Report on Improving Corporate Governance in Hong Kong

Оригинал на английском языке.
Гонконгский институт лицензированных публичных бухгалтеров
Hong Kong Institute of Certified Public Accountants
Авторы: Syren Johnstone и Say H Goo
Обзор текущего состояния (дата издания отчета 15.12.2017) корпоративного права Гонконга, основанного на Ординансе "О компаниях" 2014 года (Hong Kong Companies Ordinance) и Ординансе "О ценных бумагах и фьючерсах" 2003 года (Hong Kong Securities and Futures Ordinance). Исследование недостатков действующего режима и предложения о направлениях развития.

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Суббота, 25 мая 2019

3. Discussion and analysis of jurisdictions studied. 3.7.9 Determination of independence

Both the UK and the Hong Kong regimes impose requirements on issuers as regards the number of INEDs that should be on the board. While the number of INEDs required differ, unlike the UK, the requirement to have at least one-third of the board comprised of INEDs is a mandatory requirement of the Hong Kong listing rules. Singapore and Mainland China also have the one-third rule (in Singapore this requirement is raised to half of the board where the independence of the chairman is compromised).

Further, in the UK it is the board that determines independence whereas in Hong Kong this is determined by the SEHK (although the HK CG Code does require the nomination committee of the board to consider independence in connection with proposed new INED appointments). While the considerations relevant to a determination of independence address broadly similar considerations, in Hong Kong these are in the listing rules whereas in the UK they are comply or explain provisions in the UK CG Code. An important consequence arising out of this difference is that in Hong Kong an INED is required to submit to the SEHK a written confirmation of independence that requires the approval of the SEHK before the INED is appointed.

The requirement for independent directors is also a feature in the United States. The NYSE Listed Companies Manual require boards to have a majority of independent directors, adopt and disclose corporate governance guidelines that address director qualification standards which should, at minimum, reflect the NYSE's independence requirements. Here, it is again the board that is required to determine independence against a set of considerations specified in the listing requirements that provide both general and specific situations where a director is to be regarded as not independent. This carries with it a disclosure obligation that is subject to Federal securities law.

While both the UK CG Code and the HK CG Code (although not the NYSE Rules) consider that independence may be questionable after a long period of service on the board, the approaches differ. In the UK, after six years of service the re-appointment should be subject to a rigorous review, and after nine years the director should be subject to annual review. In Hong Kong, it is only after a period of nine years service that an INED should be subject to reappointment by the shareholders, with the board to set out the reasons why they consider the INED to remain independent. The HKEX is currently reviewing the factors that may affect independence.

Mainland China has a more rigid regime requiring independent directors not to hold the position for more than 6 years consecutively. In addition, the requirements for independence are set out by the CSRC and, while all directors need to apply to the CSRC to be confirmed as a director, a director seeking to be treated as an independent director must make the appropriate disclosures to the CSRC to be approved as an independent director. Where false or misleading information has been used in the application, the director's approval can be withdrawn and the individual subjected to a fine imposed by the CSRC.

The determination of independence is therefore essentially a board process in the UK, Singapore and the United States that is subject to a comply or explain standard in the former two and a mandatory requirement in the United States. However, in Hong Kong and Mainland China independence is a matter for a regulatory agency, the SEHK or CSRC, to determine.


As noted in Appendix II.1.2, the UK has placed a greater emphasis on the role and powers of INEDs through the creation of the dual-voting mechanism as well as the powers of INEDs as regards the relationship agreement with the controlling shareholder (discussed in Section 3.7.12 «Empowerment of INEDs - controlling shareholders»). In view of the different mechanisms by which independence is assessed, it might be said that while the UK system is clearer in its empowerment and accountability of INEDs, it may to some degree be weakened by the self-determination by the board of independence itself.

