- By: Staff Editor
- Date: March 01, 2013
The Hong Kong Corporate Governance code was published by the Stock Exchange of Hong Kong. The code was revised in 2012 and this article gives a brief overview and summary of requirements included in the code:
Directors
The code requires that the Board complies with the following:
- The Board is responsible for leading, controlling, directing and supervising the functioning of an issuer.
- Board meetings should be held at least four times a year at approximately quarterly intervals.
- Detailed minutes of board meetings should be recorded and shared with all directors.
Chairman and Chief Executive
- There should be a clear segregation of the roles and responsibilities of chairman and chief executive.
- The chairman should ensure adherence to good corporate governance practices and procedures.
- The chairman should ensure effective working of the board by
- briefing all directors on issues arising at board meetings,
- providing complete and accurate information to all directors,
- preparing and approving the agenda for each board meeting.
Board composition
- The board should include a balanced number of executive and non-executive directors.
- An updated list of directors along with their role and function should be maintained on both issuer’s and Exchange’s websites.
Appointments, re-election and removal
- There should be a formal and transparent procedure for the appointment of new directors.
- All directors should be appointed for a specific term, subject to re-election at regular intervals.
- An issuer must explain the reasons for the resignation or removal of any director.
Nomination Committee
- It should comprise a majority of independent non-executive directors
- It should be chaired by the chairman of the board or an independent non-executive director.
- The terms of reference should define its authorities and duties.
Responsibilities of directors
- Both executive and non-executive directors have the same duties.
- The functions of non-executive directors include participating in board meetings and scrutinizing the issuer’s performance w.r.t. agreed corporate goals and objectives.
- Each director has to disclose the number and nature of offices held in public companies or organizations.
Supply of and access to information
- Board meeting agenda and accompanying documents should be sent to all the directors, at least 3 days prior to meeting.
- All directors should have independent access to issuer’s senior management, board papers and related materials.
Remuneration of Directors and Senior Management; Board Evaluation
The level and make-up of remuneration and disclosure
- There should be a formal and transparent procedure for setting policy on all directors’ remuneration.
- No director should be involved in deciding his own remuneration.
- The remuneration committee should either determine or make recommendations to the board on the remuneration packages of individual executive directors and senior management.
- Issuers should disclose details of any remuneration payable to members of senior management by band in their annual reports.
Accountability and Audit
Financial reporting
- The board should present a balanced and clear assessment of the company’s performance, position and prospects.
- The directors should acknowledge, in the Corporate Governance Report, their responsibility for preparing the accounts.
Internal Control
- The issuer should maintain sound and effective internal controls to safeguard shareholders’ investment and own assets.
- The directors should conduct an annual review of the effectiveness of the issuers’ internal control systems including financial, operational and compliance controls and risk management.
Audit Committee
- The board should establish formal and transparent arrangements to consider how it will apply financial reporting and internal control principles.
- The board should maintain an appropriate relationship with the issuer’s auditors.
- The audit committee established under the Listing Rules should have clear terms of reference.
Delegation by the Board
Management functions
- There should be a formal schedule of matters reserved for board approval.
- The board should give clear directions to management on the matters that must be approved by it before any decisions are made.
- The board should not delegate matters to a board committee, executive directors or management that would undermine its own ability to perform its functions.
Board Committees
- They should be formed with specific written terms of reference which clearly define their authorities and duties.
- They are required to report back to the board on their decisions or recommendations.
Corporate Governance Functions
- The terms of reference of the board includes reviewing and monitoring:
- the issuer’s policies and practices on corporate governance
- training and continuous professional development of directors and senior management;
- the issuer’s policies and practices on compliance with legal and regulatory requirements;
- the code of conduct and compliance manual applicable to employees and directors; and
- the issuer’s compliance with the code and disclosure in the Corporate Governance Report.
Communication with Shareholders
Effective communication
- The board should maintain an on-going dialogue with shareholders through annual general meetings or other meetings.
- The chairman should propose a separate resolution for each substantially separate issue at the meeting.
- The chairman of the board should attend the annual general meeting. He should also invite the chairmen of the audit, remuneration, nomination and any other committees (as appropriate) to attend.
- The issuer should send notice to shareholders for annual general meetings at least 20 business days before the meeting and at least 10 business days before all other general meetings.
- The board should establish and regularly review an effective shareholders’ communication policy.
Voting by Poll
- The issuer should ensure that shareholders are familiar with the detailed procedures for conducting a poll.
- The chairman of a meeting should ensure that an explanation is provided of the detailed procedures for conducting a poll and answer any questions from shareholders on voting by poll.
Company Secretary
- The company secretary should be an employee of the issuer.
- The board should approve the selection, appointment or dismissal of the company secretary.
- The company secretary should report to the board chairman and/or the chief executive.
- The responsibilities of the company secretary includes:
- advising the board on governance matters
- facilitating induction and professional development of directors.
Additional Resources
Read the Hong Kong Corporate Governance Code in full
here.
