At Issue
12/14/2011 10:25:43 PM EST
New listing rules amendments on corporate governance
Edwin Kwok examines the latest amendments by the Stock Exchange on the corporate governance requirements for listed companies .under the Listing Rules.
Posted by LexisNexis

On 28 October 2011, The Stock Exchange of Hong Kong Limited (the ‘Exchange’) published conclusions to its 2010 Consultation Paper on Review of the Code on Corporate Governance Practices and Associated Listing Rules. This followed the receipt of 118 submissions from issuers, market practitioners, professional and industry associations, institutional investors and individuals.

In line with the corporate governance regimes in many other countries, the Exchange has adopted the ‘comply or explain’ principle as a central element in its regulation of listed issuers. The ‘comply or explain’ principle was introduced through the Corporate Governance Practices Code (the ‘Code’), which was modelled on the UK Corporate Governance Code, forms Appendix 14 of the Rules Governing the Listing of Securities of the Stock Exchange (the ‘Rules’). Under the ‘comply or explain’ regulatory framework, issuers are governed by a combination of Rules, code provisions (CPs) and recommended best practices (RBPs) as follows:

• Rules are standards of corporate governance requiring mandatory compliance by all issuers. If an issuer breaches any of the Rules, it may lead to sanctions.
• CPs provide an issuer with the flexibility to either adopt them or not. If an issuer chooses not to adopt them, then it must explain the reasons for its failure to adopt them in its corporate governance report; and if an issuer does not comply with CPs, it is not a breach of the Rules and there is no sanction.
• RBPs are desirable best practices that an issuer is encouraged to comply with. If an issuer chooses not to comply, then it does not need to explain.

The conclusions will add a new section to the Code explaining the rationale of the ‘comply or explain’ principle. It will be expressly stated in the Code that deviations from CPs are acceptable ‘if the issuer considers there are more suitable ways for it to comply with the principles’. Shareholders should not consider departures from
CPs and RBPs as breaches, and issuers must consider their own individual circumstances, size and complexity of operations, and nature of the risks and challenges they face in formulating their corporate
governance practices, which should not be a ‘box ticking’ exercise.

The main areas of the conclusions are discussed below. Most of the Rule amendments will be effective on 1 January 2012, while amendments to the Code and some of the Rules will be effective on 1 April 2012.

Independent non-executive directors (INEDs)

The consultation recognised the importance of INEDs and the conclusions have adopted various proposals to increase INEDs’ participation in corporate governance matters. One major change is to upgrade the recommendation to a Rule that ‘at least one-third of the board of an issuer should be INEDs’. This will bring Hong Kong rules in line with PRC regulations. Issuers must comply with the new Rule by 31 December 2012, and there will be a 3-month grace period to appoint a sufficient number of INEDs if the number falls below one-third.

The roles of INEDs in the sub-committees of the board have been strengthened. There will be new Rules requiring a remuneration committee to comprise a majority of INEDs and be chaired by an INED. Similar changes will be made to the nomination committee, except that the nomination committee could be chaired by the chairman of the board instead of an INED and the changes will be CPs instead of Rules. The recommendation that shareholders should vote on a separate resolution to retain an INED, who has served on
the board for more than nine years, will be upgraded to a CP. In the circular nominating an INED for election to the board, a CP will be upgraded from an RBP to require the board to explain why the person is independent and should be elected. To assist INEDs to express their views independently, the current RBP that the chairman should at least hold meetings with non-executive directors (NEDs) annually (including INEDs), without executive directors being present, will be elevated to a CP.

The conclusions, however, rejected the proposal imposing a limit on the number of INED positions an individual may hold. This is different from the relevant PRC regulation stating that an individual can, in principle, only concurrently hold the post of independent directors in a maximum of five listed companies. The Exchange also
rejected the observation that INEDs should be elected by minority shareholders only.

