New Analysis of Hong Kong Corporate Governance Disclosure Practices

In recent years, there has been an increasing emphasis on corporate governance practices in Hong Kong. The Stock Exchange of Hong Kong Limited (the "Exchange") has been actively monitoring and analysing the disclosure practices of listed companies to ensure compliance with the Corporate Governance Code.

Assessing Compliance and Disclosure

In September 2016, the Stock Exchange of Hong Kong Limited (the “Exchange) issued its third analysis of the corporate governance disclosure practices of listed companies in Hong Kong. Hong Kong’s listed companies are governed by a “comply or explain regime” whereby they should either comply with the Corporate Governance Code’s provisions or provide an explanation where compliance has not taken place. A sample of 81 listed companies in this third round of analysis (all with a financial year end of June 30 2015) was taken and the result was 23% of the companies reported full compliance with 75 Code provisions. 97% of the listed companies sampled were able to comply with at least 70/75 of Code provisions.

The 5 areas of lowest compliance were found to be:

1. separating the roles of chairman and chief executive (56% compliance by the sample taken);
2. non-executive directors should be appointed for a specific term, subject to re-election (73% compliance by the sample taken);
3. non-executive directors should regularly attend and participate in board meetings and general meetings (81% compliance by the sample taken);
4. the chairman should attend the annual general meetings (85% compliance by the sample taken);
5. establishment of a nomination committee (to nominate directors to the board) chaired by the chairman or an independent non-executive director (91% compliance by the sample taken).

Enhancing Compliance and Explanations

The Exchange concluded that the quality of explanations for non-compliance with provisions varied – some were “informative” but unfortunately many were cited as leaving “room for improvement”. Explanations that left room for improvement were criticized for being boilerplate, vague, and repeated year after year. The Exchange reminded all listed companies that a failure to comply with any provision of the Code without providing a considered reason amounts to a breach of the Listing Rules for both main board and GEM-listed companies.

By closely examining the analysis report, companies can gain valuable insights into the current state of corporate governance practices in Hong Kong. This information empowers them to address areas of low compliance and enhance their governance frameworks, fostering a culture of accountability and trust within their organisations.

For an in-depth look at this report, please click on this link:

http://www.hkexnews.hk/reports/corpgovpract/Documents/CG_Practices_201506_e.pdf