The question of independence is subject to a negative test since it is confirmed by the absence of any identified fact that would cause a director to be not independent. It is ultimately subject to both measurable fact-based and non-measurable considerations. It is suggested that the approach of leaving this to the regulator, i.e. the SEHK, to determine removes the possibility of manipulation (or laxity) by the board - it may be easy to not look too hard. On this basis, Hong Kong appears to be doing well when compared to the other jurisdictions studied. Nevertheless, the SEHK in reaching its determination relies on the facts that have been represented to it, and it should be entitled to assume that the representations made are true, complete and not misleading. However, unlike the United States where false or misleading disclosures of facts pertaining to a director's independence can give rise to breaches of Federal securities laws, or Mainland China where false information can lead to disqualification or the imposition of a fine, in Hong Kong the same act is merely a breach of the listing rules with limited consequences. This is surprising given the importance attributed to director independence in many aspects of the listing rules (as well as other regulatory contexts in Hong Kong, including the Code on Takeovers and Mergers). This stands in high contrast to the approach taken to the declaration and undertaking given by directors, and the declarations of independence for the purposes of the listing rules required to be given by sponsors and independent financial advisers, each of which is provided on a form that is made subject to section 384(3) of the SFO thus creating an additional layer of liability - breach of section 384 is an offence. It is appropriate to bring the facts stated by a director in a written confirmation to the SEHK under section 384(3) liability because this provides the SEHK with greater certainty as to the veracity of the facts when it assesses a director's independence, and brings an appropriate degree of accountability to the individuals that are making the relevant representations.

The foregoing leads to Recommendation C4.5.3 «Facts regarding director independence».


Содержание отчета

Executive summary
Executive Summary I Key Findings
Executive Summary II Summary of Recommendations
Executive Summary III Approach to the Study
Executive Summary IV Abridged Text of the Analysis

1 Introduction to the study and its purposes
1.1 Purpose of this Report
1.2 The development of CG in Hong Kong
1.2.1 Domestic drivers
1.2.2 Global drivers
1.3 Structure of this Report
1.3 Structure of this Report
1.3.1 Methodology
1.3.2 Analysis
1.3.3 Recommendations
1.4 Scope and limitations of this Report
1.5 Next steps

2 Methodology
2.1 Scope
2.1.1 CG concepts
2.1.2 CG Geographic reach
2.1.3 CG mechanisms
2.2 Work process
2.2.1 Data collection
2.2.2 Initial data organization
2.2.3 Oral evidence
2.2.4 Parity check
2.2.5 Analysis
2.2.6 recommendations

3 Discussion and analysis of jurisdictions studied
3.1 Overarching considerations
3.1.1 Thematic topics
3.1.2 Trends in regulating CG standards
3.1.3 The role of culture
3.1.4 The methodology of assessment
3.1.5 Cost-benefit considerations
3.1.6 Maintaining competitiveness
3.1.7 Effectiveness
3.2 Non-locally incorporated companies
3.2.1 Application of local laws and regulations
3.2.2 Cross border enforcement and cooperation
3.3 Information
3.3.1 Legal status of CG disclosures
3.3.2 Disclosure of listing rule compliance
3.3.3 Board evaluation
3.3.4 Audit committee
3.4 Involvement
3.4.1 Shareholder stewardship
3.4.2 Shareholder votes
3.4.3 Remuneration
3.4.4 Changes of control
3.5 Equality
3.5.1 Voting rights generally
3.5.2 Weighted voting rights
3.6 Accountability
3.6.1 Information disclosures generally
3.6.2 Listing rules
3.6.3 Board refreshment
3.6.4 Appointment of independent directors
3.7 Effectiveness
Part A - CG system design
3.7.1 Impact of regulatory design
3.7.2 Policy development agencies
3.7.3 Enforcement agencies
3.7.4 Audits of public companies
3.7.5 Duties of directors
3.7.6 Role of fiduciary law
Part B - Specific actions
3.7.7 Differentiation of CG requirements
3.7.8 Listing regime standards upon entry
Part C - Independent directors
3.7.9 Determination of independence
3.7.10 Requirements relating to INED performance
3.7.12 Empowerment of INEDs - controlling shareholders
Part D - Other items
3.7.13 Whistle-blowing
3.8 Coda

4 Recommendations
Introduction and approach to the recommendations
Part A - The board
4.1 Processes
4.2 Independent directors
4.3 CG standards
Part B - Enforcement
4.4 Shareholders
4.5 CG disclosures
4.6 Regulators
4.7 Ex ante mechanisms
Part C - Architecture and policy
4.8 Architecture
4.9 Policy
4.10 Summary tables

5 Concluding remarks
5.1 The Recommendations
5.2 The Hong Kong market

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