Directors’ duties, time commitments and training

The conclusions have expanded the description of the scope of directors’ duties by expressly stating in Rule 3.08 that ‘at a minimum, directors are required to take an active interest in the issuer’s affairs, obtain a general understanding of its business and follow up anything untoward that comes to their attention’. To address the concern that the amendment may affect delegation of responsibilities, the new Rule clarifies that directors may delegate their functions, but doing so does not absolve them from the required levels of skill, care and diligence,
which follows the common law position. A note will be added to Rule 3.08 to state that directors are generally expected to be guided by the Guidelines for Directors issued by the Companies Registry and the Guide for INEDs published by the Hong Kong Institute of Directors (www.hkiod.com). To enhance protection on potential claims against directors in the performance of their duties, particularly if a director may have insufficient means to meet the claims, the recommendation that ‘an issuer should arrange appropriate insurance cover in respect of legal action against its directors’ will be upgraded to a CP.

On directors’ time commitments, the Code will, for the first time, include a new principle to require the board to regularly review the time required from a director to perform his/her responsibilities, and whether each director is spending sufficient time performing them. A new CP has been introduced to require directors to inform the board of any change to their significant commitments in a timely manner. The new amendment is substantially less stringent than the position initially proposed, and the board is not required under the new principle to disclose the results of its review to shareholders.

The current recommendation on directors’ training stating that ‘all directors should participate in continuous professional development to develop and refresh their knowledge and skills’ will be upgraded to a CP, with further amendments clarifying that issuers should place an appropriate emphasis on the roles, functions and duties of a director in arranging and funding suitable training for directors. Disclosure must be made in the corporate governance report on how each director complies with his/her training requirements. The proposal to set a minimum 8-hour professional training for directors in each financial year was, however, not adopted.

Board committees

Various changes will be made to strengthen the governance of the remuneration committee, nomination committee and audit committee. The proposal to require an issuer to establish a corporate governance committee was dropped, but a new mandatory disclosure requirement requiring an issuer to disclose the performance of corporate governance duties in its corporate governance report will be added to the Code.

Establishing a remuneration committee (with a majority of INEDs) with written terms of reference will be made a Rule requirement, whereas the requirement to establish a nomination committee (with a majority of INEDs) will be upgraded from an RBP to a CP. The Exchange’s 2009 review found that 63% of issuers did not have a nomination committee. Upgrading the establishment requirement from an RBP to a CP is expected to impact on a large number of issuers. To enhance transparency, new CPs will be added to require the terms of references of the two committees to be made available on both the issuer’s and the Exchange’s websites.

In relation to the operation of the committees, a new CP has been introduced to expressly permit the remuneration committee to perform an advisory role to the board, with the board retaining the final authority to approve executive directors’ and senior management’s remuneration. The RBPs ensuring the nomination committee has sufficient resources and is able to seek independent professional advice at the issuer’s expense have been upgraded to CPs. The current CP that audit committee members should meet the external auditor at least once a year will be increased to twice a year, and the audit committee’s terms of reference will require committee members to review arrangements for employees to raise concerns about improprieties in
financial reporting, internal control or other matters of the issuer.

Board meetings and procedures

The current Rules allow a director to vote on a board resolution for a proposed transaction with a company which he/she is beneficially interested in no more than 5% of that company’s issued shares or voting rights. The conclusions have rightly removed the 5% exemption on the basis that the principle on materiality in Rule 2.16 stating that ‘there is no benchmark for materiality of an interest nor may it necessarily be defined in monetary or financial terms’ should equally apply to directors.

To tackle the concerns that some directors, particularly INEDs and NEDs, often lack sufficient information and knowledge of the issuers’ affairs to effectively perform their duties and discharge their responsibilities, there will be a new CP requiring all members of the board to be provided with monthly updates, which should give a balanced and understandable assessment of the issuer’s performance, position and prospects in sufficient detail to enable the board as a whole and each director to discharge their duties. Information in the monthly update may be ‘sensitive’ or confidential, but it need not necessarily be price-sensitive information. If, however, the update reveals undisclosed price-sensitive information, the director will be precluded from dealing in the securities of the issuer until the information has been properly disclosed to the market, which the issuer ought to do so as soon as reasonably practicable under Rule 13.09.

