From the Corporate Governance section of Keppel Corporation's Annual Report 2008:

Introduction | Board's conduct of affairs | Board composition and guidance
Chairman and Chief Executive Officer | Board membership | Board performance
Access to information | Remuneration matters | Annual remuneration report
Accountability and audit | Internal controls and risk management | Internal audit
Communication with shareholders | Securities transactions | APPENDIX

The board and management of Keppel Corporation Limited (“KCL” or the “Company”) firmly believe that a genuine commitment to good corporate governance is essential to the sustainability of the Company’s businesses and performance, and are pleased to confi rm that the Company has adhered to the principles and guidelines of the Code of Corporate Governance 2005¹ (the “2005 Code”), ²save for Guideline 3.1 (Chairman and CEO should be separate persons) the reason for which deviation is explained below.

The following describes the Company’s corporate governance practices with specific reference to the 2005 Code.

Note:
1 The Code of Corporate Governance 2005 issued by the Ministry of Finance on 14 July 2005.
2 On 22 December 2008, the Company announced that with effect from 1 January 2009, Mr Lim Chee Onn would relinquish his role as Chief Executive Officer but would continue to serve as Chairman of the Company, and that Mr Choo Chiau Beng would assume the role of Chief Executive Officer of the Company.

Board’s Conduct of Affairs
Principle 1: Effective board to lead and control the company

The principal functions of the board are to:

• decide on matters in relation to the Group’s activities which are of a significant nature, including decisions on strategic directions and guidelines and the approval of periodic plans and major investments and divestments;
• oversee the business and affairs of the Company, establish, with management, the strategies and financial objectives to be implemented by management, and monitor the performance of management;
• oversee processes for evaluating the adequacy of internal controls, risk management, financial reporting and compliance, and satisfy itself as to the adequacy of such processes; and
• assume responsibility for corporate governance.

All directors are expected to exercise independent judgment in the best interests of the Company. This is one of the performance criteria for the peer and self assessment on the effectiveness of the individual directors.

Based on the results of the peer and self assessment carried out by the directors, all directors have discharged this duty consistently well.

To assist the board in the discharge of its oversight function, various board committees, namely the Audit Committee, Board Risk Committee, Nominating Committee, Remuneration Committee, and Executive Committee, have been constituted with clear written terms of reference. All the board committees are actively engaged and play an important role in ensuring good corporate governance in the Company and within the Group. In addition, a Board Safety Committee was formed in January 2006. The terms of reference of the respective board committees are disclosed in the Appendix to this report.

The board meets six times a year and as warranted by particular circumstances. Telephonic attendance and conference via audio-visual communication at board meetings are allowed under the Company’s Articles of Association. The number of board and board committee meetings held in FY 2008, as well as the attendance of each board member at these meetings, are disclosed below:

The Company has adopted internal guidelines setting forth matters that require board approval. Under these guidelines, new investments or increase in investments and divestments exceeding $100 million by any Group company, and all commitments to term loans and lines of credit from banks and financial institutions by the Company, require the approval of the board. Further, any investment of $100 million and below but which does not have strategic fit with any of the Company’s core businesses, is not EVA positive, or does not generate Return on Equity of at least 12% on a standalone basis, would require specifi c board approval. Each board member has equal responsibility to oversee the business and affairs of the Company. Management on the other hand is responsible for the day-today operation and administration of the Company in accordance with the policies and strategy set by the board.

A formal letter is sent to newlyappointed directors upon their appointment explaining their duties and obligations as director. All newly-appointed directors undergo a comprehensive orientation programme which includes management presentations on the Group’s businesses and strategic plans and objectives, and site visits.

The directors are provided with continuing education in areas such as directors’ duties and responsibilities, corporate governance, changes in financial reporting standards, insider trading, changes in the Companies Act and industry-related matters, so as to update and refresh them on matters that affect or may enhance their performance as board or board committee members. By way of an example, some directors attended the course on “Making Corporate Boards More Effective” at the Harvard Business School from 5 to 8 November 2008. The key “take-aways” were discussed at the board meeting immediately following the course.

Board Composition and Guidance
Principle 2: Strong and independent element on the Board

To carry out its oversight function well, the board must be an effective board which can lead and control the business of the Group. The directors believe that, in view of the many complex businesses that the Company is involved in, the board should comprise executive directors, who have intimate knowledge of the business, and independent directors, who can take a broader view of the Group’s activities and bring independent judgment to bear on issues for the board’s consideration.

The Nominating Committee determines on an annual basis whether or not a director is independent, bearing in mind the 2005 Code’s defi nition of an “independent director” and guidance as to relationships the existence of which would deem a director not to be independent. The Nominating Committee also deems a director who is directly associated with a substantial shareholder as non-independent, although such a relationship has not been expressly adopted in the 2005 Code as one that would deem a director not to be independent. Mr Tow Heng Tan, who is Chief Investment Officer, Temasek Holdings, is therefore deemed non-independent by the Nominating Committee.

The Nominating Committee is of the view that, taking into account the nature and scope of the Company’s businesses, the board should consist of 9 to 11 members. The board currently has majority independent directors with a total of 10 directors of whom 6 are independent.

The nature of the directors’ appointments on the board and details of their membership on board committees are set out in the Appendix hereto.

The Nominating Committee is satisfied that the board comprises directors who as a group provide core competencies such as accounting or fi nance, business or management experience, industry knowledge, strategic planning experience and customer-based experience or knowledge, required for the board to be effective. The Nominating Committee and the board will nevertheless continue to look out for suitable candidates to strengthen the board and board committees.

