New Corporate Governance Code and Related Listing Rules

On 1 January 2019, “Consultation Conclusions on Review of the Corporate Governance Code and Related Listing Rules” (Consultation Conclusions), new amendments to the Code and related Listing Rules issued by the Stock Exchange of Hong Kong Limited (HKEX) will come into effect.  The main changes included relate to independent non-executive directors (INEDs) include requiring greater disclosure on the process of their identification as a possible INED, their potential contribution to the board including diversity and their time commitment.  It will be mandatory for listed companies to have and to disclose their board diversity and nomination policies.  The criteria determining an INED’s independence has also been enhanced.

(A)  Independent Non-executive Directors

The role of nomination committee is critical for ensuring the board comprises directors with an appropriate balance of skills, experience and diversity of perspectives and its work with focusing independence and board diversity of Independent non-executive directors. For INED holding seventh or more listed company directorship, the listed companies are required to state in the circular to shareholders accompanying the resolution to elect its reasons for proposed INED would be able to devote sufficient time to the board.

Increasing in cooling off period will be implemented as following:-

- Persons with material interests in principal business activities require one-year period.

- Former professional advisers require two-year period.

- Former partners of listed company’s audit firm before they can be members of the audit committee require two-year period.

It also suggest to include a note for inclusion of person’s immediate family member in the assessment of a proposed INED’s independence and recommended best practice for an INED’s cross-directorships or significant links with other directors in the Corporate Governance Report.

(B)Nomination policy

Disclosure of nomination policy should be included in Mandatory Disclosure Requirement.

(C)  Directors’ attendance at meetings

Generally directors should attend general meetings to gain and develop a balanced understanding of the views of shareholders. Independent non-executive directors excluding non-executive directors and executive directors should meet with the Chairman at least annually.

(D) Dividend policy

Listed companies require disclosure of their dividend policies in annual reports.

More details may refer to the website of HKEX.