The HKEx published its "Consultation Paper on Review of the Code on Corporate Governance Practices and Associated Listing Rules" (Code Consultation Paper) on 17 December 2010 to propose changes to the Code on Corporate Governance Practices (Code) and certain Listing Rules relating to corporate governance. Such proposed changes include promoting some Code Provisions (CPs) to become Listing Rules provisions, upgrading many Recommended Best Practices (RBPs) to become Code Provisions and revising some existing Listing Rules provisions.


The difference between CPs and RBPs is that although listed issuers have the flexibility to decide whether to comply with a CP, they must explain the reasons for not doing so in their corporate governance reports. On the other hand, although listed issuers are encouraged to adopt RBPs, they are not required to state whether they have done so or not.


The major proposals contained in the Code Consultation Paper are summarised as follows:  

  1. Directors’ duties and time commitments
  • To expand the Listing Rules provisions on directors’ duties, provide guidance to directors and revise the Code to recommend greater disclosure of time commitments by directors, particularly independent non-executive directors (INEDs). In summary, these include:
    • a director should keep the listed issuer informed of his other professional commitments, restrict those commitments and acknowledge to the listed issuer on appointment that he will have sufficient time to meet his obligations as a director;
    • the letter of appointment should specify the time commitment expected of a director; and
    • a non-executive director (NED) should confirm to the nomination committee on an annual basis that he has spent sufficient time on the listed issuer’s business.
  • To gather views on whether a Listing Rules provision or a CP should be introduced to limit the number of INED positions which an individual may hold and if so, what is the maximum number.
  1. Directors’ training and INEDs
  • To upgrade the RBP on directors’ training to a CP and to further propose that directors should at least attend eight hours of training on developments in law, regulations and topics relevant to their duties.
  • To introduce a Listing Rules provision that INEDs should constitute one third of a listed issuer’s board and there would be a transitional period for listed issuers to comply with such requirement.
  1. Board committees
  • Remuneration committee
    • Listed issuers are required to set up a remuneration committee with specific terms of reference and the committee’s chairman and a majority of the members must be INEDs.
    • Two models are proposed for consultation as to how the remuneration committee should operate. The first model is that the board delegates to the committee authority to determine the remuneration of executive directors and senior management. In the second model, the board retains that authority, with the committee taking an advisory role.
  • Nomination committee
    • The current RBPs in relation to the committee’s establishment, composition and terms of reference are proposed to be upgraded to CPs.
  • Corporate governance committee
    • To introduce a new CP which specifies the duties of a corporate governance committee but the establishment of a corporate governance committee is proposed to be a RBP only because some listed issuers may not have sufficient resources to set up such a committee and would prefer an existing board committee to assume the functions of a corporate governance committee.
    • The composition of the committee will be a new CP.
  •  Audit committee
    • The committee should meet with the listed issuer’s external auditor at least twice a year and should, as an RBP, set up a “whistleblowing” policy so as to provide channels to employees and those who deal with the listed issuer to raise concerns.
  1. Chairman and Chief Executive Officer
  • To revise the Code to emphasise the chairman’s role and responsibility in leading the listed issuer’s corporate governance efforts.
  • A chief executive officer (CEO) who is not a director must disclose his appointment, resignation, re-designation, retirement or removal and any change in such particulars in the same way as a director. The remuneration of a CEO (if he is not a director) should also be disclosed.
  1. Communication with shareholders
  • To include a new Listing Rules provision to require listed issuers to publish their memoranda and articles of association or other constitutional documents on their websites and on the HKEx's website on a continuous basis.
  • To introduce new CPs recommending disclosure by name to state whether individual directors have attended general meetings and whether external auditors have attended general meetings to answer questions from shareholders relating to the audit of the listed issuer.
  • To introduce a new CP recommending the board to establish, and regularly review, a shareholder communication policy.
  1. Company secretary
  • To revise the Listing Rules provisions on company secretaries’ qualifications and experience to make them less Hong Kong focused and to propose a minimum 15-hour professional training for company secretaries.
  • To introduce a new section in the Code on company secretaries’ roles and responsibilities.
  1. Other Listing Rules amendments
  • On voting by poll: to allow an exception for procedural and administrative matters and to clarify disclosure requirements of the poll results.
  • On notification of changes to directors’ and supervisors’ information.
  • To require shareholders to approve appointment and removal of auditors. The auditors must be allowed to make a representation at the general meeting voting for their removal before the end of their term of office.
  • To remove the 5% de minimis exemption on a director’s right to vote on an interested transaction.
  • To include in a circular information on the competing interest of a proposed director of the listed issuer.
  • On next day disclosure on exercise of an option:
    • to exclude exercise, by a director of a subsidiary, of options granted by a listed issuer; and
    • aggregating events for the 5% threshold to include options exercised by persons who are not directors of the listed issuer.
  • On disclosing senior management’s remuneration by band.
  • On disclosing directors’ attendance at board meetings.
  1. Other Code amendments
  • To introduce the following new CPs:
    • management to provide monthly updates, which may take the form of management accounts or trading updates, to each director; and
    • directors to disclose long term business model in which the listed issuer generates or preserves business value.
  • To upgrade the following RBPs to CPs and to revise the wording:
    • nine years’ service as an INED should be taken into account in determining independence;
    • INEDs and NEDs should attend board, board committee and general meetings and make contribution to the listed issuer’s strategies;
    • a circular nominating a person for election as an INED should explain his suitability for election and why he is considered independent; and
    • listed issuers should take out adequate and appropriate insurance for directors.
  • To introduce a new RBP recommending listed issuers to conduct regular evaluations of the board’s performance.

Comments in response to the Code Consultation Paper should be submitted no later than 18 March 2011.

Copies of the Code Consultation Paper can be downloaded via the link below: