning CRCT, and objective in his scrutiny of and challenges to Management. He has actively sought clarification and amplification of board affairs as necessary, including through direct access to Management and external advisors. Under a recently issued set of guidelines of MAS which took effect on 1 January 2016, an independent director means a director who, among other things, has not served on the Board for a continuous period of nine years or longer. In view of this new criteria for independence, Mr Liew will be deemed a non-independent director after the annual general meeting of CRCT to be held on 19 April 2017.
The Board has also considered whether each of Mr Fong Heng Boo, Mr Christopher Gee Kok Aun and Professor Tan Kong Yam had demonstrated independence of character and judgement in the discharge of his responsibilities as a Director in FY 2016, and is satisfied that each of Mr Fong, Mr Gee and Professor Tan had acted with independent judgement.
On the bases of the declarations of independence provided by the relevant non-executive Directors and the guidance in the Code, the Board has determined that Mr Liew Cheng San Victor, Mr Fong Heng Boo, Mr Christopher Gee Kok Aun and Professor Tan Kong Yam are independent directors, as defined under the Code. Each of them had recused himself from deliberations on his own independence.
At all times, the Directors are collectively and individually obliged to act honestly and with diligence, and in the best interests of CRCT. The Manager has established a policy that its Directors recuse themselves from participating in any discussions concerning a transaction in which they may be in a conflict of interest situation. Each of the Directors has complied with this policy and recused himself from participating in any Board deliberations on any transaction which could potentially have given rise to a conflict of interest.
Principle 3: 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.
To maintain an appropriate balance of power, increased accountability and greater capacity of the Board for independent decision making, the roles and responsibilities of the Chairman and the CEO are held by separate individuals.
The non-executive independent Chairman, Mr Liew Cheng San Victor, is responsible for leading the Board and ensuring that the Board is effective in all aspects of its role. The CEO, Mr Tony Tan Tee Hieong, has full executive responsibilities over the business directions and operational decisions of CRCT and is responsible for implementing CRCT’s strategies and policies and conducting CRCT’s business.
The Chairman is responsible for leadership of the Board and for facilitating the conditions for the overall effectiveness of the Board, Board Committees and individual Directors. This includes setting the agenda of the Board in consultation with the CEO and promoting constructive engagement among the Directors as well as between the Board and the CEO on strategic issues. The Chairman plays a significant leadership role by providing clear oversight, direction, advice and guidance to the CEO and Management on strategies.
The Chairman and the CEO are not immediate family members. The separation of the roles of the Chairman and the CEO and the resulting clarity of roles provide a healthy professional relationship between the Board and Management, and facilitate robust deliberations on the business activities of CRCT and the exchange of ideas and views to help shape CRCT’s strategic process.
Principle 4: There should be a formal and transparent process for the appointment and re-appointment of directors to the Board.
The Board undertakes the functions of a nominating committee and therefore, the Manager does not have a nominating committee. The Board performs the functions that such a committee would otherwise perform, namely, it administers nominations to the Board, reviews the structure, size and composition of the Board, and reviews the performance and independence of Board members. The Board seeks to ensure that the composition of the Board provides an appropriate balance and diversity of skills, experience and knowledge of the industry and that the Directors, as a group, have the necessary core competencies relevant to CRCT’s business.
The current Board comprises individuals who are business leaders and professionals with financial, banking, real estate, legal, investment and accounting backgrounds. The Board recognises the benefits of having a diverse Board. Diversity in the Board’s composition not only contributes to the quality of its decision making through diversity of perspectives in its boardroom deliberations, it also enables Management to benefit from their respective expertise and diverse backgrounds. The Board also considers gender an important aspect of diversity alongside factors such as the age, ethnicity and educational background of its members. The Board is committed to diversity and will continue to consider the differences in the skillsets, gender, age, ethnicity and educational background in determining the optimal composition of the Board in its Board renewal process.
In the year under review, no alternate directors were appointed. In keeping with the principle that a Director must be able to commit time to the affairs of the Manager, the Board will, generally, not approve the appointment of alternate directors.
The Board is able to undertake the functions of a nominating committee because:
The Board has adopted the following criteria and process for selecting, appointing and reappointing Directors and for reviewing the performance of Directors:
The adopted process takes into account the requirements in the Code that the composition of the Board, including the selection of candidates for new appointments to the Board as part of the Board’s renewal process, be determined using the following principles:
As at least half of the Board comprises independent directors, the Manager will not be voluntarily subjecting any appointment or reappointment of directors to voting by Unitholders. The Chairman of the Board is presently an independent director. The Board intends to continue to keep to the principle that at least half of the Board shall comprise independent directors.
