The Hong Kong Stock Exchange is holding a consultation on a revised corporate governance code and changes to its listing rules.

The stock exchange said the review of the Hong Kong code was driven by a desire to raise the overall standards of corporate governance amongst issuers and directors, having taken into account relevant international practice in a number of countries including the UK, Australia, mainland China and the US as well as recent market developments in this area.

Whilst the level of compliance with the code and related rules was consistently high the stock exchange said it recognised the need to ensure that corporate governance was not treated as a “box-ticking” exercise. Furthermore, it said recent investigations and disciplinary actions that a number of company directors have failed in their duties and not taken a proactive role in fulfilling their responsibilities as directors, either due to a lack of
understanding of the Listing Rules or because they did not give their compliance obligations the focus they require.

The revised code aims to enhance the transparency and accountability of the nomination and election
process of directors including independent non-executive directors (“INEDs”); improve the transparency of INEDs’ relationship with issuers; strengthen the independence criteria in assessing potential INED candidates; promote board diversity; and require greater transparency of dividend policy.

To address concerns that some INEDs were taking on too many directorships - so called overboarding - the stock exchange has proposed improvements to the transparency and accountability of the nomination process and will produce guidance for boards to help them consider if a director is too busy.  Under the comply and exchange regime if the proposed independent directorship will be holding his seventh (or more) listed company directorship, the stock exchange said that in a circular to shareholders should, in addition, give reasons for determining that the proposed INED would be able to devote sufficient time to the board.

Companies will now have to adopt a diversity policy for the board under the listing rules rather than through the code's comply or explain regime. Under the code, it is proposed that the company disclose the process used for identifying a nominee; the perspectives, skills and experience that the person can bring to the board and how the nominee would contribute to the diversity of the board.

The deadline for responses to the consultation is the 8th December 2017.