The board and management fully appreciate that fundamental to good corporate governance is an effective and robust board whose members engage in open and constructive debate and challenge management on its assumptions and proposals, and that for this to happen, the board, in particular, the non-executive directors, must be kept well informed of the Company’s businesses and affairs and be knowledgeable about the industry in which the businesses operate. The Company has therefore adopted initiatives to put in place processes to ensure that the nonexecutive directors are well supported by accurate, complete and timely information, have unrestricted access to management, and have suffi cient time and resources to discharge their oversight function effectively. These initiatives include regular informal meetings for management to brief the directors on prospective deals and potential developments at an early stage before formal board approval is sought, and the circulation of relevant information on business initiatives, industry developments and analyst and press commentaries on matters in relation to the Company or the industries in which it operates. A two-day off-site board strategy meeting is organised every two years for in-depth discussions on strategic issues, to give the non-executive directors a better understanding of the Group and its businesses, and to provide an opportunity for the non-executive directors to familiarise themselves with the management team to facilitate the board’s review of the Company’s succession planning and leadership development programme. The Company has also made available on the Company’s premises an office for the non-executive directors’ use at any time to facilitate direct access to management.

The board’s non-executive directors meet regularly without the presence of management to discuss matters such as board processes, corporate governance initiatives, matters which they wish to cover during the board off-site strategy meeting, succession planning and leadership development, and remuneration matters.

Chairman and Chief Executive Officer
Principle 3: Chairman and Chief Executive Officer to be separate persons to ensure appropriate balance of power, increased accountability and greater capacity of the board for independent decision-making

Mr Lim Chee Onn was both the Chairman and Chief Executive Officer of the Company until 1 January 2009¹. The board confi rms that this has not concentrated power in the hands of one individual or compromised accountability and independent decision-making for the following reasons:

1. the independent directors form the majority on the board;
2. the independent directors actively participate during board meetings and challenge the assumptions and proposals of management unreservedly, both during and outside of board meetings via e-mail or the telephone, on pertinent issues affecting the affairs and business of the Group; and
3. to enhance the independence of the board, a Lead Independent Director has been appointed to coordinate the activities of the independent directors and act as the principal liaison between the independent directors and the Chair on sensitive issues. The Lead Independent Director holds meetings with the non-executive directors (without the presence of management) twice a year and on other occasions when required.

It is evident from the results of the assessment on the effectiveness of the board, and the assessment on the performance of the Chairman, that Mr Lim Chee Onn has enhanced the effectiveness of the individual nonexecutive directors, and the board as a whole, by providing the board with a thorough understanding of the businesses and ensuring open and robust dialogue between the board and management.

The Chairman, with the assistance of the Company Secretary, schedules meetings and prepares meeting agenda to enable the board to perform its duties responsibly having regard to the flow of the Company’s operations.

The Chairman sets guidelines on and monitors the flow of information from management to the board to ensure that all material information are provided timeously to the board for the board to make good decisions. He also encourages constructive relations between the board and management, and between the executive directors and non-executive directors. In this regard, the Chairman has initiated informal meetings on a regular basis for management to brief the directors on prospective deals and potential developments at an early stage before formal board approval is sought. He also ensures that relevant information on business initiatives, industry developments and analyst and press commentaries on matters in relation to the Company or the industries in which it operates are continuously circulated to board members so as to enable them to be updated and thereby enhance the effectiveness of the non-executive directors and the board as a whole. He has also made available on the Company’s premises an office for the non-executive directors’ use at any time to facilitate direct access to management.

The Chairman also ensures effective communication with shareholders.

The Chairman takes a leading role in the Company’s drive to achieve and maintain a high standard of corporate governance with the full support of the directors, Company Secretary and management.

Board Membership
Principle 4: Formal and transparent process for the appointment of new directors to the Board

Nominating Committee
The Company has established a Nominating Committee to, among other things, make recommendations to the board on all board appointments and oversee the Company’s succession and leadership development plans. The Nominating Committee comprises entirely independent directors; namely,

The terms of reference of the Nominating Committee are disclosed in the Appendix hereto.

Process for appointment of new directors
The Nominating Committee has put in place a formal process for the selection of new directors to increase transparency of the nominating process in identifying and evaluating nominees for directors. The Nominating Committee (NC) leads the process and makes recommendations to the board as follows:

1. NC evaluates the balance of skills, knowledge and experience on the board and, in the light of such evaluation and in consultation with management, determines the role and the desirable competencies for a particular appointment.
2. External help (for example, Singapore Institute of Directors, search consultants, open advertisement) may be used to source for potential candidates if need be. Directors and management may also make recommendations.
3. NC conducts formal interview of short-listed candidates to assess suitability and to ensure that the candidates are aware of the expectations and the level of commitment required.
4. NC makes recommendations to the board for approval.

Criteria for appointment of new directors
All new appointments are subject to the recommendation of the Nominating Committee based on the following objective criteria:

1. Integrity
2. Independent mindedness
3. Diversity – Possess core competencies that meet the needs of the Company and complement the skills and competencies of the existing directors on the board
4. Able to commit time and effort to carry out duties and responsibilities effectively – proposed director is on not more than six principal boards
5. Track record of making good decisions
6. Experience in high-performing companies
7. Financially literate

The Nominating Committee is also charged with the responsibility of re-nomination having regard to the director’s contribution and performance (such as attendance, preparedness, participation and candour), with reference to the results of the assessment of the performance of the individual director by his peers for the previous financial year.