On the issue of Board renewal, the Manager believes that Board renewal is a necessary and continual process, for good governance and ensuring that the Board has the skills, expertise and experience which are relevant to the evolving needs of CRCT’s business; renewal or replacement of a Director therefore does not necessarily reflect his performance or contributions to date.
Guideline 4.4 of the Code recommends that the Board determine the maximum number of listed company board appointments which any Director may hold, and disclose this in the annual report. In view of the responsibilities of a Director, the Board is cognisant of the need for Directors to be able to devote sufficient time and attention to adequately perform their roles. However, the Board has not imposed any limit as it has taken the view that, the limit on the number of listed company directorships that an individual may hold should be considered on a case-by-case basis, as a person’s available time and attention may be affected by many different factors, such as whether he is in full-time employment and the nature of his other responsibilities. A Director with multiple directorships is expected to ensure that sufficient attention can be and is given to the affairs of the Manager in managing the assets and liabilities of CRCT for the benefit of Unitholders. The Board believes that each Director is best placed to determine and ensure that he is able to devote sufficient time and attention to discharge his duties and responsibilities as a Director of the Manager, bearing in mind his other commitments. In considering the nomination of any individual for appointment, and in its annual review of each Director’s ability to commit time to the affairs of the Manager, the Board takes into account, among other things, the attendance records of the Directors at meetings of Board and Board Committees, the competing time commitments faced by any such individual with multiple board memberships as well as his other principal commitments. All Directors had confirmed that notwithstanding the number of their individual listed company board appointments and other principal commitments which each of them held, they were able to devote sufficient time and attention to the affairs of the Manager in managing the assets and liabilities of CRCT for the benefit of Unitholders. The CEO who is also a Director is fully committed to the day-to-day operations of the Manager. The Board also notes that, as at the date of this Annual Report, none of the independent directors serves on more than three listed company boards. Taking into account also the attendance record of the Directors at meetings of the Board and Board Committees in FY 2016 (set out on page 46 of this Annual Report) and contributions to the Board’s deliberations as well as availability outside formal Board and Board Committee meetings, the Board is of the view that the current commitments of each of its Directors are reasonable and each of the Directors is able to and has been adequately carrying out his duties.
Principle 5: There should be a formal annual 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.
The Manager believes that oversight from a strong and effective board goes a long way towards guiding a business enterprise to achieving success.
The Board strives to ensure that there is an optimal blend in the Board of background, experience and knowledge in business and general management, expertise relevant to CRCT’s business, and that each Director can bring to the Board an independent and objective perspective to enable balanced and well-considered decisions to be made in the interests of CRCT.
While board performance is ultimately reflected in the long-term performance of CRCT, the Board believes that engaging in a regular process of self-assessment and evaluation of board performance in order to identify key strengths and areas for improvement is essential to effective stewardship and to attaining success for CRCT.
As part of the Manager’s commitment towards improving corporate governance, the Board has implemented a process to evaluate the effectiveness of the Board as a whole and the Board Committees on an annual basis. As part of the process, questionnaires were sent to the Directors, and the results were aggregated and reported to the Chairman of the Board. The areas of evaluation covered in the survey questionnaire included Board composition, Board processes, strategy, performance and governance, access to information and Board committee effectiveness. The results of the survey were deliberated upon by the Board, and the necessary follow up action will be taken with a view to enhancing the effectiveness of the Board in the discharge of its duties and responsibilities. The outcome of the evaluation was satisfactory with positive ratings received for all the attributes in the evaluation categories.
The Board was also able to assess the Board Committees through their regular reports to the Board on their activities. In respect of individual Directors, their contributions can take different forms including providing objective perspectives on issues, facilitating business opportunities and strategic relationships, and accessibility to Management outside of the formal environment of Board and/or Board Committee meetings.
The Manager further believes that the collective Board performance and the contributions of individual Board members are also reflected in, and evidenced by, the synergistic performance of the Board in discharging its responsibilities as a whole by providing proper guidance, diligent oversight and able leadership, and lending support to Management in steering CRCT in the appropriate direction, as well as the long-term performance of CRCT whether under favourable or challenging market conditions.
Principle 6: In order to fulfil their responsibilities, directors should 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.
The Manager recognises the importance of providing the Board with relevant information on a timely basis prior to Board meetings and on an ongoing basis, to enable the Directors to make informed decisions to discharge their duties and responsibilities. Reports on CRCT’s performance are also provided to the Board on a regular basis.
The Board meets regularly and Board meetings, in general, last up to half a day. At each Board meeting, the CEO provides updates on CRCT’s business and operations as well as financial performance. Presentations in relation to specific business areas are also made by key executives and external consultants or experts; this allows the Board to develop a good understanding of CRCT’s business and also promotes active engagement between the Board and the key executives of the Manager.
As a general rule, Board papers are sent to Board members at least five working days prior to each Board meeting, to allow the Board members sufficient time to prepare for the Board meetings and to enable discussions to focus on any questions that they may have.
