On 16 April 2021, the Stock Exchange of Hong Kong Limited (“HKEX”) published a consultation paper on the Review of Corporate Governance Code and Related Listing Rules1 (the “HKEX Consultation Paper”) setting out proposals aimed at enhancing directors’ independence, board diversity and ESG disclosure and standards (among others). The HKEX also proposes to revise the structure and improve the readability of the Corporate Governance Code and Corporate Governance Report set out in Appendix 14 to the HKEX’s Main Board Listing Rules and Appendix 15 to the GEM Listing Rules (the “Corporate Governance Code”).
Proposed Changes to HKEX Listing Rules and Corporate Governance Code
Culture of HKEX issuers
The HKEX proposes to introduce a new code provision to require an issuer’s board to align the company’s culture with its purpose, value and strategy. It will provide guidance to (a) explain the board’s role in “culture”; (b) set out the key elements commonly identified in a sound culture; and (c) recommend key issues which may be helpful to stakeholders in understanding a company’s culture.
The Consultation Paper notes that a sound culture commonly features the following elements; (a) the board is responsible for setting the company’s culture and ensuring it is embedded at all levels of the organization; (b) periodic reviews of the culture by the board; (c) facilitating effective communication and challenge to encourage expression of a range of views; and (d) financial and non-financial incentives to promote the company’s culture.
In order to promote the importance of anti-corruption and whistleblowing, which are essential to establishing a healthy corporate culture, the HKEX proposes to: (a) introduce a new code provision requiring issuers to establish an anticorruption policy; and (b) upgrade a recommended best practice requiring issuers to establish a whistleblowing policy to a code provision under the Corporate Governance Code. The HKEX will provide further guidance to assist issuers’ compliance with the new requirements, which will set out the factors that need to be taken into consideration when formulating anti-corruption and whistleblowing policies.
The HKEX reminds issuers that they are currently required to disclose such policies or information on a “comply or explain” basis subject to materiality under the Environmental, Social and Governance (“ESG”) Reporting Guide as set out in Appendix 27 to the HKEX’s Main Board Listing Rules and Appendix 20 to the GEM Listing Rules (“ESG Guide”).