The directors submit themselves for re-nomination and re-election at regular intervals of at least once every three years. Pursuant to the Company’s Articles of Association, one-third of the directors retire from office at the Company’s annual general meeting, and a newly-appointed director must submit himself for re-election at the annual general meeting immediately following his appointment.

As a matter of policy, a non-executive director would serve a maximum of two three-year terms of appointment. However, the board recognises the contribution of directors who over time have developed deep insight into the Group’s businesses and operations and who are therefore able to provide invaluable contribution to the board as a whole. In such cases, the board would exercise its discretion to extend the term and retain the services of the director rather than lose the benefit of his contribution.

As a matter of policy, a non-executive director would serve a maximum of two three-year terms of appointment. However, the board recognises the contribution of directors who over time have developed deep insight into the Group’s businesses and operations and who are therefore able to provide invaluable contribution to the board as a whole. In such cases, the board would exercise its discretion to extend the term and retain the services of the director rather than lose the benefit of his contribution.

The NC also determines annually whether a director with multiple board representations is able to and has been adequately carrying out his duties as a director of the Company. The NC took into account the results of the assessment of the effectiveness of the individual director, and the respective directors’ actual conduct on the board, in making this determination, and is satisfi ed that all the directors have been able to and have adequately carried out their duties as director notwithstanding their multiple board representations.

The NC has adopted internal guidelines addressing competing time commitments that are faced when directors serve on multiple boards. As a guide, directors should not serve on more than six principal boards.

The following key information regarding directors are set out in the following pages of this Annual Report:

Pages 213 to 216 and 220: Academic and professional qualifi cations, board committees served on (as a member or Chairman), date of first appointment as director, date of last re-election as director, directorships or chairmanships both present and past held over the preceding fi ve years in other listed companies and other major appointments, whether appointment is executive or non-executive, whether considered by the Nominating Committee to be independent; and

Pages 147 to 148: Shareholding in the Company and its subsidiaries.

Board Performance
Principle 5: Formal assessment of the effectiveness of the Board as a whole and the contribution by each director to the effectiveness of the Board

The board has implemented formal processes for assessing the effectiveness of the board as a whole, the contribution by each individual director to the effectiveness of the board, as well as the effectiveness of the Chairman of the board.

To ensure that the assessments are done promptly and fairly, the board has appointed an independent third party (the “Independent Co-ordinator”) to assist in collating and analysing the returns of the board members. Mrs Fang Ai Lian, former Chairman, Ernst & Young and currently Chairman, Great Eastern Holdings Ltd, was appointed for this role.

The evaluation processes and performance criteria are disclosed in the Appendix to this report.

The board assessment exercise provided an opportunity to obtain constructive feedback from each director on whether the board’s procedures and processes allowed him to discharge his duties effectively and the changes which should be made to enhance the effectiveness of the board as a whole. The assessment exercise also helped the directors to focus on their key responsibilities. The individual director assessment exercise allowed for peer review with a view to raising the quality of board members. It also assisted the Nominating Committee in determining whether to re-nominate directors who are due for retirement at the next annual general meeting, and in determining whether directors with multiple board representations are nevertheless able to and have adequately discharged their duties as directors of the Company.

Access to Information
Principle 6: Board members to have complete, adequate and timely information

As a general rule, board papers are required to be sent to directors at least seven days before the board meeting so that the members may better understand the matters prior to the board meeting and discussion may be focused on questions that the directors may have. However, sensitive matters may be tabled at the meeting itself or discussed without any papers being distributed. Managers who can provide additional insight into the matters at hand would be present at the relevant time during the board meeting. The directors are also provided with the names and contact details of the Company’s senior management and the Company Secretary to facilitate direct access to senior management and the Company Secretary.

The Company fully recognises that the flow of relevant information on an accurate and timely basis is critical for the board to be effective in the discharge of its duties. Management is therefore expected to provide the board with accurate information in a timely manner concerning the Company’s progress or shortcomings in meeting its strategic business objectives or financial targets and other information relevant to the strategic issues facing the Company.

Management also provides the board members with management accounts on a monthly basis. Such reports keep the board informed, on a balanced and understandable basis, of the Group’s performance, financial position and prospects and consist of the consolidated profit and loss accounts, analysis of sales, operating profit, pre-tax and attributable profit by major divisions compared against the budgets, together with explanation given for significant variances for the month and year-to-date.

The Company Secretary administers, attends and prepares minutes of board proceedings. She assists the Chairman to ensure that board procedures (including but not limited to assisting the Chairman to ensure timely and good information flow to the board and board committees, and between senior management and the non-executive directors, and facilitating orientation and assisting in the professional development of the directors) are followed and regularly reviewed to ensure effective functioning of the board, and that the Company’s memorandum and articles of association and relevant rules and regulations, including requirements of the Companies Act, Securities & Futures Act and Listing Manual of the Singapore Exchange Securities Trading Limited (“SGX”), are complied with. She also assists the Chairman and the board to implement and strengthen corporate governance practices and processes with a view to enhancing long-term shareholder value.

She is also the primary channel of communication between the Company and the SGX.

The appointment and removal of the Company Secretary are subject to the approval of the board.

Subject to the approval of the Chairman, the directors, whether as a group or individually, may seek and obtain independent professional advice to assist them in their duties, at the expense of the Company.