In line with the Manager’s ongoing commitment to limit paper wastage and reduce its carbon footprint, the Manager does not provide printed copies of Board papers. Instead, Directors are provided with tablet devices to enable them to access and read Board and Board Committee papers prior to and in meetings. This initiative also enhances information security as the papers are downloaded to the tablet devices through an encrypted channel.
In addition to providing complete, adequate and timely information to the Board on Board affairs and issues requiring the Board’s decision, Management also provides ongoing reports relating to the operational and financial performance of CRCT, such as monthly management reports.
Where appropriate, informal meetings are also held for Management to brief Directors on prospective transactions and potential developments in the early stages before formal Board approval is sought.
The Board has separate and independent access to Management, including the company secretary of the Manager (Company Secretary), at all times. The Company Secretary attends to corporate secretarial administration matters and is the corporate governance advisor on corporate matters to the Board and Management. The Company Secretary attends all Board meetings and assists the Chairman and in ensuring that Board procedures are followed. The Board, whether as an individual Director or as a group, is also entitled to have access to independent professional advice where required, with expenses borne by the Manager.
The AC also meets the internal and external auditors separately at least once a year, without the presence of the CEO and Management and has unfettered access to Management for any information that it may require.
Through the training framework adopted for the professional development of the Directors, Directors also receive on a regular basis reading materials on topical matters or subjects and regulatory updates and implications; also, where appropriate, Management will arrange for briefings by industry players or consultants.
Principle 7: There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration.
Principle 8:The level and structure of remuneration should be aligned with the long-term interest and risk policies of the company, and should be appropriate to attract, retain and motivate (a) the directors to provide good stewardship of the company, and (b) key management personnel to successfully manage the company. However, companies should avoid paying more than is necessary for this purpose.
Principle 9: Every company should provide clear disclosure of its remuneration policies, level and mix of remuneration, and the procedure for setting remuneration, in the company’s Annual Report. It should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key management personnel, and performance.
The Board undertakes the functions of a remuneration committee. It is able to do so because:
In undertaking these functions, the Board oversees the design and implementation of the remuneration policy and the specific remuneration packages for each Director and senior executives including the CEO. No member of the Board, however, will be involved in any decision of the Board relating to his own remuneration.
In terms of the process adopted by the Manager for developing policies on remuneration and determining the remuneration packages for Directors and executive officers, the Manager, through an independent remuneration consultant, takes into account benchmarking within the industry, as appropriate. It also considers the compensation framework of CL as a point of reference. The Manager is a subsidiary of CL which also holds a significant stake in CRCT. The association with the CL group puts the Manager in a better position to attract and retain better qualified management talent; it provides an intangible benefit to the Manager such that it allows its employees to associate themselves with an established corporate group which can offer them the depth and breadth of experience and a career horizon. In FY 2016, an independent remuneration consultant, Mercer (Singapore) Pte Ltd (Mercer), was appointed to provide professional advice on Board and executive remuneration. Mercer is a global consulting leader in talent, health, retirement and investments with operations in more than 140 countries and employs more than 20,000 people globally. The consultant is not related to the Manager, its related corporations or any of its Directors.
The principles governing the Manager's key management personnel remuneration policy are as follows:
The fixed component comprises the base salary, fixed allowances and compulsory employer contribution to an employee’s Central Provident Fund. The variable cash component comprises an annual bonus plan which is linked to the achievement of annual performance targets for each key executive. Annual performance targets are in the form of both quantitative and qualitative measures that are aligned to the business strategy for CRCT Group and linked both to individual performance and the performance of CRCT. The market-related benefits provided are comparable with local market practices.
For FY 2016, remuneration for key management personnel comprises a fixed component, a performance-based variable cash component, a performance-based variable equity-based component and market-related benefits. For the equity-based component, Units were awarded with effect from FY 2016, so as to better align the interest of key management personnel with the long-term interest of Unitholders. In determining the actual quantum for the variable components, the Manager will take into account the achievement of performance targets such as the distribution per Unit and net property income achieved by the CRCT Group.
The remuneration for the CEO in bands of S$250,000, and a breakdown of the remuneration of the CEO and all of the key management personnel of the Manager in percentage terms, are provided in the Key Management Personnel’s Remuneration Table on page 46 of this Annual Report.
At present, there are only three key management personnel of the Manager (including the CEO). The Manager outsources various other services to CapitaLand Mall Asia Limited (CMA) which provides the services through its employees (Outsourced Personnel), in order to provide flexibility and maximise efficiency in resource management to match the needs of CRCT from time to time, as well as to leverage on economies of scale and tap on the management talent of an established corporate group which can offer enhanced depth and breadth of experience. However, notwithstanding the outsourcing arrangement, the responsibility for due diligence, oversight and accountability continues to reside with the Board and Management. In this regard, the remuneration of such Outsourced Personnel, being employees of CMA, is not included as part of the disclosure of remuneration of key management personnel of the Manager in this Annual Report.
