SEHK revises Corporate Governance Code

The Stock Exchange of Hong Kong (SEHK) proposed enhancing corporate governance of its 2,600 listed issuers on the Main Board and GEM in a mid-summer consultation paper titled Review of Corporate Governance Code and Related Listing Rules.

The consultation period ended in mid-August and, based on market feedback, the revised code and listing rules are expected to take effect on 1 January 2025, with transition periods for certain proposals. This article outlines key revisions as a point of reference.

Designating a lead independent non-executive director (INED)

Where the chairperson is not an INED and/or the chair and chief executive is the same individual, the listed company should designate a “lead INED” to serve as an intermediary for the other directors and shareholders. Any listed company not complying with this expectation must provide explanations.

Mandatory director training

Currently, a listed company must disclose how its directors participate in continual professional development. The exchange proposes to require directors to receive mandatory continuing professional development annually on specified topics (including directors’ responsibilities, environmental and social governance [ESG], risk management and industry-specific updates).

Also, first-time directors and those who have not served as directors of listed companies for a period of three years or more must complete a minimum of 24 hours’ training within 18 months of appointment.

Board performance review

The current recommended best practice is proposed to be upgraded to a code provision (on a “comply or explain” basis) requiring the board to conduct an evaluation of its performance at least once every two years, with specific disclosures to be made in the listed company’s Corporate Governance Report.

Board skills matrix. A listed company will be expected to maintain a board skills matrix and disclose in its Corporate Governance Report:

1. 1. the board’s existing skills;
   2. how the combination of skills, experience and diversity of directors serve the company’s purposes, values, strategy and desired culture; and
   3. details and plans to acquire further skills.

The current practice of simply listing the directors’ qualifications and experience is considered insufficient by the exchange.

Overboarding INED and directors’ time commitment

The exchange proposes to add a listing rule that each INED can only serve as a director of up to six listed companies. Also, the nomination committee of a listed company is required to annually assess and disclose each director’s time commitment and contribution to the board.

INED serving for more than nine years

Currently, the listing rules impose no limit on the tenure of INEDs, although a listed company should put the appointment of a long-serving INED (i.e. serving the board for more than nine years) as a separate shareholders’ resolution, explain why such an INED is still regarded as independent, and appoint a new INED at the forthcoming annual general meeting.

Now a hard cap of nine years is proposed, i.e. from 1 January 2028 onwards a director will no longer be considered independent after serving as an INED for nine years or more.

Board and workforce diversity

At present, the board must have a board diversity policy and annually review its implementation and effectiveness. At least one director of a different gender must be appointed to the board no later than 31 December 2024. The Corporate Governance Report must include details such as gender ratio in the workforce, how the board’s gender diversity is achieved, and mitigating factors in achieving gender diversity.  The exchange now proposes that: …READ FULL ARTICLE

Note: This material has been prepared for general informational purposes only and is not intended to be relied upon as professional advice. Please contact us for specific advice.

Author: Rossana Chu at YYC Legal LLP