On the attendance of board meetings by directors, the Code will be amended to require mandatory disclosure in the corporate governance report of the number of board or committee meetings a director attended and the number of these meetings attended by his/her alternate. Attendance by an alternate will no longer be counted as attendance by the director himself/herself and attendance by electronic means, such as telephonic or video conference, may be counted as physical attendance subject to the issuer’s constitutional documents and the law of the place of incorporation.

Shareholders’ meetings and communication

To further strengthen the existing requirement that each separate issue at a general meeting be proposed and considered by way of a separate resolution, the conclusions have adopted requirements of the Singapore Code to prohibit issuers from ‘bundling’ resolutions unless the resolutions are interdependent and linked, so as to form one significant proposal. The Rules now mandatorily require voting by poll at general meetings on all matters. The conclusions adopted a new Rule to allow voting by a show of hands if the chairman, in good faith, decides that the resolution relates purely to a procedural and administrative matter. Procedural and administrative matters are those that: (i) are not on the agenda of the general meeting or in any supplementary circular to members; and (ii) which relate to the chairman’s duties to maintain the orderly conduct of the meeting and/or allow the business of the meeting to be properly and effectively dealt with, while allowing all shareholders a reasonable opportunity to express their views. The Exchange will publish guidance to provide further examples of procedural and administrative matters as ‘frequently asked questions’ (FAQs) on its website.

A new Rule has been introduced to require shareholders’ approval at a general meeting to appoint an auditor or remove an auditor before the end of its term of office. A new CP will be included to require the issuer’s management to ensure external auditors attend annual general meetings. Mandatory disclosure by issuers of attendance at general meetings of each director in the corporate governance report will be required in the future.

To enhance shareholders’ communication, a new CP stating that issuers should establish a shareholder communication policy will be introduced. Issuers will be required to publish their constitutional documents on their websites and the Exchange’s websites, and the procedures for shareholders to propose a person for election as a director on their websites. Significant changes to constitutional documents require mandatory disclosure in the corporate governance report.

Company secretary

The current Rules on a company secretary’s qualifications are Hong Kong focused. Given that, nowadays, a substantial number of issuers principally operate in the PRC and jurisdictions outside Hong Kong, the conclusions will remove the requirement for a company secretary to be ordinarily resident in Hong Kong and repeal Rule 19A.16, so that PRC issuers’ company secretaries will need to meet the same requirement as other issuers. A company secretary is also required to attend no less than 15 hours of relevant professional training in each financial year. The implementation of the company secretary training requirements will be staggered according to the date of appointment of an individual as the company secretary of an issuer.

To qualify as a company secretary, the Exchange will consider either: (i) the academic or professional qualifications; or (ii) the relevant experience of a person when deciding whether the person is capable of discharging the functions of a company secretary. The conclusions clarified that the Exchange will consider the person’s: (i) length of employment with the issuer and other issuers; (ii) familiarity with the Rules and other relevant laws and regulations; (iii) relevant training taken and/or to be taken; and (iv) professional qualifications in other jurisdictions, in assessing his/her ‘relevant experience’. A person may qualify as a company secretary if the Exchange is satisfied that he/she has the relevant experience despite not being a member of the Hong Kong Institute of Chartered Secretaries, a solicitor, barrister or professional accountant.

Conclusion

The amendments adopted by the conclusions must be welcomed. Most of the changes are not over-prescriptive as good corporate governance should not be imposed through a ‘one size fits all’ approach. Issuers should note that the Code will remind issuers that they should formulate a corporate governance framework that best suits them based on their own individual circumstances, which essentially is the spirit underlying the ‘comply or explain’ principle. Practitioners or compliance advisors advising issuers are advised to familiarise themselves with the amendments, particularly their respective implementation dates, in advising their clients on the new
requirements and ensuring their corporate governance reports satisfy the new mandatory disclosure requirements.

Edwin Kwok
Solicitor
Paul Hastings

 

The full text of the consultation conclusions, including the implementation dates of each amendment, is available under the ‘Home > News & Consultations > Market Consultations’ section on the Exchange’s website at: www.hkex.com.hk.