Remuneration Matters
Principle 7: The procedure for developing policy on executive remuneration and for fi xing remuneration packages of individual directors should be formal and transparent
Principle 8: Remuneration of Directors should be adequate but not excessive
Principle 9: There should be clear disclosure of remuneration policy, level and mix of remuneration, and procedure for setting remuneration

Remuneration Committee
The Remuneration Committee comprises entirely non-executive directors, 3 out of 4 of whom (including the Chairman) are independent; namely:

The Remuneration Committee is responsible for ensuring a formal and transparent procedure for developing policy on executive remuneration and for determining the remuneration packages of individual directors and senior management. The Remuneration Committee assists the board to ensure that remuneration policies and practices are sound in that they are able to attract, retain and motivate without being excessive, and thereby maximise shareholder value. The Remuneration Committee recommends to the board for endorsement a framework of remuneration (which covers all aspects of remuneration including directors’ fees, salaries, allowances, bonuses, options and benefits in kind) and the specifi c remuneration packages for each director and the Chief Executive Officer. The Remuneration Committee also reviews the remuneration of senior management and administers the KCL Share Option Scheme.

The Committee has access to expert advice in the fi eld of executive compensation outside the Company where required.

Annual Remuneration Report
Policy in respect of non-executive directors’ remuneration

The directors’ fees payable to nonexecutive directors is paid in cash and/or a fi xed number of KCL shares as follows:

i. Cash Component: The amount of directors’ fees payable in cash is dependent on the respective non-executive directors’ level of responsibility. Each non-executive director is paid a basic fee. In addition, non-executive directors who perform additional services in board committees are paid an additional fee for such services. The members of the Audit, Board Risk and Executive Committees are paid a higher fee than the members of the other board committees because of the heavier responsibilities and more frequent meetings required of them. The Chairman of each board committee is also paid a higher fee compared with the members of the respective committees in view of the greater responsibility carried by that office. Executive directors are not paid directors’ fees. The framework for determining the amount of director’s fees payable in cash is set out in the table below.

ii. Share Component: At an extraordinary general meeting of the Company held in 2007, the shareholders approved the board’s recommendation to amend Article 82 of the Company’s Articles of Association relating to the remuneration of directors to permit the Company to award a fi xed number of KCL shares in the capital of the Company, as shall from time to time be determined by an Ordinary Resolution of the Company, to the non-executive directors as part of their remuneration. The Company is therefore able to remunerate its nonexecutive directors in the form of KCL shares by the purchase of KCL shares from the market for delivery to the nonexecutive directors. The incorporation of an equity component in the total remuneration of the non-executive directors is intended to achieve the objective of aligning the interests of the non-executive directors with those of the shareholders and the long-term interests of the Company.

The directors’ fees payable to non-executive directors is subject to shareholders’ approval at the Company’s annual general meetings.

Remuneration policy in respect of executive directors and other key executives
The Company advocates a performance-based remuneration system that is highly flexible and responsive to the market, Company’s, business unit’s and individual employee’s performance.

The total remuneration mix comprises 3 key components; that is, annual fi xed cash, annual performance incentive and long-term incentive. The annual fi xed cash component comprises the annual basic salary plus any other fi xed allowances. The annual performance incentive is tied to the Company’s, business unit’s and individual employee’s performance, inclusive of a portion which is tied to EVA performance1. The long-term incentive is in the form of share options which are granted based on the individual’s performance and contribution.

The compensation structure is designed to enable the Company to stay competitive and relevant. The Company benchmarks its annual fi xed salary at the market median with the variable compensation being performance-driven. More emphasis is placed on the ‘pay-at-risk’ compensation as an employee moves up the corporate ladder. This allows the Company to better align executive compensation towards shareholders’ value creation.

The executive directors participate in a long-term incentive scheme in the form of the KCL Share Option Scheme, details of which are set out on pages 148, 149, 167 to 169.

Level and mix of remuneration of Directors and Key Executives (who are not also Directors) for the year ended 31 December 2008

The level and mix of each of the directors’ remuneration in bands of $250,000 are set out below:

The level and mix of each of the Key Executives (who are not also Directors) in bands of $250,000 are set out below:

8 Received Singapore Petroleum Company Restricted Shares.
9 Received Keppel Land Limited Share Options.

Remuneration of employees who are immediate family members of a Director or the Executive Chairman
No employee of the Company and its subsidiaries was an immediate family member of a director or the Executive Chairman and whose remuneration exceeded $150,000 during the financial year ended 31 December 2008. “Immediate family member” means the spouse, child, adopted child, step-child, brother, sister and parent.

Details of the KCL Share Option Scheme
The KCL Share Option Scheme (“Scheme”), which has been approved by shareholders of the Company, is administered by the Remuneration Committee. Please refer to pages 148, 149, 167 to 169 for details on the Scheme

Accountability and Audit
Principle 10: The Board should present a balanced and understandable assessment of the Company’s performance, position and prospects
Principle 11: Establishment of Audit Committee with written terms of reference

The board is responsible for providing a balanced and understandable assessment of the Company’s performance, position and prospects, including interim and other pricesensitive public reports, and reports to regulators (if required).

The board has embraced openness and transparency in the conduct of the Company’s affairs, whilst preserving the commercial interests of the Company. Financial reports and other price-sensitive information are disseminated to shareholders through announcements via SGXnet to the SGX, press releases, the Company’s website, and public webcast and media and analyst briefi ngs. The Company’s Summary Financial Report is sent to all shareholders and its Annual Report is available on request and accessible on the Company’s website.

Management provides all board members with management accounts on a monthly basis. Such reports keep the board members informed of the Group’s performance, position and prospects and consist of the consolidated profit and loss accounts, analysis of sales, operating profit, pre-tax and attributable profit by major divisions compared against the respective budgets, together with explanations for significant variances for the month and year-to-date.

