Implementation dates set for changes to corporate governance rules

November 2011

Contacts

The Stock Exchange has published its consultation conclusions paper on changes to be made to its corporate governance rules.

Companies should note:

  • some code provisions (CP) have been promoted to Listing Rules (Rules or LR);
  • some recommended best practices (RBP) will become CPs

The difference between Rules, CPs and RBPs is that compliance with the Rules is mandatory. For CPs, the policy is “comply or explain” in the corporate governance report and RBPs are desirable best practices, compliance with which is encouraged. The CPs and RBPs are set out in the Corporate Governance Code.

  • Most of the changes to the Rules will take effect from 1 January 2012. However, the new Rule that independent non-executive directors (INEDs) have to form one-third of the board of directors will only need to be complied with before 31 December 2012.
  • Changes to the Corporate Governance Code will take effect from 1 April 2012.

Below is a summary of the main changes, their implementation dates and actions that companies should take in respect of these changes.

SubjectWhat is changedDescriptionEffective date in 2012Action plan

Directors

Duties and time commitmentRevised RulesDirectors must take an active interest in the company’s affairs, obtain a general understanding of its business and follow up anything untoward that comes to their attention1 JanuaryGeneral compliance
New CPsBoard should regularly review the contribution by a director. Directors should inform the board of any change to their significant commitments in a timely manner1 AprilGeneral compliance
INEDsRBP → LRTo form one-third of the boardBy 31 DecemberConsider board composition and appoint additional INED if necessary
RBP → CPShareholders to vote on a separate resolution to retain an INED who has served 9 years1 AprilConsider and act accordingly if there is any INED serving for 9 years
TrainingRBP → CPDirectors to participate in training1 AprilArrange appropriate training; directors to keep training record; disclosure in interim/annual reports about compliance with the training requirement
Remuneration committeeNew Rules; amended CPs; CP → Rules
  • To be chaired by an INED and comprising a majority of INEDs
  • To have written terms of reference
  • Have written terms of reference
1 AprilConsider committee composition; Terms of reference to be set out on company’s and Exchange’s websites.
Nomination committeeRBP → CP
  • To establish a nomination committee with majority INEDs (chairman may be chairman of the board or an INED)
  • To have written terms of reference
1 AprilConsider nomination committee composition;
Terms of reference to be set out on company’s and Exchange’s websites.
Audit committeeRevised CPTo meet with external auditors at least twice a year (instead of once)1 AprilMeet external auditors as described
New RBPTo establish whistleblowing policy1 AprilGeneral compliance
Remuneration informationRevised LRDisclosure of chief executive’s remuneration (if he is not a director)1 JanuaryDisclose in financial statements
New CPDisclosure of senior management’s remuneration by band1 AprilDisclose in annual report
Corporate governance functionsNew CPs and LR
  • To establish terms of reference of corporate governance functions
  • Board should be responsible for performing corporate governance duties or delegate to a committee
1 AprilConsider establishing terms of reference
Board performanceNew RBPTo evaluate regularly1 AprilGeneral compliance
Chairman’s role & responsibilitiesRBP → CPThe role and responsibilities of the Chairman are set out as a CP1 AprilGeneral compliance
Board meetingsRevised LRTo remove allowance for director to vote on a resolution in which he or she has less than 5% interest1 JanuaryGeneral compliance
Information on directorsNew CPUpdated list of directors to be maintained on HKEx’s website1 AprilPrepare and publish list
Monthly management updatesNew CPsManagement to provide the board with monthly updates on the company’s performance1 AprilPrepare monthly updates
Next day disclosureRevised LRNo return required following exercise of an option for shares in the company by a director of the company’s subsidiaries, unless it results in a change in the company’s share capital (individually or when aggregated with other events) of 5% or more since its last monthly return1 JanuaryGeneral compliance
Company’s long term strategyNew CPCompany’s long term strategy or objectives1 AprilDisclose in annual report
Director’s insuranceRBP → CPArrange appropriate insurance cover for directors1 AprilGeneral Compliance

Shareholders

ResolutionsRevised CPAvoid “bundling” resolutions1 AprilGeneral compliance
Voting by pollRevised Rules
  • No need for poll where the resolution relates purely to a procedural or administrative matter
  • Prescribed details regarding poll results
1 JanuaryGeneral compliance; Disclose poll results according to Rules
Appointment of auditorsNew RulesRequires shareholders’ approval1 JanuaryGeneral compliance
Removal of auditorsNew RulesRequires shareholders’ approval, the company to send a circular to shareholders and the auditor can make representations1 JanuaryGeneral compliance
Auditors’ attendance at AGMRevised CPRequires external auditor to attend AGM1 AprilRequest auditor to attend AGM
Communication with shareholdersNew LR
  • Constitutional documents to be published on company’s and HKEx’s websites
  • Procedures for shareholders to propose a person for election as a director to be published on company’s website
1 AprilPublish information described
New CPShareholder communication policy to be established and regularly reviewed by the board1 AprilConsider establishing policy

Company Secretary

Company secretary’s role & responsibilitiesNew CPThe role and responsibility of the Company secretary are set out as a CP1 AprilGeneral compliance
Qualifications, experience and trainingRemove LRTo abolish requirement that company secretary has to be ordinarily resident in Hong Kong1 JanuaryGeneral compliance
New LRTo require 15 hours of training per year1 January or after, depending on date of appointmentCheck appointment date and consider appropriate training, e.g. courses by the Hong Kong Institute of Chartered Secretaries

 

SubjectEffective date in 2012
Other additional disclosures to be included in the Corporate Governance Report1 April
  • Certain information relating to the remuneration and nomination committees, and corporate governance functions
  • Number of board or committee meetings attended by each director and his alternate. Alternate directors attendance at board or committee meetings not considered attendance by director himself
  • Attendance by each director at AGM
  • Shareholders’ rights to convene a meeting and to make proposals, and to send enquires to the board
  • Significant changes to constitutional documents

If the company’s first interim/half year or annual report covers a period after 1 April 2012, it has to state in the report whether it has, for that period, complied with the CPs in the revised Code as well as those of the former Code.

View Stock Exchange’s news release

View Consultation conclusions

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