 

企業管治相關上市規則修訂
郭偉炎研究了聯交所對上市公司企業管治相關《上市規則》所作的最新修訂。

 

2011年10月28日,香港聯合交易所有限公司(下稱「聯交所」)刊發《有關檢討企業管治守則及相關上市規則的諮詢總結》(下稱《諮詢總結》)。諮詢期內,聯交所共收到118份來自上市發行人、市場參與者以及專業及業界組織、機構投資者及個人的回應意見。與許多其他國家之企業管治範疇一致,聯交所採納「不遵守就解釋」原則作為監管上市發行人企業管治的核心原則。聯交所在《企業管治常規守則》(下稱《守則》)中闡明了「不遵守就解釋」原則。《守則》是依照《英國企業管治守則》制定,構成《香港聯合交易所有限公司證券上市規則》(下稱《上市規則》)附錄十四。在「不遵守就解釋」的監管框架下,聯交所採取《上市規則》、《守則》條文及建議最佳常規三者結合並用的監管模式,其中:

• 《上市規則》-《上市規則》條文所要求的企業管治標準是適用於所有發行人的強制規定,如有違反可招致聯交所的制裁。
• 《守則》條文-發行人可靈活選擇遵守與否,如發行人決定不遵守,則須在企業管治報告內解釋原因。發行人選擇不遵守《守則》條文並不構成違反《上市規則》,不會遭受制裁。
• 建議最佳常規-建議最佳常規是明確訂明發行人可取的最佳常規,鼓勵發行人遵守,但不遵守亦毋須解釋。

《諮詢總結》指明,《守則》將新增章節說明「不遵守就解釋」原則的用意。《守則》將訂明,「倘若發行人認為有更合適的方法遵守這些原則」,則可偏離《守則》條文。股東不應將不遵守《守則》條文及建議最佳常規視作違反這些原則。為避免逐項對照了事,發行人必須考慮其本身的情況、經營規模和複雜程度,以及所面對的風險和挑戰的性質,以制定最適合自己的企業管治常規。

以下討論內容為《諮詢總結》中的重要事項。《上市規則》的大部分修訂將於2012年1月1日生效,而《守則》及若干《上市規則》的修訂將於2012年4月1日生效。

獨立非執行董事

諮詢文件認同獨立非執行董事的重要性,《諮詢總結》亦採納了多項有關增加獨立非執行董事參與企業管治的建議。其中一項主要修訂是將 「獨立非執行董事須佔董事會人數至少三分之一」這一建議升級為《上市規則》條文。此項修訂將使香港《上市規則》與中華人民共和國相關法規相符。發行人必須於2012年12月31日或之前遵從此條文。在發行人未能符合此項規定時,給予其三個月時間委任足夠人數的獨立非執行董事,以符合三分之一的人數規定。

獨立非執行董事在董事會轄下的委員會所任之角色得到加強。《上市規則》將增設條文,規定薪酬委員會大部分成員須為獨立非執行董事,並須由獨立非執行董事擔任主席。提名委員會亦將作出類似修訂,惟提名委員會主席除獨立非執行董事外亦可由董事會主席擔任,而有關修訂將以《守則》條文而非《上市規則》之形式訂明。關於由股東以獨立決議案表決是否續聘已任職超過九年的獨立非執行董事的建議最佳常規,將升級為《守則》條文。聯交所亦將訂明發行人應在提名個別人士參加獨立非執行董事選舉的通函中,列明董事會認為應選任該人的理由及認為其屬獨立人士的原因的建議最佳常規,將升級為《守則》條文。為協助獨立非執行董事獨立表達其意見,主席須在執行董事不在場的情況下與非執行董事(包括獨立非執行董事)至少每年開會一次的現行建議最佳常規,將升級為《守則》條文。

然而,《諮詢總結》拒絕採納限制個人可擔任獨立非執行董事職務的數目的建議。這與規定個人最多可同時擔任五家上市公司非執行董事的相關中國法規不同。聯交所亦拒絕採納要求獨立非執行董事只能經由少數股東選出的意見。

