On Nov. 17, HKEX issued review on governance and guide re directors.
HKEX published Analysis of 2022 corporate governance practice disclosure, which is its latest review of issuers' corporate governance practices; issued A snapshot of INED's roles and responsibilities, a guide for independent non-executive directors (INEDs).
Follows HKEX Apr. 2021, consulted on review of corporate governance code, #103118.
Review Findings and Recommendations
Review includes findings regarding corporate culture i.e. all sampled issuers reported compliance with the new Corporate governance code provision on corporate culture.
Comprehensive disclosure should include details on how corporate culture has been implemented and details on how it supports an issuer’s long-term business objectives.
Includes key recommendations and findings i.e. re long-serving INEDs who have served more than nine years; updates to code resulted in a substantial two-thirds reduction in number of boards whose INEDs consisted of all long-serving INEDs.
Periodic board refreshment fosters sharing of perspectives; issuers should regularly assess board composition in response to change (i.e. external business environment).
Where a long-serving INED is retained, sufficient details of that individual’s suitability for re-appointment should be disclosed; key findings, recommendations re diversity.
Specifically, since code update, percentage of single gender board issuers has dropped to about 21% of all boards; a high level of compliance is observed for most diversity disclosure requirements; issuers are encouraged to formulate long-term targets.
Plus, timelines to further progress gender diversity on their boards, beyond required minimum, and within their wider workforce; and also reminded existing single gender board issuers to appoint at least one director of a different gender by Dec. 31, 2024.
In regards to risk management and internal controls - HKEX said all sampled issuers disclosed information on their risk management as well as internal controls.
Regular monitoring and (at least) annual reviews of their systems are key to proper risk management; HKEX said issuers should provide sufficient details of the reviews they have conducted to support their findings that those systems remain effective.
Further Detail
Continued to observe an improvement in issuers' compliance with code provisions.
Issuers must disclose all applicable mandatory disclosure requirements (MDRs) (i.e. sub-paragraphs of those MDRs) in their code governance reports, and must clearly state that an MDR is not applicable to them, if they determine this to be the case.
Guide
HKEX said the guide provides a quick as well as easy-to-follow overview of the below.
Namely, INEDs’ key responsibilities and obligations to facilitate a better understanding of what is expected of them and how they can fulfil their duties under the Listing rules.
An INED should be proactive; ask questions; provide independent judgment, expertise.
In addition, INEDs should analyze and address risk; assess internal controls; assess listing rule implications; follow up on red flags; request sufficient information; devote sufficient time and attention; regularly attend relevant training; and keep records.
Effectiveness
Reminded gendered-appointment compliance requirement deadline is Dec. 31, 2024.
In Jun. 2024, HKEX proposed enhancements to governance code, see #215997.
