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New amendments to the Corporate Governance Code for listed companies to be effective in January 2022

2021-12-30

New amendments to the Corporate Governance Code for listed companies to be effective in January 2022

Introduction

In our previous newsletter “Stock Exchange proposes changes to the corporate governance requirements”, we explored on the consultation paper issued by The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on April 2021 (the “Consultation”), which set out proposed changes to the corporate governance requirements under the corporate governance code (“CG Code”) and related listing rules, which sought to enhance the existing corporate governance framework. Following a two-month public consultation, the Stock Exchange published conclusions to the Consultation on 10 December 2021.


Amendments to corporate governance requirements

Upon reviewing the respondents’ feedback, the Stock Exchange confirmed that it would adopt majority of the proposal with certain modifications or clarification. Unless otherwise specified below, the amendments to the CG Code (the “Amendments”) will generally come into effect on 1 January 2022.

The key Amendments are summarised as follows:

 

Current Provisions

The Amendments

CULTURES

Aligning company’s culture with its purpose, values and strategy

No specific requirement

The board should establish the issuer’s purpose, value and strategy and satisfy itself that these and the issuer’s culture are aligned (Code Provision (“CP”) A.1.1)

 

Anti-corruption policies

No specific requirement

The issuer should establish policy that supports anti-corruption laws and regulations (CP D.2.7)

 

Whistleblowing policies

The audit committee is recommended to establish a whistleblowing policy and system for employees and those who deal with the issuer (Recommended Best Practice (“RBP”) C.3.8)

 

The issuer should establish a whistleblowing policy and system for employees and those who deal with the issuer (CP D.2.6)


DIRECTOR’S INDEPENDENCE

Board independence policy

No specific requirement

·         The issuer should establish a policy to ensure independent views and input are available to the board and disclose such policy in its Corporate Governance Report

·         The board should review such policy on an annual basis

(CP B.1.4)

 

Disclosure on further appointment of independent non-executive directors (“INEDs”) serving for over 9 years (“Long Serving INEDs”)

The circular for general meeting should include the reasons why the board believes such Long Serving INED is still independent and should be re-elected (the “Reason”)(CP A.4.3)

More particularly specified that the Reason should include:

·         the factors considered

·         the process and the discussion of the board (or the nomination committee) in arriving at such determination

(CP B.2.3)

 

Appointment of new INED to board of Long Serving INEDs & Tenure Disclosure

No specific requirement

·         The issuer should appoint a new INED to a board comprising of all Long Serving INEDs at the annual general meeting. This provision will implement in the financial year commencing on or after 1 January 2023

 

·         The issuer should disclose the length of tenure of each Long Serving INED on a named basis in the notice or accompanying circular to its shareholders

(CP B.2.4)

 

Equity-based remuneration

No specific provision

Issuers should not grant equity-based remuneration (e.g. share options or grants) with performance-related elements to INEDs (RBP E.1.9)

 

DIVERSITY

Gender composition of the board

Generally provides that nomination committee (or the board) shall have a policy concerning board diversity, which could be achieved through consideration of gender, age, cultural and educational background, or professional experience

 

(Rule 13.92 of the Main Board Listing Rules / Rule 17.104 of the GEM Listing Rules)

·         Specified that diversity is not considered to be achieved for a single gender board

 

(Rule 13.92 of the Main Board Listing Rules / Rule 17.104 of the GEM Listing Rules)

 

·         As a transitional arrangement, issuers with a single gender board will have to appoint at least a director of a different gender on the board no later than 31 December 2024

 

(Note to Rule 13.92 of the Main Board Listing Rules / Rule 17.104 of the GEM Listing Rules)

 

Gender diversity targets and timeline

No specific requirement

Board level – the issuer should establish policy on board diversity (or its summary) including any measurable objectives and progress on achieving the same, and is required to disclose and explain:

·         how and when gender diversity will be achieved

·         the numerical targets and timelines

·         measures in place to develop a pipeline of potential successors to senior management to achieve gender diversity

 

General Workforce – the issuer is required to disclose:

·         gender ratios in the workforce

·         any plans or measureable objectives the issuer has set for achieving gender diversity

·         any mitigating factors or circumstances which make achieving gender diversity across the workforce more challenging or less relevant

 

(Paragraph J of the Mandatory Disclosure Requirements under the CG Code)

 

Annual review of board diversity

No specific requirement

Board should review the issuer’s policy on board diversity on an annual basis (CP B.1.3)

 

 

NOMINATION COMMITTEE

Chairman & composition

Nomination Committee should be:

·         chaired by the chairman of the board of directors or an INED

·         comprised of majority of INEDs

(CP A.5.1)

 

Same requirement, existing CP upgraded to a provision in the Main Board or GEM Listing Rule

 

(Rule 3.27A of the Main Board Listing Rules / Rule 5.36A of the GEM Listing Rules)

 

COMMUNICATION WITH SHAREHOLDERS

Communication policy & review

The board should establish a shareholders’ communication policy and review it on a regular basis to ensure its effectiveness

(CP E.1.4)

The issuer is required to disclose:

·         shareholders’ communication policy (or its summary) including channels for communication, steps taken to solicit and understand shareholders’ views

·         a statement of the issuer’s review of the above policy

 

(Paragraph L of the Mandatory Disclosure Requirements under the CG Code)

 

OTHER ENHANCEMENTS

Disclosure on directors’ attendance in general meetings

No specific requirement

The issuer is required to state in the poll results announcement the directors’ attendance at the general meeting

 

(Rule 13.95(5A) of the Main Board Listing Rules and Rule 17.47(5A) of the GEM Listing Rules)

 

Term of non-executive directors (“NEDs”)

NEDs should be appointed for a specific term, subject to re-election (CP A.4.1)

 

Remove the requirement for NEDs to be appointed for a specific term

Notice period of general meetings

Notice should be sent to shareholders for annual general meetings at least 20 clear business days before the meeting and at least 10 clear business days for all other general meetings (CP E.1.3)

Reasonable notice should be given to shareholders before the general meetings: 21 days for annual general meetings and 14 days for other general meetings (Paragraph 14(2) of Appendix 3 to the Main Board or GEM Listing Rules)

ESG REPORT

ESG Reporting

The issuer is encouraged to publish the ESG report at the same time as the publication of the annual report. In any event, the issuer should publish the ESG report no later than five months after the end of the financial year

 

(Rule 13.91(5)(d) of the Main Board Listing Rules / Rule 17.103(5)(d) of the GEM Listing Rules)

The issuer is required to publish the ESG report at the same time as the publication of the annual report

 

(Rule 13.91(5)(d) of the Main Board Listing Rules / Rule 17.103(5)(d) of the GEM Listing Rules)

 

Conclusion

In view of the tight implementation timeline of the enhanced corporate governance requirements, listed issuers are advised to promptly launch review as to the existing corporate governance practices and adopt corresponding measures and policies in response to the Amendments set out above.

 


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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2021

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