董事職責、投入時間及培訓

《諮詢總結》擴充了《上市規則》第3.08條的規定,以強調董事職責。現行規定指,董事「至少須積極關心發行人事務,並對發行人業務有全面理解,若知道有任何失當事宜亦必須跟進」。為應對有關修訂可能影響職責委派,新規則進一步訂明,董事可將職責指派他人,但此舉不會免除他們須運用應有技能、謹慎和勤勉行事的責任,即在普通法下應負的責任。《上市規則》第3.08條將加入附註為董事提供指引,闡明可參照公司註冊處印發的《董事責任指引》及香港董事學會(www.hkiod.com)印發的《獨立非執行董事指南》。為進一步對董事履行職責所提出之潛在索償提供保障,尤其考慮到董事可能無法支付有關索償,「發行人應就其董事可能會面對的法律行為作適當的投保安排」的建議最佳常規,將被升級為《守則》條文。

關於董事投入的時間,《守則》將首次增設原則,指明董事會須定期檢討董事履行職責的所需時間,以及其是否付出充足時間履行職責。《守則》條文亦新增條文,指明董事須將其重大承擔的任何變動及時通知發行人。《諮詢總結》所採納之新修訂較原本的建議大為寬鬆,董事會亦未被要求向股東披露依據新增原則進行檢討之結果。

關於董事培訓中訂明「所有董事應參與持續專業進修培訓,以發展和增進本身的知識和技能」的現行建議將升級為《守則》條文,並進一步訂明,發行人應適當考慮董事的角色、職責和責任,以期為他們安排及資助合適的培訓。發行人須在企業管治報告內披露各董事如何遵守有關培訓要求。然而,董事在每一財政年度須接受不少於八小時專業培訓的建議未獲採納。

董事會轄下的委員會

本次各項修訂將加強對薪酬委員會、提名委員會以及審核委員會的管治。雖然關於要求發行人設立企業管治委員會的建議未被採納,但《守則》中將新增強制性信息披露要求的條文,要求發行人須在企業管治報告內披露對其履行企業管治職責的情況。

《上市規則》中將新增以下規定:發行人須設立薪酬委員會,大部分成員須為獨立非執行董事,並須以書面訂明薪酬委員會的職權範圍。至於設立提名委員會(且大部分成員須為獨立非執行董事)的建議最佳常規,將升級為《守則》條文。根據聯交所2009年所作的檢討,63%的發行人並未設立提名委員會,而將設立委員會的要求由建議最佳常規升級為《守則》條文,預料會對眾多發行人造成影響。為加強透明度,《守則》條文將新增條文,要求發行人在發行人網站和聯交所網站提供薪酬委員會和提名委員會的職權範圍。

關於各委員會的運作,新增的《守則》條文明確指出允許由薪酬委員會擔當董事會顧問的角色,而董事會則保留批准執行董事和高級管理層薪酬的最終權力。至於確保提名委員會有足夠資源,以及尋求獨立專業意見的費用由發行人支付的建議最佳常規,會升級為《守則》條文。現行的《守則》條文規定,審核委員會成員應與外聘核數師開會的次數將由每年一次修訂為至少每年兩次,同時規定審核委員會的職權範圍應包括檢討讓僱員可就發行人的財務匯報、內部控制或其他事宜的不正當行為提出關注的安排。

董事會會議及程序

現行的《上市規則》規定,任何有關與其他公司進行交易的決議,如果發行人董事在其他公司的任何類別已發行股票或投票權的實益權益不超過5%,則該董事可就該董事會決議進行投票。《諮詢總結》明智地取消了該5%的權益豁免,原因在於《上市規則》第2.16條表明「一項利益是否重大並無既定標準,亦不一定是以貨幣或財務條款來衡量」的原則應該同樣適用於董事。為應對部分董事(特別是非執行董事和獨立非執行董事)經常對發行人事務缺乏足夠的資訊和瞭解,以致不能有效地履行職責所引起的關注,《守則》將新增條文,要求發行人應每月向董事會成員提供更新資料,就發行人的表現、情況及前景給予平衡及易於理解的評審,而資料內容的詳細程度應足以讓董事會和每一名董事履行上市規則規定的責任。每月的最新資料可能屬於「敏感」或機密性質,但其不一定為股價敏感資料。但如果最新資料顯示有未披露的股價敏感資料,則董事當然不得買賣該發行人的證券,直至有關資料已向市場妥為披露,這也是《上市規則》第13.09條規定發行人應當在合理地切實可行的情況下儘快履行的義務。

