On 14 June 2024, The Stock Exchange of Hong Kong Limited (the Exchange) published a consultation paper outlining proposed amendments to the Corporate Governance Code (Code) and related Listing Rules to strengthen the corporate governance for companies listed in Hong Kong. The main proposals are summarised as follows:
| Area |
Major Changes (Rule/Code Provision (CP)(Comply/Explain)/
Mandatory Disclosure Requirement (MDR)) |
| Board composition |
- Rule: An independent non-executive director (INED) must not concurrently hold more than 6 directorships in Hong Kong listed issuers.
- Rule: Setting a cap of 9 years on an INED's tenure
- CP: In the absence of an independent board chair, issuers should appoint an INED as a lead INED
|
| Diversity |
- Rule: Issuers should have a diversity policy and disclose it in their corporate governance report
- CP: The nomination committee of issuers must have a minimum of 1 director that is of a different gender
- MDR: There should be a yearly review of the implementation of the policy on board diversity
- MDR: There should be a separate disclosure of the workforce (excluding senior management) and senior management's gender ratio
|
| Board skills and training |
- Rule: All directors of issuers must receive mandatory training each year on specific topics, which must include: duties and responsibilities of the board and directors, issuer’s obligations, legal updates, corporate governance and ESG-related matters, internal controls and risk management, and industry-specific updates
- Rule: First-time directors of an issuer or those who have not been an issuer's director for at least 3 years before their appointment (First-time Directors) must complete a minimum of 24 hours of training within 18 months of their appointment date
- MDR: Directors should disclose information about training received, including the topics, hours, and format of the training, and (if applicable) the names of external training providers
- CP: Issuers required to (a) maintain a board skills matrix and (b) disclose information on various areas, including the board's current skills mix and details of the skills that the board plans to acquire
- CP: Issuers should conduct a review of the board's performance in the corporate governance report at least once every 2 years and should include disclosure on the scope, process and findings of the performance review
|
| Others |
- MDR: The nomination committee is required to conduct an annual assessment and disclose information on each director’s time commitment and contribution to the board
- MDR: Issuers are required to disclose in their corporate governance reports the current term of appointment and tenure of each director
- MDR: Issuers with a dividend policy are required to disclose information including the policy's objective or aim, while those without are required to provide the reason(s) for the lack of such a policy
- MDR: Issuers with or without a dividend payment policy must provide the reason(s) for the board's decision on any material variation from the previous dividend rate (if the board has declared a dividend) or the reason(s) for not declaring a dividend
|
The effective implementation date of the above proposals is proposed to be 1 January 2025, with a transition period of three years in respect of the 9-year tenure requirement of INEDs and the cap on the number of directorships (i.e. these requirements will apply starting from 1 January 2028).
Key Takeaways
Considering that the above proposals may come into effect as early as 1 January 2025, issuers should start making preparations as soon as practicable, for example, by reviewing and enhancing the scope of the training to be provided to directors and searching for suitable candidates to satisfy the new INED and diversity requirements.
