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Hong Kong Corporate Governance Code – Overview and Summary of Requirements

By: Staff Editor
Date: March 01, 2013

The Hong Kong Corporate Governance code was published by the Stock Exchange of Hong Kong. The code was revised in 2012 and this article gives a brief overview and summary of requirements included in the code:

Directors

The code requires that the Board complies with the following:

The Board is responsible for leading, controlling, directing and supervising the functioning of an issuer.
Board meetings should be held at least four times a year at approximately quarterly intervals.
Detailed minutes of board meetings should be recorded and shared with all directors.

Chairman and Chief Executive

There should be a clear segregation of the roles and responsibilities of chairman and chief executive.
The chairman should ensure adherence to good corporate governance practices and procedures.
The chairman should ensure effective working of the board by
- briefing all directors on issues arising at board meetings,
- providing complete and accurate information to all directors,
- preparing and approving the agenda for each board meeting.

Board composition

The board should include a balanced number of executive and non-executive directors.
An updated list of directors along with their role and function should be maintained on both issuer’s and Exchange’s websites.

Appointments, re-election and removal

There should be a formal and transparent procedure for the appointment of new directors.
All directors should be appointed for a specific term, subject to re-election at regular intervals.
An issuer must explain the reasons for the resignation or removal of any director.

Nomination Committee

It should comprise a majority of independent non-executive directors
It should be chaired by the chairman of the board or an independent non-executive director.
The terms of reference should define its authorities and duties.

Responsibilities of directors

Both executive and non-executive directors have the same duties.
The functions of non-executive directors include participating in board meetings and scrutinizing the issuer’s performance w.r.t. agreed corporate goals and objectives.
Each director has to disclose the number and nature of offices held in public companies or organizations.

Supply of and access to information

Board meeting agenda and accompanying documents should be sent to all the directors, at least 3 days prior to meeting.
All directors should have independent access to issuer’s senior management, board papers and related materials.

Remuneration of Directors and Senior Management; Board Evaluation

The level and make-up of remuneration and disclosure

There should be a formal and transparent procedure for setting policy on all directors’ remuneration.
No director should be involved in deciding his own remuneration.
The remuneration committee should either determine or make recommendations to the board on the remuneration packages of individual executive directors and senior management.
Issuers should disclose details of any remuneration payable to members of senior management by band in their annual reports.

Accountability and Audit

Financial reporting

The board should present a balanced and clear assessment of the company’s performance, position and prospects.
The directors should acknowledge, in the Corporate Governance Report, their responsibility for preparing the accounts.

Internal Control

The issuer should maintain sound and effective internal controls to safeguard shareholders’ investment and own assets.
The directors should conduct an annual review of the effectiveness of the issuers’ internal control systems including financial, operational and compliance controls and risk management.

Audit Committee

The board should establish formal and transparent arrangements to consider how it will apply financial reporting and internal control principles.
The board should maintain an appropriate relationship with the issuer’s auditors.
The audit committee established under the Listing Rules should have clear terms of reference.

Delegation by the Board

Management functions

There should be a formal schedule of matters reserved for board approval.
The board should give clear directions to management on the matters that must be approved by it before any decisions are made.
The board should not delegate matters to a board committee, executive directors or management that would undermine its own ability to perform its functions.

Board Committees

They should be formed with specific written terms of reference which clearly define their authorities and duties.
They are required to report back to the board on their decisions or recommendations.

Corporate Governance Functions

The terms of reference of the board includes reviewing and monitoring:
- the issuer’s policies and practices on corporate governance
- training and continuous professional development of directors and senior management;
- the issuer’s policies and practices on compliance with legal and regulatory requirements;
- the code of conduct and compliance manual applicable to employees and directors; and
- the issuer’s compliance with the code and disclosure in the Corporate Governance Report.

Communication with Shareholders

Effective communication

The board should maintain an on-going dialogue with shareholders through annual general meetings or other meetings.
The chairman should propose a separate resolution for each substantially separate issue at the meeting.
The chairman of the board should attend the annual general meeting. He should also invite the chairmen of the audit, remuneration, nomination and any other committees (as appropriate) to attend.
The issuer should send notice to shareholders for annual general meetings at least 20 business days before the meeting and at least 10 business days before all other general meetings.
The board should establish and regularly review an effective shareholders’ communication policy.

Voting by Poll

The issuer should ensure that shareholders are familiar with the detailed procedures for conducting a poll.
The chairman of a meeting should ensure that an explanation is provided of the detailed procedures for conducting a poll and answer any questions from shareholders on voting by poll.

Company Secretary

The company secretary should be an employee of the issuer.
The board should approve the selection, appointment or dismissal of the company secretary.
The company secretary should report to the board chairman and/or the chief executive.
The responsibilities of the company secretary includes:
- advising the board on governance matters
- facilitating induction and professional development of directors.

Additional Resources

Read the Hong Kong Corporate Governance Code in full here.