在董事會會議的出席率方面,《守則》條文將會修訂為強制要求發行人在企業管治報告中披露董事親身出席及由替代董事出席董事會或其他委員會會議的次數。替代董事出席的次數將不再被計入董事親身出席董事會會議的出席率內,而在符合發行人的組織章程文件及註冊成立地的法律下,透過電話或視像會議等電子途徑參與會議,可計入董事親身出席董事會會議的出席率內。

股東大會以及與股東的溝通

現行的《守則》條文僅訂明在股東大會上每一項實際獨立的事宜應當個別提出決議案。為加強該規定,《諮詢總結》採納了《新加坡守則》之要求,進一步訂明發行人應避免「捆紮」決議案,除非有關決議案彼此間互相依賴,形成一項重要決議。現行《上市規則》強制要求股東大會就所有事項須以投票方式表決。《諮詢總結》採納了在《上市規則》新增條文,容許主席在股東大會上有權決定豁免程序及行政事宜以投票方式表決。程序及行政事宜指:(i) 並非載於股東大會通告的議程或任何致股東的補充通函內;及(ii) 牽涉到主席須維持大會有序進行及/或容許大會事務更妥善有效地處理,同時讓所有股東有合理機會表達意見等職責。聯交所將在其網站內以常見問題方式發出指引,列舉更多程序及行政事宜的例子。

《上市規則》新增條文,規定任何有關委任核數師或於核數師任期屆滿前將其罷免的建議須於股東大會上經股東批准。同時《守則》新增條文,要求發行人管理層應確保外聘核數師參加股東周年大會。發行人日後須在企業管治報告中強制性地具名披露每名董事在股東大會的出席率。

為加強與股東之間的溝通,《守則》新增條文,指明發行人應制定與股東溝通的政策。發行人應在其網站及聯交所網站刊載組織章程文件,並在其自設網站登載股東提名人選參選董事的程序。同時,發行人公司章程細則如有任何重大變動,需在企業管治報告內強制披露。

公司秘書

現行的《上市規則》對公司秘書專業資格的規定側重於香港。考慮到目前大量的發行人主要在中國或香港以外的司法管轄區營運,《諮詢總結》將刪除有關公司秘書須為通常居於香港的人士的規定,並廢除《上市規則》第19A.16條。因此,內地發行人的公司秘書將需與其他發行人遵守相同規定。公司秘書亦被要求須在每個財政年度參加不少於15小時的相關專業培訓。有關公司秘書接受培訓的新增條文生效日期,將按個別人士獲委任為發行人公司秘書之日期而有不同。

要合資格成為公司秘書,聯交所會從(i)學術/專業資格或(ii)相關經驗的角度,考慮個別人士是否有能力履行公司秘書職責。《諮詢總結》闡明了聯交所在決定個別人士是否具有相關經驗時考慮:(i)該名人士於發行人或其他發行人任職的年期;(ii)該名人士對《上市規則》及其他法律法規的熟悉程度;(iii)該名人士是否曾經或將會參加相關培訓;及(iv)該名人士於其他司法管轄區的專業資格。因此,即使個別人士並非香港特許秘書公會會員、律師、大律師或專業會計師,倘若聯交所認為該名人士具有相關經驗,也可能獲得公司秘書的專業資格。

結論

《諮詢總結》所採納的修訂必須獲得廣泛支持。聯交所認為,由於良好的企業管治不應通過「劃一」方式予以實行,因此大部分修訂並不屬於過度規範。發行人應注意到,根據「不遵守就解釋」原則的潛在精神,《守則》內容將提醒每個發行人應按各自的情況,制定最適合本身的企業管治框架。從業者及合規顧問須熟悉各項修訂,特別是各修訂的實施時間,以就最新要求向客戶提出建議,並確保客戶的企業管治報告滿足最新強制性披露要求。

 

郭偉炎
律師
普衡律師事務所

 

《諮詢總結》全文,包括各修訂的實施時間,已刊登於聯交所網站( www.hkex.com.hk)內的「主頁>新聞資料及市場諮詢>市場諮詢」。


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