The Manager has decided (a) to disclose the CEO’s remuneration in bands of S$250,000 (instead of on a quantum basis), and (b) not to disclose the remuneration of the key management personnel of the Manager (whether in bands of S$250,000 or otherwise). In arriving at its decision, it took into account the commercial sensitivity and confidential nature of remuneration matters. The Manager is of the view that disclosure in such manner is not prejudicial to the interests of Unitholders as the indicative range for the CEO’s remuneration, as well as the total remuneration for the CEO and key management personnel of the Manager, is made known to Unitholders, and sufficient information is provided on the Manager’s remuneration framework to enable Unitholders to understand the link between CRCT’s performance and the remuneration of the CEO and key management personnel. In addition, the remuneration of the CEO and key management personnel of the Manager is paid out of the fees (the quantum and basis of which have been disclosed) that the Manager receives, rather than borne by CRCT.
There were no employees of the Manager who were immediate family members of a Director or the CEO in FY 2016. “Immediate family member” refers to the spouse, child, adopted child, step-child, sibling or parent of the individual.
The Directors’ fees for FY 2016 are shown in the table below. The CEO as an executive director does not receive any fees for serving as a Director. Instead, he is remunerated as part of the key management personnel of the Manager. Directors’ fees are a fixed sum and generally comprise a basic retainer fee as a Director, an additional fee for serving on any of the Board Committees and an attendance fee for participation in meetings of the Board and any of the Board Committees, project meetings and verification meetings. The framework for the Directors’ fees remains unchanged from that for the previous financial year.
Non-executive Directors (save for Directors who are employees of CL) receive Directors’ fees which are payable by way of cash and Units. The Manager believes that the payment of a portion of the Directors’ fees in Units will serve to align the interests of such Directors with that of Unitholders and CRCT’s long-term growth and value.
N.A.: Not Applicable.
1 Inclusive of attendance fees of (a) S$2,000 per meeting attendance in person, (b) S$1,700 per meeting attendance via audio or video conference, and (c) S$1,000 per meeting attendance at project and verification meetings subject to a maximum of S$10,000 per Director per annum.
2 Each non-executive Director (save for non-executive Directors who are employees of CL) shall receive up to 20% of his Directors’ fees in the form of Units (subject to truncation adjustments). The remainder of the Directors’ fees shall be paid in cash. No new Units will be issued for this purpose as these Units will be paid by the Manager from the Units it holds.
3 Non-executive Directors who are employees of CL do not receive Directors’ fees.
Principle 10: The Board should present a balanced and understandable assessment of the company’s performance, position and prospects.
The Manager provides Unitholders with quarterly and annual financial statements within the relevant periods prescribed by the Listing Manual after they are reviewed by the AC and approved by the Board. These financial statements are accompanied by news releases issued to the media and which are also posted on SGXNet. Through the quarterly and annual financial statements, the Board aims to provide Unitholders with a balanced, clear and understandable assessment of CRCT’s performance, position and prospects. In order to achieve this, Management provides the Board with management accounts on a monthly basis and such explanation and information as any Director may require, to enable the Directors to keep abreast, and make a balanced and informed assessment, of CRCT’s financial performance, position and prospects.
In addition to the quarterly and annual financial statements, the Manager also keeps Unitholders, stakeholders and analysts informed of the performance and changes in CRCT or its business which would be likely to materially affect the price or value of Units on a timely and consistent basis, so as to assist Unitholders and investors in their investment decisions.
The Manager believes in conducting itself in ways that seek to deliver maximum sustainable value to Unitholders. Best practices are promoted as a means to build an excellent business for Unitholders and the Manager is accountable to Unitholders for CRCT’s performance. Prompt fulfilment of statutory and regulatory reporting requirements is but one way to maintain Unitholders’ confidence and trust in the capability and integrity of the Manager.
Principle 11: The Board is responsible for the governance of risk. The Board should ensure that Management maintains a sound system of risk management and internal controls to safeguard shareholders’ interests and the company’s assets, and should determine the nature and extent of the significant risks which the Board is willing to take in achieving its strategic objectives.
The Manager has in place an adequate and effective system of risk management and internal controls addressing material financial, operational, compliance and information technology risks to safeguard Unitholders’ interests and CRCT’s assets.
The Board has overall responsibility for the governance of risk and oversees the Manager in the design, implementation and monitoring of the risk management and internal controls systems. The AC assists the Board in carrying out the Board’s responsibility of overseeing the risk management framework and policies of CRCT Group.