Audit Committee
The Audit Committee comprises the following non-executive directors, all of whom are independent:

Mr Lim Hock San and Mrs Oon Kum Loon have accounting and related financial management expertise and experience. The board considers Mr Tony Chew as having suffi cient financial management knowledge and experience to discharge his responsibilities as a member of the Committee.

The Audit Committee’s primary role is to assist the board to ensure integrity of financial reporting and that there is in place sound internal control systems. The Committee’s terms of reference are set out on pages 113 and 114 herein.

The Audit Committee has explicit authority to investigate any matter within its terms of reference, full access to and co-operation by management and full discretion to invite any director or executive Officer to attend its meetings, and reasonable resources to enable it to discharge its functions properly. The Company has an internal audit team and together with the external auditors, report independently their fi ndings and recommendations to the Audit Committee.

The Audit Committee met with the external auditors 3 times and with the internal auditors 5 times during the year, and at least one of these meetings was conducted without the presence of management.

During the year, the Audit Committee performed independent review of the financial statements of the Company before the announcement of the Company’s quarterly and full-year results. In the process, the Committee reviewed the key areas of management judgment applied for adequate provisioning and disclosure, critical accounting policies and any significant changes made that would have a great impact on the financials.

The Audit Committee also reviewed and approved both the Group internal auditor’s and external auditor’s plans to ensure that the plans covered suffi ciently in terms of audit scope in reviewing the significant internal controls of the Company. Such significant controls comprise financial, and operational and compliance controls. All audit fi ndings and recommendations put up by the internal and the external auditors were forwarded to the Audit Committee. Significant issues were discussed at these meetings.

In addition, the Audit Committee undertook a review of the independence and objectivity of the external auditors through discussions with the external auditors as well as reviewing the nonaudit fees awarded to them, and has confi rmed that the non-audit services performed by the external auditors would not affect their independence.

The Committee also reviewed the adequacy of the internal audit function and is satisfi ed that the team is adequately resourced and has appropriate standing within the Company.

The Committee has reviewed the “Keppel: Whistle-Blower Protection Policy” (the “Policy”) which provides for the mechanisms by which employees and other persons may, in confidence, raise concerns about possible improprieties in financial reporting or other matters, and was satisfi ed that arrangements are in place for the independent investigation of such matters and for appropriate follow-up action. Following the launch of the Policy, a set of guidelines which was reviewed by the Audit Committee and approved by the board, was issued to assist the Audit Committee in managing allegations of fraud or other misconduct which may be made pursuant to the Policy, so that:

• investigations are carried out in an appropriate and timely manner;
• administrative, disciplinary, civil and/or criminal actions that are initiated following completion of investigations, are appropriate, balanced, and fair; and
• action is taken to correct the weaknesses in the existing system of internal processes and policies which allowed the perpetration of the fraud and/or misconduct, and to prevent a recurrence.

On a quarterly basis, the Management reported to the Audit Committee the interested person transactions (“IPTs”) in accordance with the Company’s Shareholders’ Mandate for IPT. The IPTs were reviewed by the internal auditors. All fi ndings were reported during Audit Committee meetings.

Internal Controls and Risk Management
Principle 12: Sound system of internal controls

The Company’s approach to risk management and internal control is set out in the “Operating and Financial Review” section on pages 90 to 93 and the “Risk Management” section on pages 117 to 118 of this Annual Report.

The Company’s internal and external auditors conduct an annual review of the effectiveness of the Company’s material internal controls, including financial, operational and compliance controls, and risk management. Any material noncompliance or failures in internal controls and recommendations for improvements are reported to the Audit Committee. The Audit Committee also reviews the effectiveness of the actions taken by management on the recommendations made by the internal and external auditors in this respect.

During the year, the Audit Committee reviewed the effectiveness of the Company’s internal control and risk management procedures and was satisfi ed that the Company’s risk management and internal control processes are adequate to meet the needs of the Company in its current business environment.

Board Risk Committee
In October 2004, as part of the effort to further strengthen the Company’s risk management processes, a Board Risk Committee was formed to assist the board in examining the effectiveness of the Group’s risk management system to ensure that a robust risk management system is maintained. The Committee reviews and guides management in the formulation of risk policies and processes to effectively identify, evaluate and manage significant risks, and discusses risk management strategies with management. The Committee reports to the Board on material fi ndings and recommendations in respect of significant risk matters. The detailed terms of reference of this Committee is disclosed on page 114 herein.

The Board Risk Committee is made up of 3 independent directors (including the Chairman) and a non-executive director who is independent of management. Mrs Oon Kum Loon was appointed Chairman of the Committee because of her wealth of experience in the area of risk management. Prior to serving as Chief Financial Officer in the Development Bank of Singapore (DBS), she was the Managing Director & Head of Group Risk Management, responsible for the development and implementation of a Group-wide integrated risk management framework for the DBS Group. Mrs Oon is a member of the Company’s Audit Committee. Mr Lim Hock San, who is the Chairman of the Audit Committee, has in-depth knowledge and experience in fi nance accountancy, business and management and is the second member of the Board Risk Committee. The third member is Mr Tow Heng Tan, who has deep management experience from his extensive business career spanning the management consultancy, investment banking and stock-broking industries. Mr Tow is currently the Chief Investment Officer of Temasek Holdings. The fourth member is Mr Yeo Wee Kiong who is a director in Drew & Napier LLC, a leading law corporation in Singapore practising in the areas of corporate law, corporate fi nance, mergers and acquisitions, listings on stock exchange venture capital, banking and securities. Mr Yeo sits on the boards of several companies (listed and non-listed) and has vast experience in the corporate world and wide knowledge ranging from engineering, finance and law.

