Hong Kong Stock Exchange to toughen governance code

New rules to include mandatory policies on board diversity

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The Hong Kong Stock Exchange (HKEx) will require all companies listed on the exchange to boost board diversity by seeking to recruit more women, minorities and others to their boards after a public consultation period found strong support for the measure, the exchange says.

Starting September 1, 2013, HKEx will alter its corporate governance code to state that the board of a company listed on the exchange ‘should have a policy concerning diversity of board members, and should disclose the policy or a summary of the policy in the corporate governance report.’

The code says board diversity ‘can be achieved through consideration of a number of factors, including but not limited to gender, age, cultural and educational background, or professional experience. Each issuer should take into account its own business model and specific needs.’

The decision to change the code comes after two months of public consultation that elicited 139 responses from various issuers, institutional investors, professional groups and other market participants, the exchange says in a news release.

According to the papers issued during the public consultation, only 10.3 percent of all directors of Hong Kong-listed companies are women, while 40 percent of the companies don’t have a single woman on their boards. Thirty-seven percent of boards have one female director, the paper says.

The paper also addresses the concentration of board members within a certain age group, with 67 percent of directors ‒ or 7,075 directors from a total of 10,601 ‒ are between the ages of 41 and 60, while 23 percent are more than 60 years old.

Issuers who responded and agreed with the proposed changes to the code include HSBC, Cathay Pacific Airways, Standard Chartered and Cheung Kong, according to the exchange.

Institutional investors who responded favorably include CalPERS, Hermes Equity Ownership and the Ontario Teachers’ Pension Plan Board. BlackRock, Deloitte Touche Tohmatsu and KPMG are among the 14 market practitioners who replied.

‘We note the overwhelming market support for the exchange to promote board diversity and to introduce measures in the code,’ says Mark Dickens, head of listing for HKEx, in the release.

‘The amendments are not intended to prescribe particular corporate structures or to require compliance with hard and fast rules. The disclosure, or the explanation, is aimed at securing sufficient information so that investors and stakeholders can understand the company’s performance and governance practices, and act accordingly.’