STOCK EXCHANGE PUBLISHES CONSULTATION PAPER ON CORPORATE GOVERNANCE CODE ENHANCEMENTS

On 14 June 2024, the Stock Exchange of Hong Kong Limited published a consultation paper outlining proposed enhancements to the Corporate Governance Code and related Listing Rules. 

Key proposals include:

1. Board effectiveness improvements –
   • The designation of a lead independent non-executive director (“INED”) where the chairman of the board is not independent (New CP1).
   • Annual director training on specific topics, with a minimum of 24 hours of training for first-time directors within the first 18 months of appointment (New Rule).
   • Regular board performance reviews and the disclosure of a board skills matrix (New CPs).
   • Capping “overboarding” INEDs so they don’t hold more than six Hong Kong-listed issuer directorships simultaneously (New Rule / MDR3).
2. Strengthening board independence – INEDs serving more than nine years (Long Serving INED) will no longer be considered independent (New Rule).
3. Promoting diversity – to require: (i) the nomination committee to comprise directors of different genders (New CP); (ii) annual reviews of board diversity policy (Upgraded to MDR); and (iii) a workforce diversity policy (New Rule).
4. Enhancing risk management and internal controls – to require (at least) an annual review of these systems and enhanced disclosures of the review and findings (Upgraded to MDR).
5. Better capital management – to require enhanced disclosures of an issuer’s dividend policy and its board’s dividend decisions (New MDR).

The proposed amendments will apply to corporate governance reports for financial years commencing on or after 1 January 2025, with a three-year transition period for the proposals on overboarding and Long Serving INEDs.

The Stock Exchange has also updated its webpage to further help issuers and their boards implement effective corporate governance and sustainability measures:

INED Corner

• A new webpage specifically designed for INEDs providing focused guidance, with case studies, on an INED’s roles and responsibilities and how they can best discharge their duties.

Board Diversity Hub

• A new diversity hub to better promote diverse representation on boards through diversity data, a video series, thought leadership articles, podcasts, and practical tips for issuers and potential board candidates.

The Consultation Paper reflects the approach of the Stock Exchange in elevating the quality of listed companies in Hong Kong and in promoting strong corporate governance practices.  The new initiatives would strengthen risk management and internal controls of listed companies.

Notes:

1. Code Provisions under the Code, subject to “comply or explain” basis.
2. First-time directors are (a) directors who are appointed as a director of an issuer listed on the Exchange for the first time (i.e. have no prior experience as a director of an issuer listed on the Exchange); or (b) have not served as a director of an issuer listed on the Exchange for a period of three years or more prior to their appointment.
3. Mandatory Disclosure Requirements under the Code.

Please contact Ms. Eva Lee for any enquiries or further information.

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