Internal Audit
Principle 13: Independent internal audit function

The role of the internal auditors is to assist the Audit Committee to ensure that the Company maintains a sound system of internal controls by regular monitoring of key controls and procedures and ensuring their effectiveness, undertaking investigations as directed by the Audit Committee, and conducting regular in-depth audits of high risk areas. The Company’s internal audit functions are serviced in-house (“Group Internal Audit”).

Staffed by suitably qualifi ed executives, Group Internal Audit has unrestricted direct access to the Audit Committee. The Head of Group Internal Audit’s primary line of reporting is to the Chairman of the Audit Committee, although she reports administratively to the Chief Executive Officer of the Company.

As a corporate member of the Singapore branch of the Institute of Internal Auditors Incorporated, USA (“IIA”), Group Internal Audit is guided by the Standards for the Professional Practice of Internal Auditing set by the IIA. These standards consist of attribute standards, performance standards and implementation standards.

During the year, Group Internal Audit adopted a risk-based auditing approach that focuses on material internal controls, including financial, operational and compliance controls. Audits were carried out on all significant business units in the Company, inclusive of limited review performed on dormant and inactive companies. All Group Internal Audit’s reports are submitted to the Audit Committee for deliberation with copies of these reports extended to the Chairman, Chief Executive Officer and the relevant senior management officers. In addition, internal audit’s summary of fi ndings and recommendations are discussed at the Audit Committee meetings.

Communication with Shareholders
Principle 14: Regular, effective and fair communication with shareholders
Principle 15: Greater shareholder participation at Annual General Meetings

In addition to the matters mentioned above in relation to “Access to Information/Accountability”, the Company’s Group Corporate Communications Department (with assistance from the Group Finance and Group Legal Departments, when required) regularly communicates with shareholders and receives and attends to their queries and concerns.

Material information are disclosed in a comprehensive, accurate and timely manner via SGXnet and the press. To ensure a level playing fi eld and provide confidence to shareholders, unpublished price-sensitive information are not selectively disclosed, and on the rare occasion when such information are inadvertently disclosed, they are immediately released to the public via SGXnet and the press.

Shareholders are informed of shareholders’ meetings through notices published in the newspapers and reports or circulars sent to all shareholders. Shareholders are invited at such meetings to put forth any questions they may have on the motions to be debated and decided upon. If any shareholder is unable to attend, he is allowed to appoint up to two proxies to vote on his behalf at the meeting through proxy forms sent in advance.

At shareholders’ meetings, each distinct issue is proposed as a separate resolution.

The Chairmen of each board committee are required to be present to address questions at the Annual General Meeting. External auditors are also present at such meetings to assist the directors to address shareholders’ queries, if necessary.

The Company is not implementing absentia voting methods such as voting via mail, e-mail or fax until security, integrity and other pertinent issues are satisfactorily resolved.

The Company Secretary prepares minutes of shareholders’ meetings, which incorporates substantial comments or queries from shareholders and responses from the board and management. These minutes are available to shareholders upon their requests.

Securities Transactions
Insider Trading Policy
The Company has a formal Insider Trading Policy on dealings in the securities of the Company and its listed subsidiaries, which sets out the implications of insider trading and guidance on such dealings. The policy has been distributed to the Group’s directors and officers. It has also adopted the Best Practices Guide on Dealings in Securities issued by the SGX. In line with Best Practices Guide on Dealing in Securities issued by the SGX, the Company issues circulars to its directors and officers informing that the Company and its officers must not deal in listed securities of the Company one month before the release of the full-year results and two weeks before the release of quarterly results, and if they are in possession of unpublished price-sensitive information.

Appendix

Board Committees – Terms of Reference
A. Executive Committee

1. Consider and, if deemed fit, approve investments, acquisitions and disposal of assets of the Company and its subsidiaries which are above $10 million or 10% of the net tangible assets (whichever is the lower) of the respective companies but less than $100 million.
2. Consider and recommend to the board proposed investments, acquisitions and disposal of assets of the Company and its subsidiaries which are $100 million or above.
3. Consider and recommend to the board proposed investments and acquisitions of the Company and its subsidiaries which do not fall within the Company’s core businesses but which are considered strategic investments for the long-term prospects of the Company.
4. Consider and, if deemed fit, approve capital equipment purchases and leases of the Company and its subsidiaries which are above $10 million but less than $100 million.
5. Consider and recommend to the board on proposed capital equipment purchases and leases of the Company and its subsidiaries which are above $100 million.
6. Consider and, if deemed fit, approve performance bonds and guarantees to be furnished by the Company or its subsidiaries which are above $10 million but less than $100 million.
7. Consider and recommend to the board on proposed performance bonds and guarantees to be furnished by the Company or its subsidiaries which are above $100 million.
8. Consider and, if deemed fit, approve loans to companies within the Keppel Group of an amount exceeding $30 million but up to $100 million.
9. Consider and, if deemed fit, approve foreign exchange transactions for companies within the Keppel Group of an amount exceeding $100 million but up to $200 million.
10. In relation to matters which require the approval of this Committee pursuant to other provisions of these terms of reference, approve the affi xation of the Common Seal onto any legal document in accordance with the Company’s Articles of Association.
11. Approve the banks in Singapore and overseas with which the Company may transact.
12. Approve the establishment and registration of local and foreign offices of the Company.
13. Carry out such other functions as may be delegated to it by the board.
14. Sub-delegate any of its powers within its terms of reference as listed above, from time to time, as this Committee may deem fit.

