The Stock Exchange of Hong Kong Limited (the "Exchange") recently published a consultation paper outlining various proposed amendments to the Corporate Governance Code and Corporate Governance Report (the "Code")1, as well as the related amendments to the Main Board Listing Rules (MB Rules) and the GEM Listing Rules (GEM Rules). Some of the proposals may attract more attention which include:

  • A heightened drive on gender diversity - it will be a Rule requirement that a single gender board is not acceptable and there will be a mandatory disclosure requirement (MDR) that all issuers must set and disclose numerical targets and timelines for achieving gender diversity at both: (a) board level; and (b) across the workforce (including senior management). As highlighted in the consultation paper, approximately 32.9% of 2,559 listed issuers in Hong Kong have no female directors. These 843 issuers would have a three-year transition period to comply with the proposed requirement. Board diversity information (age, gender and directorship) will also be displayed on the Hong Kong and Exchanges Clearing Limited (HKEX) website.
  • A reinforcement on the role of independent non-executive director (INED) - it will be a Rule requirement that the nomination committee of an issuer's board must be chaired by an INED, and there will be a Code Provision (CP) requirement that re-election of a long-serving INED must be approved by the independent shareholders.

The Exchange also indicated its intention to strengthen an issuers' disclosure on Environmental, Social and Governance (ESG) to include mandatory climate-related disclosures in the near future. In our Legal Update dated 21 April 2021 which can be viewed here, we discussed the consultation proposals on ESG and gender diversity against the backdrop of growing interest in similar proposals among regulators around the world. In this Legal Update, we will discuss the details of certain key proposals from an issuer's perspective.

The consultation period will end on 18 June 2021. If adopted, the proposals will be implemented for the financial years commencing on or after 1 January 2022 except for the proposed changes on long-serving INED (see item 4 below), which will be implemented for the financial years commencing on or after 1 January 2023.


Proposed Changes



Corporate Governance


Corporate Culture

The board should establish a culture in alignment with the issuer's purpose, value and strategy.

A new CP (Code Provision) requirement.

Further Guidance will be issued explaining the board's role in “culture”; key elements of a sound culture; and recommended disclosure.


Anti-Corruption and Whistleblowing Policies

The issuer should establish an anti-corruption policy and a whistleblowing policy.

An upgrade to CP requirement from the current RBP (recommended best practice) for anti-corruption policy and a "comply or explain" requirement under the ESG Guide for whistleblowing policy.

Further Guidance will be issued explaining the elements to be taken into account in formulating the policies, which are expected to contain commitment and having a committee or personnel responsible for their implementation.


Communication with Shareholders

The issuer shall state in the Corporate Governance Report (CG Report) its shareholders' communication policy, as well as steps taken to solicit views of shareholders and stakeholders; and a statement of the issuer's review of the implementation and effectiveness of the policy conducted.


A new MDR (mandatory disclosure requirement).



Board Independence and Other Board-related Matters




Independent Non-Executive Directors (INEDs)

(a) Re-election of long-serving INED (i.e. having served more than nine years on the board) requires independent shareholders' approval. The issuer must also explain in the related circular to its shareholders why the board (or the nomination committee) believes that the director is still independent and should be re-elected.


The independent shareholders' approval is a new CP requirement but there seems nothing to preclude the existing controlling shareholders from voting for such INED.

(b) Where all the INEDs are long-serving directors, the issuer should appoint a new INED at its forthcoming annual general meeting, and should disclose the length of tenure of each existing INED in the related notice or circular on a named basis.

It is a new CP requirement which the issuer must "comply or explain" but the discretion of whether or not to vote for any new INED proposed by the board still rests with the shareholders.

(c) Issuers should not grant equity-based remuneration (e.g., share options or grants) with performance-related elements to INEDs.

A new RBP requirement.





(a) Diversity is not considered to be achieved for a single gender board.


A new Rule requirement which is believed to be in line with global trend2.

(b) The issuer shall state in the CG Report its policy on board diversity with measurable objectives and progress on achieving those objectives; and shall further disclose and explain:

(i) how and when gender diversity will be achieved in respect of the board and across the workforce (including senior management);

(ii) the numerical targets and timelines set for achieving gender diversity on its board and across the workforce (including senior management); and

(iii) what measures the issuer has adopted to develop a pipeline of potential successors to the board and senior management to achieve gender diversity.

A new MDR in which the gender diversity requirement is extended to the entire workforce of the issuer, and we are yet to see what numerical targets and timelines would be regarded as acceptable to meet the regulator's and or the market's expectation.

There is a special emphasis on "senior management" which is not defined but the term was discussed extensively in the August 2020 consultation paper on Exchange's disciplinary powers and sanctions, where it is proposed to include the following: (a) any person occupying the position of chief executive, supervisor, company secretary, chief operating officer or chief financial officer, by whatever name called; (b) any person who performs managerial functions under the directors' immediate authority; or (c) any person referred to as senior management in the listed issuer's corporate communication or any other publications on the Exchange's website or on the listed issuer's website.

(c) The board should review the implementation and effectiveness of the issuer's policy on board diversity on an annual basis.

A new CP requirement.


Chairman of the Nomination Committee (NC)

The issuer must establish a NC chaired by an INED.


A new Rule requirement.


Term of Non-Executive Directors (NEDs)

Appointment of a NED is no longer required to be for a specific term.


NEDs will continue to be subject to retirement by rotation at least once every three years, as with every other director.


Directors' Attendance

The issuer must state in the poll results announcement directors' attendance at the general meeting


A new Rule requirement.


ESG Matters3


1. The Code will be re-organised to become one "Corporate Governance Code" which sets out, at the upfront, the mandatory requirements for disclosure (MDRs) in an issuer's Corporate Governance Report, to follow by different topics where relevant principles of good corporate governance, code provisions (CPs) disclosing on a “comply or explain” basis and certain recommended best practices (RBPs) are grouped together. A new CG guidance letter will be issued explaining how the principles in the Code are applied and reported on.

2. Please see our Legal Update of 21 April 2021which can be viewed here.

3. We have in our Legal Update of 21 April 2021 discussed details of the consultation proposals on ESG which can be viewed here.

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