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Hong Kong Stock Exchange considers amending Corporate Governance Code | Perspectives

The Hong Kong Stock Exchange (Hong Kong) published a consultation paper on the corporate governance code (Coded) on June 14, 2024. HKSE proposed a series of revisions to the Code, committing to improving the quality of listed companies in Hong Kong by strengthening corporate governance standards and promoting long-term attractiveness and development of the Hong Kong Capital Market. The revised Code will help Hong Kong-listed issuers create more diverse boards while strengthening their risk management and internal controls.

The main proposed revisions introduce the following new requirements for internal control of issuers listed in Hong Kong:

1 Improve board effectiveness

A. Additional appointment of a lead independent non-executive director: A lead independent non-executive director must be appointed if the chairman of the board of directors is not independent.

b. Directors must receive training: Directors must complete annual training on specific topics, with a minimum of 24 hours of training for new directors within the first 18 months of appointment. In addition, more detailed information on director training must be provided in the issuer's corporate governance report.

vs. Additional assessment of board performance: Regular assessments of board performance should be conducted and a board skills matrix should be disclosed in the corporate governance report.

d. Capping director tenure and number of active directorships: Independent non-executive directors cannot hold more than six directorships of Hong Kong-listed issuers to avoid “board overhang”. At the same time, the nomination committee should annually assess the time spent by independent non-executive directors in carrying out their duties and contributing to the board. HKSE will implement a three-year transition period to help Hong Kong-listed companies comply with this overboarding requirement.

2 Strengthen the independence of the board of directors

It is explicitly specified that independent non-executive directors in office for more than nine years will no longer be considered independent.

3 Promote diversity within the board of directors and staff

A. Diversity of the nomination committee: The nomination committee must include at least one director of a different gender.

b. Regular review and disclosure of the board diversity policy: The board diversity policy must be reviewed and disclosed annually.

vs. Workforce Diversity: Every Hong Kong-listed issuer must develop and publish a diversity policy for all employees. At the same time, the gender ratio among senior managers and all employees must be disclosed.

4 Improve risk management and internal controls

Issuers listed in Hong Kong must review the effectiveness of risk management and internal control systems at least annually and strengthen mandatory disclosure of the review process and results.

5 Improve capital management

Issuers listed in Hong Kong are required to strengthen mandatory disclosures regarding their dividend policy and board of directors' dividend decisions.

The proposed amendments, if adopted, are expected to come into force for financial years commencing on or after January 1, 2025. The Code, if so revised, will further improve the internal management system of issuers listed in Hong Kong, promote the development of diversity in companies and strengthening their internal risk management systems.

Customer Alert 2024-140

Sources

1/ https://Google.com/

2/ https://www.reedsmith.com/en/perspectives/2024/06/hong-kong-stock-exchange-plans-to-amend-the-corporate-governance-code

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