The AC is guided by its terms of reference, in particular, the AC:
The Manager adopts an Enterprise Risk Management (ERM) Framework which sets out the required environmental and organisational components for managing risk in an integrated, systematic and consistent manner. The ERM Framework and related policies are reviewed annually.
The Manager consistently seeks to improve and strengthen its ERM Framework. As part of the ERM Framework, the Manager, among other things, undertakes and performs a Risk and Control Self-Assessment (RCSA) process. As a result of the RCSA process, the Manager produces and maintains a risk register which identifies the material risks CRCT Group faces and the corresponding internal controls it has in place to manage or mitigate those risks. The material risks are reviewed annually by the AC and the Board. The AC also reviews the approach of identifying and assessing risks and internal controls in the risk register. The system of risk management and internal controls is reviewed and, where appropriate, refined by the Manager, the AC and the Board. Where relevant, reference is made to the best practices and guidance in the Risk Governance Guidance for Listed Boards issued by the Corporate Governance Council.
The Manager has established an approach on how risk appetite is defined, monitored and reviewed for CRCT Group. Approved by the Board, CRCT Group’s RAS addresses the management of material risks faced by CRCT Group. Alignment of CRCT Group’s risk profile to the RAS is achieved through various communication and monitoring mechanisms put in place across the various functions within the Manager.
More information on the Manager’s ERM Framework can be found in the Enterprise Risk Management section on pages 47 to 49 of this Annual Report.
Internal and external auditors conduct reviews that involve testing the effectiveness of the material internal controls for CRCT Group addressing financial, operational, compliance and information technology risks. This includes testing, where practicable, material internal controls in areas managed by external service providers. Any material non-compliance or lapses in internal controls together with corrective measures recommended by the internal and external auditors are reported to and reviewed by the AC. The adequacy and effectiveness of the measures taken by the Manager in response to the recommendations made by the internal and external auditors are also reviewed by the AC.
The Board has received assurance from the CEO and the Head, Finance of the Manager that:
In addition, in FY 2016, the Board has received quarterly certification by Management on the integrity of financial reporting and the Board has provided a negative assurance confirmation to Unitholders as required by the Listing Manual.
Based on the ERM Framework established and the reviews conducted by Management and both the internal and external auditors, as well as the assurance from the CEO and the Head, Finance of the Manager, the Board concurs with the recommendation of the AC and is of the opinion, that the system of risk management and internal controls addressing material financial, operational, compliance and information technology risks established by the Manager is adequate and effective to meet the needs of CRCT Group in its current business environment as at 31 December 2016.
The Board notes that the system of risk management and internal controls established by the Manager provides reasonable, but not absolute, assurance that CRCT Group, as it strives to achieve its business objectives, will not be significantly affected by any event that can be reasonably foreseen or anticipated. The Board notes that no system of risk management and internal controls can provide absolute assurance in this regard, or absolute assurance against poor judgement in decision making, human error, losses, fraud or other irregularities.
Principle 12: The Board should establish an Audit Committee with written terms of reference which clearly set out its authority and duties.
At present, the AC comprises four non-executive Directors, the majority of whom (including the Chairman of the AC) are independent directors. The members bring with them invaluable recent and relevant managerial and professional expertise in accounting and related financial management domains; in particular the Chairman of the AC is a Fellow of the Institute of Singapore Chartered Accountants, among other professional affiliations, and Mr Christopher Gee Kok Aun, another AC member, is a member of The Institute of Chartered Financial Analysts. None of the AC members was previously a partner of the incumbent external auditors, KPMG LLP (KPMG), within the previous 12 months, nor does any of the AC members hold any financial interest in KPMG.
The AC has explicit authority to investigate any matter within its terms of reference. Management is required to provide the fullest co-operation in providing information and resources, and in implementing or carrying out all requests made by the AC. The AC has direct access to the internal and external auditors and full discretion to invite any Director or executive officer to attend its meetings. Similarly, both the internal and external auditors are given unrestricted access to the AC.
The AC is guided by its terms of reference. In particular, the AC:
In the review of the financial statements of CRCT Group for FY 2016, the AC has discussed with Management the accounting principles that were applied and their judgement of items that might affect the integrity of the financial statements and also considered the clarity of key disclosures in the financial statements. The AC reviewed, among other matters, the following key audit matter as reported by external auditors for the financial year ended 31 December 2016.
The external auditors have provided confirmation of their independence to the AC. The aggregate amount of fees paid and payable to the external auditors for FY 2016 was approximately S$431,597. There were no fees for non-audit services in FY 2016.
In FY 2016, the AC also met with the internal and external auditors, without Management’s presence, to discuss the reasonableness of the financial reporting process, the system of internal controls, and the significant comments and recommendations by the auditors. Where relevant, the AC makes reference to best practices and guidance for Audit Committees in Singapore including practice directions issued from time to time in relation to the Financial Reporting Surveillance Programme administered by the Accounting and Corporate Regulatory Authority of Singapore.
