Exchange Published Conclusions on Review of Corporate Governance Code

On 10 December 2021, the Stock Exchange of Hong Kong Limited (the “Exchange”) published its consultation conclusions on review of the Corporate Governance Code (“CG Code”) and related Listing Rules (“Consultation Conclusions”)¹.

Under the amended CG Code and Listing Rules, listed issuers are required to:

• Culture – A company’s culture should align with its purpose, values and strategy, and have anti-corruption and whistleblowing policies
• Board independence and refreshment –
• A mechanism(s) to ensure independent views are available to the board should exist, and an annual review of this as to its effectiveness
• For independent non-executive directors (INEDs) serving more than nine years (Long Serving INEDs):
• A new INED should be appointed if all INEDs on board are Long Serving INEDs;
• Additional disclosures should be made on factors considered, process and the board’s discussion on why the Long Serving INED is still independent and should be re-elected; and
• Disclosure on the length of tenure of the Long Serving INEDs on a named basis in the papers to shareholders for the AGM
• Mandatory nomination committee, chaired by either the board chairman or an INED and comprising a majority of INEDs

3. Diversity –

• A single gender board is not considered to be a diverse board:
• Existing listed issuers will have a three-year transition period to comply (ie appoint a director of a different gender no later than 31 December 2024);
• Issuers with commitment in listing document should appoint a director of a different gender in accordance with such commitment; and
• For IPO Applicants, identify at least a director of a different gender for A1 submission filed on or after 1 July 2022
• Numerical targets and timelines must be set for achieving gender diversity at board level, and annual review of board diversity policy
• Disclosure must be made on gender ratios in the workforce (including senior management), plans or measurable objectives the issuer has set for achieving gender diversity

4. Communications with shareholders – Mandatory disclosure on shareholders communication policy, and annual review of its effectiveness
5. ESG – ESG reports must be published at the same time as annual reports²

Notes:

1. The consultation paper was published on 16 April 2021. The consultation period ended on 18 June 2021.
2. As required under Environmental, Social and Governance Reporting Guide set out in Appendix 27 to the MB Rules and Appendix 20 to the GEM Rules.
3. The requirement to appoint a new INED where all the INEDs on board are Long Serving INEDs will be implemented for the financial year commencing on or after 1 January 2023.

The amended Listing Rules and CG Code will come into effect on 1 January 2022, and the requirements under the new CG Code will apply to CG reports for financial year commencing on or after 1 January 2022³.

The Exchange also published a new set of guidance (Corporate Governance Guide for Boards and Directors) to assist issuers’ compliance with the new requirements. The new guide is intended to stimulate the board’s thinking on how they can carry out their role most effectively, and should be read alongside with the amended CG Code.

The Consultation Conclusions and copies of the respondents’ submissions are available to view on the HKEX website.

Contact us to find out more about the revised CG Code and Listing Rules.