Hong Kong Stock Exchange: enhancing Corporate Governance requirements

In November 2017, the Hong Kong Stock Exchange published two consultation papers to seek public views on proposed changes to the Corporate Governance Code and Corporate Governance Report.

The review was designed to raise standards of corporate governance among issuers and directors, having taken into account relevant international practice in a number of countries, including Australia.

David Graham, HKEX’s Chief Regulatory Officer and Head of Listing said “the proposed changes are aimed at addressing a number of corporate governance concerns such as the independence, or lack thereof, of independent non-executive directors (INEDs), overboarding by some INEDs, the responsibility of the nomination committee, and board diversity.”

In its discussion paper, the HKEX said it is seeking to address concerns that individuals with numerous directorships may be unable to devote sufficient time to each board. They propose greater transparency and accountability during the nomination process and guidance on assessing whether a potential director is overboarded.

A proposal was suggested to amend the current Mandatory Disclosure Requirement to include a disclosure of nomination policy, including the selection process and reasons for nomination.

The HKEX also proposed to extend the cooling off period for former professional advisers, as well as creating a cooling off period for persons with material interests in a company’s principal business activities.

Also recommended was including a person’s immediate family members in the assessment of a proposed INED’s independence, and a Recommended Best Practice to encourage disclosure of cross-directorships. Both proposals seek to encourage transparency among boards.

The HKEX also proposed a rule that organisations must have a diversity policy in place and that the policy be disclosed in the organisations’ corporate governance reports. The HKEX will also introduce guidance on diversity policy.

The HKEX recommended that organisations disclose to their shareholders the process used for identifying nominees, the perspectives, skills and experience that the person can bring to the board, and how the nominee would contribute to diversity of the board.

AustCham Hong Kong and the Women in Business Network submitted a response to the consultation papers, calling for stronger governance and greater diversity on the boards of Hong Kong listed companies.

In addition to agreeing with the proposed changes on board diversity, AustCham Hong Kong suggested that HKEX set measurable objectives to achieve gender diversity and limit the tenure of independent directors to nine years to reduce the lack of diversity in long-term, entrenched boards.