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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Четверг, 30 мая 2019 апдейт:

4. Recommendations. 4.1 Processes

C 4.1.1 Board evaluation

Step required
Amend section B of the CG Code and the Corporate Governance Report.

Recommendation level

Topic addressed
Mechanisms that facilitate shareholders being given insight to the operations, and the effectiveness of the operations, of the board to assist shareholders in exercising their rights, including in relation to voting on director appointments.

Details of recommendation

1.The existing Recommended Best Practice (RBP) B.1.9 to be escalated into a code provision that specifies:
-the board should undertake an annual evaluation;
-the evaluation should be based on a policy adopted by the board as to the terms of reference for the evaluation;
-the policy should include a policy on the involvement of INEDs or external advisers in the evaluation;
-the policy and any adjustments to it to be published not less than annually and/or made available on the issuer's website.

2.The Corporate Governance Report to be amended to require an annual disclosure as to how the issuer has complied with the new code provision. The following matters will need to be stated or explained:
-the scope of evaluation including the high-level (i.e. non-commercial) metrics used to assess or define performance;
-the manner in which the evaluation was undertaken;
-whether any recommendations have been made to improve board performance;
-whether INEDs or external advisers were involved in the evaluation exercise.

3.A new RBP to be introduced that suggests:
-a board consider appointing a committee comprised of a majority of INEDs to undertake the evaluation exercise;
-a board consider appointing external assistance not less than every three years.

4.The above RBP should be reviewed after a suitable settling in period to determine if it should be elevated to a code provision.

Attendant considerations
How much detail should be imposed on, or required in relation to, a board evaluation.
Setting the level such that compliance with the requirement provides an opportunity for catalyzing change as opposed to being merely another item for disclosure.
The required disclosure would be subject to section 384(3) of the SFO if recommendation A4.5.1 «Legal status of CG-related disclosures» were implemented.

Jurisdiction references
UK (CG Code B.6). Singapore (CG Code). China (CG Code).

Section 3 reference
3.3.3 Board evaluation.

A 4.1.2 Transparency of performance related executive remuneration

Step required
Amend CG Code section B.1 / L.

Recommendation level

Topic addressed
Performance-linked executive remuneration.

Details of recommendation
1.Amend CG Code section B.1 / L to require disclosure in the Corporate Governance Report of the considerations taken into account by the remuneration committee where performance- linked remuneration is proposed.
2.The CG Code to incorporate, for reference only to assist in the report suggested above, a schedule with alternative approaches to designing performance-linked pay similar to that found in the UK CG Code Schedule A «The design of performance-related remuneration for executive directors».

Attendant considerations
The required disclosure would be subject to section 384(3) of the SFO if recommendation A4.5.1 «Legal status of CG-related disclosures» were implemented.

Jurisdiction references
United States.

Section 3 reference
3.4.3 Remuneration

A 4.1.3 Disclosures of the audit committee

Step required
Amend the listing rules (MBLR 13.49(1)-(3)) and CG Code (Corporate Governance Report).

Recommendation level

Topic addressed
The scope of disclosures made by the audit committee in respect of the issuer's financial reports (as opposed to the board reporting on the audit committee).

Details of recommendation
1.The listing rules to require the audit committee to itself make a disclosure in relation to the issuer's financial reports, including as to its role in relation to the external audit process and the work it has undertaken to discharge its responsibilities.
2.The audit committee to report annually on all items currently provided for in CG Code C.3.3.

Attendant considerations
The scope of matters to be covered in the report need to be considered further - reference should be made to the disclosures required to be made by the audit committee in the United States post SOX.

Jurisdiction references
UK (FRC's Guidance on Audit Committees 2016).
United States (Securities and Exchange Commission (SEC) rules implementing Sarbanes-Oxley Act of 2002 (SOX)).

Section 3 reference
3.3.4 Audit committee

A 4.1.4 Status of the audit committee

Step required
Amend the CG Code (C.3).

Recommendation level

Topic addressed
The independence from the full board of the relationship between the audit committee and the auditor as regards the appointment, compensation, and oversight of the auditor.

Details of recommendation
1.The CG Code to include a comply or explain Code Provision that a board should fully delegate to its audit committee powers that make the audit committee primarily and directly responsible in relation to the appointment, compensation, and oversight of the external auditor.
2.As the board technically retains its legal obligations in respect of any delegated authority, the board should be required to separately explain (1) how it has exercised its power to delegate, (2) how it has exercised its legal obligations to oversee the authority it has delegated and (3) whether it has revoked any aspect of the delegated authority and, if so, why.
3.Where the board has not followed this Code Provision, it must explain the factors that it considers relevant to the decision not to delegate full authority to the audit committee.
4.The possibility of making this a mandatory listing rule requirement should be kept under review.

Attendant considerations
While full delegation to the audit committee is intended to improve the committee's independence and accountability, it also places more importance on the quality, independence and accountability of the INEDs (and other NEDs) comprised in it. In this regard, see recommendations A4.2.1 «Sufficient INED time», A4.2.2 «Basis of INED remuneration», A4.2.3 «INED training», C4.2.4 «NED Code and INED reporting», and C4.5.3 «Facts regarding director independence».
The required disclosure of the board would be subject to section 384(3) of the SFO if recommendation A4.5.1 «Legal status of CG-related disclosures» were implemented.
An alternative would be to make this a recommended best practice, however, this would substantially weaken the effect of the recommendation as deviation from it would no longer need to be disclosed.

Jurisdiction references
United States (SEC rules implementing SOX).

Section 3 reference
3.3.4 Audit committee.

No recommendation
Board refreshment

Issue considered
Whether boards should be subject to additional requirements as regards the refreshment of the board.

Despite interviewees providing limited positive support, developments in the UK in favour of board refreshment, and to a mixed extent the United States, there does not appear to be a sufficient shareholder mandate for changing the present position in Hong Kong. There is no such requirement in Singapore or China either.

Section 3 reference
3.6.3 Board refreshment.


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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