Changes to the accounting standards and accounting issues which have a direct impact on the financial statements were reported to and discussed with the AC in its meetings.
The Manager confirms, on behalf of CRCT, that CRCT complies with Rule 712 and Rule 715 of the Listing Manual.
Principle 13: The company should establish an effective internal audit function that is adequately resourced and independent of the activities it audits.
The Manager has in place an internal audit function supported by CL’s Internal Audit Department (CL IA) which reports directly to the AC and administratively to the CEO. CL IA plans its internal audit schedules in consultation with, but independently of, Management and its plan is submitted to the AC for approval prior to the beginning of each year. The AC also meets with CL IA at least once a year without the presence of Management. CL IA has unfettered access to the Manager’s documents, records, properties and employees, including access to the AC.
CL IA is a corporate member of the Singapore branch of the Institute of Internal Auditors Inc. (IIA), which has its headquarters in the United States of America. CL IA subscribes to, and is guided by, the International Standards for the Professional Practice of Internal Auditing (Standards) developed by the IIA, and has incorporated these Standards into its audit practices. With respect to FY 2016, the AC has reviewed and is satisfied as to the adequacy and effectiveness of the IA function.
To ensure that internal audits are performed by competent professionals, CL IA recruits and employs suitably qualified professional staff with the requisite skill sets and experience.
CL IA identifies and provides training and development opportunities for its staff to ensure that their technical knowledge and skill sets remain current and relevant.
Principle 14: Companies should treat all shareholders fairly and equitably, and should recognise, protect and facilitate the exercise of shareholders’ rights, and continually review and update such governance arrangements.
The Manager is committed to treating all Unitholders fairly and equitably. All Unitholders enjoy specific rights under the Trust Deed and the relevant laws and regulations. These rights include, among other things, the right to participate in profit distributions. They are also entitled to attend general meetings and are accorded the opportunity to participate effectively and vote at general meetings (including through appointment of up to two proxies, if they are unable to attend in person or in the case of a corporate Unitholder, through its appointed representative). Unitholders such as nominee companies which provide custodial services for securities are not constrained by the two proxy limitation, and are able to appoint more than two proxies to attend, speak and vote at general meetings of CRCT. More information on unitholder participation in general meetings can be found in the section on Principle 16: Conduct of Shareholder Meetings of this report.
Principle 15: Companies should actively engage their shareholders and put in place an investor relations policy to promote regular, effective and fair communication with shareholders.
The Manager is committed to keeping all Unitholders and other stakeholders and analysts informed of the performance and changes in CRCT or its business which would be likely to materially affect the price or value of the Units, on a timely and consistent basis, so as to assist Unitholders and investors in their investment decisions.
The Manager has in place an Investor Relations and Corporate Communications team which facilitates effective communication with Unitholders, analysts, fund managers and the media.
The Manager actively engages with Unitholders and has put in place a Unitholders’ Communication and Investor Relations Policy (Policy) to promote regular, effective and fair communications with Unitholders. The Policy is available on CRCT’s website at www.crct.com.sg.
The Board has established the CDC which assists the Board in the discharge of its functions to meet the obligations arising under the laws and regulations of Singapore relating to and to conform to best practices in the corporate disclosure and compliance process. The views and approval of the CDC were sought throughout the year through emails on various announcements and news releases.
More information on the Manager’s investor and media relations with Unitholders can be found in the Investor & Media Relations section on pages 50 to 51 of this Annual Report and the Policy, which is available on CRCT’s website.
CRCT’s distribution policy is to distribute at least 90.0% of its taxable income (other than gains from the sale of real estate properties by CRCT which are determined to be trading gains), with the actual level of distribution to be determined at the Manager’s discretion.
Principle 16: Companies should encourage greater shareholder participation at general meetings of shareholders, and allow shareholders the opportunity to communicate their views on various matters affecting the company.
The Manager supports the principle of encouraging Unitholders’ participation and voting at general meetings. Unitholders receive a CD-ROM containing the CRCT annual report (printed copies are available upon request) and notice of the annual general meeting. As and when an extraordinary general meeting is to be held, Unitholders will receive a copy of the circular which contains details of the matters to be proposed for Unitholders’ consideration and approval. Notices of the general meetings are also advertised in the press and issued on SGXNet. The requisite notice period for general meeting is adhered to. All Unitholders are given the opportunity to participate effectively in and vote at general meetings.
At general meetings, Unitholders are encouraged to communicate their views and discuss with the Board and Management matters affecting CRCT. Representatives of the Trustee, Directors (including the chairpersons of the Board and the AC), the Manager’s senior management and the external auditors of CRCT, would usually be present at general meetings to address any queries from Unitholders.