Matters arising at meetings of the Executive Committee shall be decided by a simple majority of votes including the affirmative vote of at least one member who is an independent director.

B. Audit Committee

1. Examine the effectiveness of the group’s internal control system, including financial, operational and compliance controls, to ensure that a sound system of internal controls is maintained.
2. Review audit plans and reports of the external auditors and internal auditors, and consider the effectiveness of actions or policies taken by management on the recommendations and observations.
3. Review financial statements and formal announcements relating to financial performance, and review significant financial reporting issues and judgments contained in them, to ensure integrity of such statements and announcements.
4. Review the independence and objectivity of the external auditors annually.
5. Review the nature and extent of non-audit services performed by the auditors.
6. Meet with external auditors and internal auditors, without the presence of management, at least annually.
7. Make recommendations to the board on the appointment, re-appointment and removal of the external auditor, and approve the remuneration and terms of engagement of the external auditor.
8. Review the effectiveness of the Company’s internal audit function.
9. Ensure that the internal audit function is adequately resourced and has appropriate standing within the Company, at least annually.
10. Review arrangements by which employees of the Company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters, to ensure that arrangements are in place for the independent investigation of such matters and for appropriate follow-up action.
11. Review interested person transactions.
12. Investigate any matters within the Audit Committee’s purview, whenever it deems necessary.
13. Report to the board on material matters, fi ndings and recommendations.
14. Perform such other functions as the board may determine.
15. Sub-delegate any of its powers within its terms of reference as listed above from time to time as this Committee may deem fit.

C. Board Risk Committee

1. Review and guide the Group in formulating its risk policies.
2. Discuss risk mitigation strategies with management.
3. Examine the effectiveness of the group’s risk management system to ensure that a robust risk management system is maintained.
4. Review and guide in establishing a process to effectively identify, evaluate and manage significant risks.
5. Review risk limits where applicable.
6. Review the Group’s risk profi le periodically.
7. Provide a forum for discussion on risk issues.
8. Report to the board on material matters, fi ndings and recommendations.
9. Perform such other functions as the board may determine.
10. Sub-delegate any of its powers within its terms of reference as listed above from time to time as this Committee may deem fit.

D. Nominating Committee

1. Recommend to the board the appointment/re-appointment of directors.
2. Annual review of skills required by the board, and the size of the board.
3. Annual review of independence of each director, and to ensure that the board comprises at least one-third independent directors.
4. Decide, where a director has multiple board representation, whether the director is able to and has been adequately carrying out his duties as director of the Company.
5. Decide how the board’s performance may be evaluated, and propose objective performance criteria to assess effectiveness of the board as a whole and the contribution of each director.
6. Annual assessment of the effectiveness of the board as a whole and individual directors.
7. Review succession and leadership development plans.
8. To review and, if deemed fit, approve recommendations for nomination of candidates as nominee director (whether as chairman or member) to the board of directors of investee companies which are:
   
   1. listed on the Singapore Exchange or any other stock exchange (that is, as at the date hereof, Keppel Land Limited, Keppel Telecommunications & Transportation Ltd, K-REIT Asia Management Limited, Keppel Philippines Holdings Inc, Keppel Philippines Marine Inc, Keppel Philippines Properties Inc, Keppel Thai Properties Public Co Ltd, Singapore Petroleum Company Limited, k1 Ventures Limited, Evergro Properties Ltd and MobileOne Limited);
   2. managers or trustee-managers of any collective investment schemes, business trusts, or any other trusts which are listed on the Singapore Exchange or any other stock exchange (that is, as the date hereof, K-REIT Asia Management Limited and Keppel Infrastructure Fund Management Pte Ltd); and
   3. parent companies of the Company’s core businesses (that is, as at the date hereof, Keppel Offshore & Marine Ltd, Keppel Integrated Engineering Ltd, and Keppel Energy Pte Ltd),
      
9. To review all Nominee Director Nominations annually.
10. Sub-delegate any of its powers within its terms of reference as listed above, from time to time, as this Committee may deem fit.

E. Remuneration Committee

1. Recommend to the board a framework of remuneration for board members and key executives, and the specifi c remuneration packages for each director and the chief executive officer (if the chief executive officer is not an executive director).
2. Decide the early termination compensation (if any) of directors.
3. Consider whether directors should be eligible for benefits under longterm incentive schemes (including weighing the use of share schemes against the other types of long-term incentive scheme).
4. Review the terms, conditions and remuneration of the senior management.
5. Administer the Company’s employee share option scheme (the “KCL Share Option Scheme”) in accordance with the rules of the scheme.
6. Grant share options under the KCL Share Option Scheme as this Committee may deem fit.
7. Sub-delegate any of its powers within its terms of reference as listed above, from time to time, as this Committee may deem fit.

Save that a member of this Committee shall not be involved in the deliberations in respect of any remuneration, compensation, options or any form of benefits to be granted to him.

Nature of current directors’ appointments and membership on board committees

F. Board Safety Committee

1. Review and examine the effectiveness of the Keppel Group companies’ safety management system, including training and monitoring systems, to ensure that a robust safety management system is maintained.
2. Review and examine the Keppel Group companies’ safety procedures against industry best practices, and monitor its implementation.
3. Provide a discussion forum on developments and best practices in safety standards and practices, and the feasibility of implementing such developments and best practices.
4. Assist in enhancing safety awareness and culture within the Keppel Group.
5. Ensure that the safety functions in Keppel Group companies are adequately resourced (in terms of number, qualification, and budget) and has appropriate standing within the organisation.
6. Consider management’s proposals on safety-related matters.
7. Carry out such investigations into safety-related matters as the Committee deems fit.
8. Report to the board on material matters, fi ndings and recommendations.
9. Perform such other functions as the board may determine.
10. Sub-delegate any of its powers within its terms of reference as listed above from time to time as the Committee may deem fit.

