Hong Kong plans to limit directors to 6 board seats each to improve corporate governance

Hong Kong's stock exchange plans to take the hatchet to directorships to whittle down the concentration of board seats among the city's corporate elites to improve governance, a challenge that its chief executive called a "perpetual work in progress."

Hong Kong Exchanges and Clearing Limited (HKEX) is seeking public feedback on its plan to limit independent directorships to a maximum of six per person, each tenure capped at nine years, according to a statement. The consultation is open until August 16.

Starting from January 2025, listing applicants will be barred from appointing a director who already sits on six boards, according to the plan. Existing publicly traded companies will be given three years until 2028 to rectify the "overboarding" among their directors.

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"It is important that directors have the time and capacity to meet all of their responsibilities, including when there are unforeseen events and in times of crisis," HKEX said. Independent non-executive directors (INEDs) "in particular have to be able to devote sufficient time and attention to the company's affairs. They are expected to act in the interest of the company and shareholders as a whole and should, among other responsibilities, exercise independent judgment, scrutinise the issuer's performance and take the lead where potential conflicts of interest arise."

Bonnie Chan Yiting, CEO of Hong Kong Exchanges and Clearing Limited (HKEX), during an interview on 14 June 2024. Photo: Dickson Lee alt=Bonnie Chan Yiting, CEO of Hong Kong Exchanges and Clearing Limited (HKEX), during an interview on 14 June 2024. Photo: Dickson Lee>

Hong Kong is catching up with regional bourses as it bolsters its governance standards ahead of an expected influx of new listings, as an expected drop in interest rates rekindles interest among start-ups to raise funds through initial public offers (IPOs).

"We are constantly looking for improvements," said the HKEX's chief executive Bonnie Chan, adding that corporate governance is a "perpetual work in progress" where "one always wants to be better".

The exchange has its work cut out. Two dozen of Hong Kong's corporate figures sit as INEDs on the boards of 181 companies between them, about 7 per cent of the stocks listed on the HKEX, according to the exchange's data. Five of the most active directors each sit on the boards of 10 companies, or more.

Abraham Razack, also known as Abraham Shek Lai-him, one of Hong Kong's busiest corporate personalities, at his office in Central on 11 August 2023. Photo: Jonathan Wong alt=Abraham Razack, also known as Abraham Shek Lai-him, one of Hong Kong's busiest corporate personalities, at his office in Central on 11 August 2023. Photo: Jonathan Wong>

Abraham Shek Lai-him is one of Hong Kong's busiest corporate personalities, serving as an INED in about 16 public companies. He took home over HK$5 million (US$639,000) in fees in 2018, according to Bloomberg's data. That did not include directorships in scores of private companies, and memberships of a dozen statutory bodies and government committees.

"I do not need to defend myself as I can manage to contribute time and effort to serve these companies," said Shek, also known as Razack, when contacted by the Post regarding the HKEX's plan.

"Just adding a hard cap is not the most effective way to confirm that the directors are playing their roles decently," he said, adding that he would follow the HKEX's rules if the proposal were to be implemented.

On the mainland's stock exchanges of Beijing, Shanghai and Shenzhen, concurrent INED positions are capped at three. Britain limits full-time executive directors to one non-executive directorship in a FTSE 100 company.

Singapore has mandated a third of the boards of all publicly traded companies to be composed of INEDs, each for up to nine years, from 2022. Malaysia also has a nine-year limit, with an absolute cap of 12 years implemented in 2022.

Overboarding is also an area of focus for institutional investors. The Hong Kong government has a guideline for not appointing a person to serve as a non-official member on more than six advisory and statutory bodies at any one time to ensure a reasonable distribution of workload.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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