To safeguard Unitholders’ interests and rights, a separate resolution is proposed for each substantially separate issue at general meetings. To ensure transparency in the voting process and better reflect Unitholders’ interests, the Manager conducts electronic poll voting for all the resolutions proposed at the general meetings. Voting procedures are explained and vote tabulations are disclosed at the general meetings. An independent scrutineer is also appointed to validate the vote tabulation procedures. Votes cast, for or against and the respective percentages, on each resolution are tallied and displayed ‘live’ on-screen to Unitholders immediately at the general meetings. The total number of votes cast for or against the resolutions and the respective percentages are also announced on SGXNet after the general meetings. Voting in absentia and by email, which are currently not permitted, may only be possible following careful study to ensure that the integrity of information and authentication of the identity of Unitholders through the web are not compromised, and legislative changes are effected to recognise remote voting.
Minutes of the general meetings recording the substantive and relevant comments made and questions raised by Unitholders, are prepared and are available to Unitholders for their inspection upon request. Minutes of the annual general meetings are also available on CRCT’s website at www.crct.com.sg.
Unitholders also have the opportunity to communicate their views and discuss with the Board and Management matters affecting CRCT after the general meetings.
Apart from the AC and CDC, the Board has also established the EC.
The EC oversees the day-to-day activities of the Manager and that of CRCT, on behalf of the Board. The EC is guided by its terms of reference. In particular, the EC:
The members of the EC also meet informally during the course of the year.
Review Procedures for Interested Person Transactions
The Manager has established internal control procedures to ensure that all Interested Person Transactions are undertaken on an arm’s length basis and on normal commercial terms, which are generally no more favourable than those extended to unrelated third parties, and are not prejudicial to the interests of CRCT and Unitholders. In respect of such transactions, the Manager would have to demonstrate to the AC that such transactions are undertaken on normal commercial terms and are not prejudicial to the interests of CRCT and Unitholders which may include obtaining (where practicable) third party quotations or obtaining valuations from independent valuers (in accordance with applicable provisions of the Listing Manual and the Property Funds Appendix). The internal control procedures also ensure compliance with Chapter 9 of the Listing Manual and the Property Funds Appendix.
In particular, the procedures in place include the following:
1 This table does not include the procedures applicable to Interested Person Transactions falling under the exceptions set out in Rules 915 and 916 of the Listing Manual.
2 Any transaction of less than S$100,000 in value is disregarded.
3 In relation to approval by Unitholders for transactions that are equal to or exceed 5.0% of CRCT’s latest audited net tangible assets/net asset value (whether singly or aggregated), any transaction which has been approved by Unitholders, or is the subject of aggregation with another transaction that has been approved by Unitholders, need not be included in any subsequent aggregation.
Role of the Audit Committee for Interested Person Transactions
The Manager’s internal control procedures are intended to ensure that Interested Person Transactions are conducted at arm’s length and on normal commercial terms, and are not prejudicial to CRCT and Unitholders’ interests.
The Manager maintains a register to record all Interested Person Transactions which are entered into by CRCT (and the basis on which they are entered into, including the quotations obtained to support such basis). All Interested Person Transactions are subject to regular periodic reviews by the AC, which in turn obtains advice from CL IA, to ascertain that the guidelines and procedures established to monitor Interested Person Transactions, including the relevant provisions of the Listing Manual and the Property Funds Appendix, as well as any other guidelines which may from time to time be prescribed by the SGX-ST, MAS or other relevant authorities, have been complied with. The review includes an examination of the nature of the transaction and its supporting documents or such other information deemed necessary by the AC. If a member of the AC has an interest in a transaction, he is to abstain from participating in the review and approval process in relation to that transaction. In addition, the Trustee also reviews such audit reports to ascertain that the Listing Manual and the Property Funds Appendix have been complied with.
Details of all Interested Person Transactions (equal to or exceeding S$100,000 each in value) entered into by CRCT in FY 2016 are disclosed on page 156 of this Annual Report.
Dealing with Conflicts of Interest
The following principles and procedures have been established to deal with potential conflicts of interest which the Manager (including its Directors, executive officers and employees) may encounter in managing CRCT:
Additionally, CRCT has been granted rights of first refusal by CapitaLand Mall China Income Fund I, CapitaLand Mall China Income Fund II, CapitaLand Mall China Income Fund III, CapitaLand Mall China Development Fund III and CMA (the Relevant Entities) over any proposed sale of completed retail properties in China by the Relevant Entities, or certain proposed acquisitions of completed retail properties in China by CMA and its subsidiaries.
In respect of voting rights where the Manager would face a conflict between its own interests and that of Unitholders, the Manager shall cause such voting rights to be exercised according to the discretion of the Trustee.
