Update to Hong Kong Corporate Governance Code and related Listing Rules

Below are key insights from the consultation conclusion on the Corporate Governance (“CG”) Code and related Listing Rules (the “Conclusion”), published by the Exchange in December 2024. This initiative underscores our commitment to strong corporate governance, vital for the long-term success of businesses in today's competitive environment.

The enhancements aim to strengthen corporate governance in Hong Kong while meeting the needs of issuers. The focus is to improve corporate governance through diverse perspectives, board effectiveness, risk management, internal controls, and dividend policy. The key amendments of the Conclusion are as follows:

Board effectiveness:

(1) Lead Independent Non-executive Director (INED) designation

Issuers without an independent board chair SHOULD appoint a Lead INED to enhance shareholder engagement. The amended Mandatory Disclosure Requirement will require the issuers to disclose the Lead INED and the board’s engagement with shareholders in the CG report.

(2) Mandatory director training

All directors to receive mandatory continuous professional development focused on the

1. the roles, functions and responsibilities of the board, its committees and its directors, and board effectiveness;
2. issuers’ obligations and directors’ duties under Hong Kong law and the Listing Rules, and key legal and regulatory developments (including Listing Rule updates) relevant to the discharge of such obligations and duties;
3. CG and ESG matters (including developments on sustainability or climate-related risks and opportunities relevant to the issuer and its business);
4. risk management and internal controls; and
5. updates on industry-specific developments, business trends and strategies relevant to the Issuer.

First-time directors who have not served as a director of an issuer in the three years preceding their appointment are required to complete 24 hours of training within 18 months of their appointment. Those with relevant prior experience need to complete 12 hours of training within 18 months of their appointment.

Mandatory disclosure is required in the CG Report, including the total number of hours, the format or mode of training (such as external, internal provider, or self-study), and the training topics, etc.

(3) Board performance review

Issuers must conduct, on the board as a whole, a formal evaluation of board performance at least every TWO years with specific disclosures in the CG Report including whether the review was conducted internally or by externally service providers, the scope of review, findings, results, significant areas of improvement identified etc.

(4) Disclosure of board skills matrix

Issuers must maintain and disclose a board skills matrix that highlights the collective skills and diversity of the board in its CG report.

(5) Over-boarding and directors' time commitment

For existing issuers, hard cap on over-boarding (i.e. an INED must not concurrently hold more than six listed-issuer directorships), with a three-year transition period and this rule will come into effect from the first AGM held on or after 1 July 2028.

For IPO applicants, from 1 July 2025 onwards, IPO applicants will not be permitted to have overboarding INED(s) on the board upon listing.

Nomination committees must assess and disclose each director's time commitment and contribution annually.
 

Board and workforce diversity policies

Issuers must implement diversity policies for both the board and workforce, including disclosing gender ratios for senior management and staff. The nomination committee must include at least one director of a different gender and review policies annually.

Risk management and internal controls

Issuers are required to conduct annual reviews of their risk management and internal control systems, providing specific disclosures about processes, findings, and any remedial actions taken.

Dividends

Issuers must disclose their dividend policy and the board's decisions regarding dividends, ensuring transparency in capital allocation strategies.

In addition to the key changes, effective 1 July 2025, minor amendments to the Listing Rules will improve clarity and consistency. These include establishing a record date for general meetings, codifying disclosures on modified auditors' opinions, and clarifying the provision of monthly board updates. Requirements for the nomination, audit, and remuneration committees will also be aligned concerning their written terms of reference and temporary deviations.

Effective date

The new requirements will apply to CG Reports and annual reports for financial years commencing on or after 1 July 2025. Issuers may refer to the following table for the effective dates of the new requirements (except for those requirements that have transition periods).

Next Steps

As the revised regulations are set to take effect starting from 1 July 2025, market participants may find it prudent to consider the following:

Should you prefer to discuss these developments further or explore tailored supporting options, we are happy to assist.

This material is for general information purposes only and cannot be relied upon as professional advice in an individual case.

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