Process for Selecting New Directors
Evaluation Processes
Board
Each board member is required to complete a Board Evaluation Questionnaire and send the Questionnaire direct to the Independent Co-ordinator (“IC”) within fi ve working days. An “Explanatory Note’” is attached to the Questionnaire to clarify the background, rationale and objectives of the various performance criteria used in the Board Evaluation Questionnaire with the aim of achieving consistency in the understanding and interpretation of the questions. Based on the returns from each of the directors, the Independent Co-ordinator prepares a consolidated report and briefs the Chairman of the Nominating Committee (“NC”) on the report. Thereafter, the IC presents the report for discussion at a meeting of the non-executive directors (“NEDs”), chaired by the Lead Independent Director. Following the NED meeting, the IC will, together with the Chairman of the NC, brief the Chairman of the board on the report and the recommendations of the NEDs. The IC will thereafter present the report to the board together with the recommendations of the NEDs for discussion on the changes which should be made to help the board discharge its duties more effectively.

Individual Directors
The Board differentiates the assessment of an executive director from that of a non-executive director (“NED”).

In the case of the assessment of the individual executive director, each NED is required to complete the executive director’s assessment form and send the form directly to the IC within fi ve working days. It is emphasised that the purpose of the assessment is to assess each of the executive directors on their respective performance on the board (as opposed to their respective executive performance). The executive directors are not required to perform a self, nor a peer, assessment. Based on the returns from each of the NEDs, the IC prepares a consolidated report and briefs the Chairman of the Nominating Committee (“NC”) on the report. Thereafter, the IC presents the report for discussion at a meeting of the nonexecutive directors (“NEDs”), chaired by the Lead Independent Director. Following the NED meeting, the IC will, together with the Chairman of the NC, brief the Chairman of the board on the report and the recommendations of the NEDs. The IC will thereafter present the report to the board together with the recommendations of the NEDs. The Chairman of the NC will thereafter meet with the executive directors individually to provide the necessary feedback on their respective board performance with a view to improving their board performance and shareholder value.

As for the assessment of the performance of the NEDs, each director (both NEDs and executive directors) is required to complete the NED’s assessment form and send the form directly to the IC within fi ve working days. Each NED is also required to perform a self-assessment in addition to a peer assessment. Based on the returns, the IC prepares a consolidated report and briefs the Chairman of the NC on the report. Thereafter, the IC presents the report for discussion at a meeting of the NEDs, chaired by the Lead Independent Director. Following the NED meeting, the IC will, together with the Chairman of the NC, brief the Chairman of the board on the report and the recommendations of the NEDs. The IC will thereafter present the report to the board together with the recommendations of the NEDs.

The Chairman of the NC will thereafter meet with the NEDs individually to provide the necessary feedback on their respective board performance with a view to improving their board performance and shareholder value.

Chairman
The Chairman Evaluation Form is completed by each NED and sent directly to the IC within fi ve working days. Based on the returns, the IC prepares a consolidated report and briefs the Chairman of the NC on the report. Thereafter, the IC presents the report for discussion at a meeting of the NEDs, chaired by the Lead Independent Director. Following the NED meeting, the IC will, together with the Chairman of the NC, brief the Chairman of the board on the report and the recommendations of the NEDs. The IC will thereafter present the report to the board together with the recommendations of the NEDs.

Performance Criteria
The performance criteria for the board evaluation are in respect of the board size and composition, board independence, board processes, board information and accountability, board performance in relation to discharging its principal functions, board committee performance in relation to discharging their responsibilities set out in their respective terms of reference, and financial targets which include return on capital employed, return on equity, debt/equity ratio, dividend pay-out ratio, economic value added, earnings per share, and total shareholder return (i.e. dividend plus share price increase over the year).

The individual director’s performance criteria are categorised into 5 segments; namely, (1) interactive skills (under which factors as to whether the director works well with other directors, and participates actively are taken into account); (2) knowledge (under which factors as to the director’s industry & business knowledge, functional expertise, whether he provides valuable inputs, his ability to analyse, communicate & contribute to the productivity of meetings, and his understanding of fi nance and accounts, are taken into consideration); (3) director’s duties (under which factors as to the director’s board committee work contribution, whether the director takes his role of director seriously and works to further improve his own performance, whether he listens and discusses objectively and exercises independent judgment, and meeting preparation are taken into consideration); (4) availability (under which the director’s attendance at board and board committee meetings, whether he is available when needed, and his informal contribution via e-mail, telephone, written notes etc are considered), and (5) overall contribution, bearing in mind that each director was appointed for his/her strength in certain areas which taken together provides the board with the required mix of skills and competencies.

The assessment of the Chairman of the board is based on his ability to lead, whether he established proper procedures to ensure the effective functioning of the board, whether he ensured that the time devoted to board meetings were appropriate (in terms of number of meetings held a year and duration of each board meeting) for effective discussion and decision-making by the board, whether he ensured that information provided to the board was adequate (in terms of adequacy and timeliness) for the board to make informed and considered decisions, whether he guided discussions effectively so that there was timely resolution of issues, whether he ensured that meetings were conducted in a manner that facilitated open communication and meaningful participation, and whether he ensured that board committees were formed where appropriate, with clear terms of reference, to assist the board in the discharge of its duties and responsibilities.

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