Dealings in Securities
The Manager has devised and adopted a securities dealing policy for the Manager’s officers and employees which applies the best practice recommendations in the Listing Manual. To this end, the Manager has issued guidelines to its Directors and employees as well as certain relevant executives of the CL group which set out prohibitions against dealings in CRCT Group’s securities (i) while in possession of material unpublished price sensitive information, (ii) during the two weeks immediately preceding, and up to the time of the announcement of, CRCT’s financial statements for each of the first three quarters of CRCT’s financial year, and (iii) during the one month immediately preceding, and up to the time of the announcement of, CRCT’s financial statements for the full financial year. Prior to the commencement of each relevant period, an email would be sent out to all Directors and employees of the Manager as well as certain relevant executives of the CL group to inform them of the duration of the period. The Manager will also not deal in CRCT Group’s securities during the same period. In addition, employees and Capital Markets Services Licence Appointed Representatives of the Manager are required to give pre-trading notification to the CEO and Compliance department before any dealing in CRCT Group’s securities.
Directors and employees of the Manager as well as certain relevant executives of the CL group are also prohibited from dealing in securities of CRCT Group if they are in possession of unpublished price sensitive information of CRCT Group. As and when appropriate, they would be issued an advisory to refrain from dealing in CRCT Group’s securities.
Under the policy, Directors and employees of the Manager as well as certain relevant executives of the CL group are also discouraged from trading on short-term or speculative considerations. They are also prohibited from using any information with respect to other companies or entities obtained in the course of their employment in connection with securities transactions of such companies or entities.
The Manager adheres to an ethics and code of business conduct policy which deals with issues such as confidentiality, conduct and work discipline, corporate gifts and concessionary offers. Clear policies and guidelines on how to handle workplace harassment and grievances are also in place.
The policies and guidelines are published on CL’s Intranet, which is accessible by all employees of the Manager.
The policies that the Manager has implemented aim to help to detect and prevent occupational fraud in mainly three ways.
First, the Manager offers fair compensation packages, based on practices of pay-for-performance and promotion based on merit to its employees. The Manager also provides various healthcare subsidies and financial assistance schemes to alleviate the common financial pressures its employees face.
Second, clearly documented policies and work procedures incorporate internal controls which ensure that adequate checks and balances are in place. Periodic audits are also conducted to evaluate the efficacy of these internal controls.
Finally, the Manager seeks to build and maintain the right organisational culture through its core values, educating its employees on good business conduct and ethical values.
The Manager adopts a strong stance against bribery and corruption. In addition to clear guidelines and procedures for the giving and receipt of corporate gifts and concessionary offers, all employees of the Manager are required to make a declaration on an annual basis where they pledge to uphold the Manager’s core values and not to engage in any corrupt or unethical practices. This serves as a reminder to all employees to maintain the highest standards of integrity in their work and business dealings.
The Manager’s zero tolerance policy towards bribery and corruption extends to its business dealings with third parties. Pursuant to this policy, the Manager requires that certain agreements incorporate anti-bribery and anti-corruption provisions.
A whistle-blowing policy and other procedures are put in place to provide employees of the Manager and parties who have dealings with the Manager with well defined, accessible and trusted channels to report suspected fraud, corruption, dishonest practices or other improprieties in the workplace, and for the independent investigation of any reported incidents and appropriate follow up action. The objective of the whistle-blowing policy is to encourage the reporting of such matters so that employees or external parties making any reports in good faith will be able to do so with the confidence that they will be treated fairly and, to the fullest extent possible, be protected from reprisal.
As a holder of a Capital Markets Services Licence issued by MAS, the Manager abides by the MAS’ guidelines on the prevention of money laundering and countering the financing of terrorism. Under these guidelines, the main obligations of the Manager are:
The Manager has developed and implemented a policy on the prevention of money laundering and terrorist financing and is alert at all times to suspicious transactions. Where there is a suspicion of money laundering or terrorist financing, the Manager performs due diligence checks on its counterparties in order to ensure that it does not enter into business transactions with terrorist suspects or other high risk persons or entities. Suspicious transactions are also reported to the Suspicious Transaction Reporting Office of the Commercial Affairs Department.
Under this policy, the Manager must retain all relevant records or documents relating to business relations with its customers or transactions entered into for a period of at least five years following the termination of such business relations or the completion of such transactions.
All prospective employees, officers and representatives of the Manager are also screened against various lists of terrorist suspects issued by MAS. Periodic training is provided by the Manager to its Directors, employees and representatives to ensure that they are updated and aware of applicable anti-money laundering and terrorist financing regulations, the prevailing techniques and trends in money laundering and terrorist financing and the measures adopted by the Manager to combat money laundering and terrorist financing.