Consultation Conclusions: Review of the Corporate Governance Code and related Listing Rules

Publication August 2018

On July 27, 2018, the Hong Kong Stock Exchange published the Consultation Conclusions on “Review of the Corporate Governance Code and Related Listing Rules” as well as “Guidance for Boards and Directors”.

The amendments to the Listing Rules will take effect from January 1, 2019.

Corporate governance reports

Listed issuers must adopt a board diversity policy and disclose the diversity policy or a summary of the policy in their corporate governance reports (LR13.92 and A.5.6 Appendix 14 to the Listing Rules).

Listed issuers must disclose the nomination policy in their corporate governance reports (L(d)(ii) Appendix 14).

Annual reports

Listed issuers must disclose the dividend policy in the listed issuers’ annual reports (E.1.5 Appendix 14).


The circular regarding the appointment (including re-election) of INEDs should include the following information

  • The process used for identifying the nominee.
  • The perspectives, skills and experience that the person can bring to the board.
  • How the nominee would contribute to diversity of the board (A.5.5 Appendix 14).
  • For the nominee who will be holding seventh (or more) listed company directorship, the reasons for determining that the nominee would be able to devote sufficient time to the board (A.5.6 Appendix 14).

Factors affecting independence of INEDs will be amended as follows

  • The cooling-off period for persons with material interests in the listed issuers’ principal business activities will be one year (currently, there is no cooling-off period) (LR3.13).
  • The cooling-off period for former professional advisers will be extended from one year to two years (LR3.13).
  • The interests of the immediate family members (being spouse, child or step-child, natural or adopted) of the proposed INED will be taken into consideration in assessing the proposed INED’s independence (LR3.13).

For a proposed INED who holds cross-directorships (that is, two or more directors sit on each other’s boards) or has significant links with other directors through involvements in other companies or bodies, a new recommended best practice under the corporate governance code will be adopted which requires the board to state its reasons for determining that such a proposed INED is considered independent (A.3.3 Appendix 14).

Members of audit committees

The cooling-off period for former partners of the listed issuers’ audit firms to serve as members of the listed issuers’ audit committees will be extended from one year to two years (C.3.2 Appendix 14).

Directors’ attendance at general meetings

The current wording of A.6.7 suggests that the directors of listed issuers must attend the listed issuers’ general meetings. A.6.7 will be revised to reflect the intention of A.6.7 – that is, generally the directors of listed issuers should attend general meetings. Note that attendance of directors at general meetings has to be disclosed in the listed issuers’ annual reports. In addition, under E.1.2, the chairman of the board and chairmen of the board committees should attend the listed issuers’ annual general meetings.

Meetings between the chairman and INEDs

INEDs should meet the chairman of the listed issuer annually without the presence of other executive or non-executive directors (E.1.5 Appendix 14).

Guidance for boards and directors

The guidance provides practical advice to the boards and directors of listed issuers covering, among other things, the roles and functions of executive directors, non-executive directors, INEDs, various board committees as well as company secretaries.

For a proposed director candidate, the guidance suggests that he should devote time to understand the listed issuer to ensure that he can make value-added contributions to the board after joining. After a new director joins the board, an induction training programme should be developed for the new joiner covering not only laws and regulations but also industry-specific and innovative changes.

The guidance also states that the right level of information should be provided by the management to the directors, which includes monthly financial updates. Failure in providing such monthly financial updates may be a reason for the late publication of profit warning or alert announcements resulting in disciplinary actions. The guidance also mentioned that, when facing disciplinary proceedings, it is not a defence for a director to claim that he has not received adequate information from the listed issuer. If you are a director of a listed issuer and have not received information such as monthly financial updates in the past, you should ask for it.

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