UPDATE ON HKEX CG CODE

Introduction

In December 2024, the Stock Exchange of Hong Kong (“HKEX”) published its “Consultation Conclusions on the Review of the Corporate Governance Code and Related Listing Rules”. These updates to the HKEX Listing Rules aim to strengthen corporate governance in HKEX-listed issuers, with a focus on board effectiveness, independence, diversity, and accountability.

The updated Corporate Governance Code (“CG Code”) and related Listing Rules will apply to HKEX-listed issuers for financial years commencing on or after 1 July 2025.

Below is a summary of the major changes and practical implications for HKEX-listed issuers.

Key Updates

1.    Enhanced disclosure in Corporate Governance Report (“CG Report”) on shareholders communication, including:

a)      The nature and frequency of engagements with shareholders.

b)      The group(s) of shareholders and representatives of the listed issuer involved.

c)      The listed issuer’s follow up approach on shareholders engagement.

2.      Director’s training

a)   Mandatory annual training on governance, legal duties, ESG, risk management, and industry trends.

b)     Enhanced disclosure on details of training taken by directors, such as hours, topics and training provider.

3.      Board performance review

a)      Required at least every two years.

b)    Must assess overall board performance and alignment with the issuer’s business and strategic goals.

4.      Board skills matrix: CG Report must disclose directors’ skills, experience and diversity in table format.

5.      Directors’ commitment

a)   Annual assessment by Nomination Committee on directors’ time commitment and contribution (to be disclosed in CG Report).

b)      Consistent commitment assessment criteria should be set.

6.      Phasing out of Long Serving INED

a)      Phase 1: From 1 July 2028, Long Serving INEDs cannot form a majority of INEDs.

b)      Phase 2: From 1 July 2031, no Long Serving INED may remain.

7.      Board and workforce diversity

a)      Annual review of the implementation of the board diversity policy.

b)     Disclosure of workforce diversity policy, and gender ratios of senior management and workforce in CG Report.

8.      Risk management & internal control: enhanced disclosure in CG Report on the board’s annual review of system effectiveness

9.    Enhanced disclosure of dividend policy, including its aim/objective and key factors affecting dividend declaration/payment.

10.  Nomination Committee should be gender-diverse in its composition, and be governed by written terms of reference setting out the committee’s authority and duties (which should set out the obligations above).

 What should HKEX-listed issuers do now?

1.     Review and update corporate governance measures and policies to align with new requirements under the CG Code.

2.      Prepare or revise its:

(a)        Board Diversity Policy

(b)        Workforce Diversity Policy

(c)        Dividend Policy

(d)        Written terms of reference for Nomination Committee

3.      Before the first financial year commencing after 1 July 2025:

(a)        Develop director training plans and maintain documentation.

(b)        Conduct an updated board performance review.

(c)         Identify Long Serving INEDs and plan succession within the transition timeline.

(d)        Ensure gender diversity in Nomination Committee.

Remarks: The information provided in this statement does not, and is not intended to, constitute legal advice.

Contributors: Partner Ms. Grace Law and Assistant Solicitor Mr. Matthew Yeung