Consultation on Corporate Governance Code

The Stock Exchange of Hong Kong Limited (‘SEHK’) issued another consultation paper on “Review of the Corporate Governance Code and Related Listing Rules” in November 2017.

SEHK’s current corporate governance framework consists of (i) the Rules Governing the Listing of Securities (the ‘Rules’), which are mandatory rules; (ii) the Code Provisions (‘CPs’) that are subject to “comply or explain”, and (iii) Recommended Best Practices, that are voluntary.

To raise the overall standards of corporate governance amongst issuers and directors, SEHK proposed changes to the CPs as well as related amendments to the Rules.

One key amendment is to address the “overboarding” issue of some independent non-executive directors (‘INED’), who hold multiple directorships concurrently. SEHK proposes that if an INED will be holding his or her seventh (or more) listed company directorship, the issuer’s circular to the shareholders should give reasons for determining that the proposed INED would be able to devote sufficient time to the board.

Another proposed amendment is to extend the “cooling off” period for a proposed INED from one year to three years if the INED has been a director, partner, principal or an employee of a professional adviser providing services to the listed issuer or if the INED is the former partner of the issuer’s audit firm. The proposed amendment aims to strengthen the criteria in assessing the independence of an INED. In addition to the above, SEHK further proposes that an INED’s immediate family members, such as spouse, child or step-child, natural or adopted, under the age of 18 years, will be considered in the assessment of the director’s independence. Under such circumstances, if a director’s immediate family member has received a gift or financial assistance from the listed issuer, his or her independence will be called into question.

There are other amendments which include:

  • mandatory disclosure of nomination policy and dividend policy in a listed issuer’s annual report
  • requirement for INEDs to meet at least annually with the chairman of a listed issuer without the presence of the executive directors
  • introduction of an implied consent regime for electronic dissemination of corporate communication

The Law Society is generally in favour of the proposals in the consultation paper. However, concerns were raised on SEHK’s proposed extension of the “cooling-off” period for professional advisers and the extension to INED’s immediate family members in the assessment of the director’s independence, which although can strengthen corporate governance, may result in listed issuers having difficulty in sourcing right candidate(s) suitable for their industry. A copy of the submissions can be found on the Law Society’s website: