Policy Briefing — HKEX Corporate Governance Code Overhaul

Executive briefing: On 10 December 2021 Hong Kong Exchanges and Clearing (HKEX) published consultation conclusions on the Review of Corporate Governance Code and Related Listing Rules, confirming amendments effective 1 January 2022.¹ The reforms elevate board accountability for corporate culture, mandate gender diversity targets, tighten independent non-executive director (INED) tenure rules, and require explicit board oversight disclosures for environmental, social, and governance (ESG) matters.¹² Issuers must refresh governance frameworks, succession plans, and reporting processes before their first financial year beginning on or after 1 January 2022.

Structural themes

• Corporate culture. A new Code Principle requires boards to align corporate culture with the company’s purpose, values, and strategy, with annual reports describing culture oversight mechanisms, anti-corruption policies, and whistleblowing frameworks.¹
• Board independence. If all INEDs have served more than nine years, issuers must appoint a new INED and disclose succession plans; re-election of long-serving INEDs requires separate resolutions with robust justifications.¹
• Board diversity. Issuers must set numerical targets or timelines for achieving gender diversity at the board level, disclose progress annually, and ensure single-gender boards appoint at least one director of the underrepresented gender by 31 December 2024.¹
• Nomination governance. The nomination committee must comprise a majority of INEDs and be chaired by an INED, with a mandate to oversee board diversity objectives and succession planning.¹
• ESG oversight. Boards must issue a statement describing how they evaluate and manage ESG risks, integrate stakeholder engagement, and ensure performance metrics support sustainability objectives.¹

Implications for issuers

Board refreshment. Boards must reassess composition matrices, tenure distributions, and skills coverage to comply with refreshed INED requirements and diversity targets. Long-serving directors should transition into advisory roles or rotate committee responsibilities to avoid independence concerns.¹

Succession planning. Nomination committees need documented pipelines for independent and diverse candidates, incorporating search mandates, mentorship programmes, and cross-border talent sourcing to meet 2024 gender deadlines.¹

ESG governance. Boards must formalise ESG oversight charters, define reporting frequency, and align key performance indicators with the HKEX ESG Reporting Guide. Issuers should integrate climate, workforce, and supply-chain metrics into enterprise risk management and internal audit plans.¹

Corporate culture. The new emphasis on culture requires boards to evaluate tone from the top, middle management accountability, and controls around anti-corruption and anti-harassment policies. Company secretaries play a larger role in coordinating training and reporting on culture initiatives.¹²

Implementation roadmap

1. Gap assessment. Compare existing governance policies, board composition, and ESG oversight disclosures against new HKEX requirements. Identify long-serving INEDs, single-gender boards, and missing diversity targets.
2. Policy updates. Revise board diversity policies, nomination committee terms of reference, and whistleblowing/anti-corruption policies to reflect mandatory provisions. Document the board’s role in shaping corporate culture.
3. Succession planning. Commission independent director searches to introduce new INEDs before nine-year thresholds trigger compliance issues. Establish mentorship programmes to develop diverse internal candidates.
4. ESG oversight framework. Draft board-level ESG statements covering governance structures, risk management, and stakeholder engagement. Align sustainability metrics with board reporting calendars and assurance plans.
5. Training and communication. Deliver briefings for directors, senior management, and company secretaries on updated code requirements, emphasising culture oversight, diversity targets, and ESG responsibilities.
6. Investor engagement. Update investor relations materials with refreshed governance practices, diversity milestones, and ESG oversight enhancements. Engage stewardship teams proactively to explain transition plans.

Control and measurement framework

• Diversity dashboards. Track gender, age, nationality, professional background, and tenure metrics against board-approved targets. Report progress quarterly to the nomination committee.
• INED tenure monitoring. Maintain a timeline of upcoming nine-year milestones, including succession candidates, onboarding timelines, and training requirements.
• ESG oversight metrics. Capture board attendance at ESG-focused meetings, frequency of sustainability reporting updates, and completion of climate scenario analyses.
• Culture indicators. Monitor employee engagement survey results, whistleblowing case volumes, and remediation cycle times to evidence board oversight of culture and conduct.
• Compliance attestations. Implement annual certifications from company secretaries confirming that governance documentation, listing rule disclosures, and training hours meet HKEX expectations.

Stakeholder actions

• Boards and nomination committees. Approve diversity targets, succession pipelines, and ESG oversight statements. Schedule board evaluations that specifically address culture and diversity effectiveness.
• Company secretaries. Coordinate policy updates, maintain compliance calendars for diversity deadlines, and oversee director training programmes.
• Internal audit. Add governance compliance reviews covering board diversity reporting, INED tenure justifications, and ESG governance disclosures.
• Investors and stewardship teams. Update voting guidelines to reflect HKEX’s expectations for board refreshment, diversity progress, and ESG oversight transparency.²

Programme risks and mitigations

• Talent shortages. Mitigation: expand candidate searches beyond traditional networks, leverage executive search firms with diversity mandates, and develop internal leadership programmes for underrepresented groups.
• Data quality. Mitigation: implement governance data platforms that centralise board biographies, skill matrices, and training records to support accurate reporting.
• Change resistance. Mitigation: communicate the business rationale for diversity and culture initiatives, align incentives with governance outcomes, and integrate metrics into executive scorecards.
• Disclosure gaps. Mitigation: perform pre-publication reviews of annual reports and ESG statements to ensure compliance with new board statement and diversity reporting requirements.

Disclosure timeline and enforcement

HKEX expects issuers to describe implementation progress in the first annual report covering financial periods beginning on or after 1 January 2022.¹ Company secretaries should prepare cross-references between corporate governance, ESG, and financial reporting sections so diversity targets, culture narratives, and board oversight statements are consistent. HKEX has signalled that follow-up reviews will focus on issuers that fail to nominate new INEDs after hitting the nine-year threshold or that do not articulate credible diversity timelines. Enforcement tools include follow-up enquiries, public censure, and, in severe cases, suspension of trading.²

Forward look

HKEX signalled it will monitor compliance through listing reviews and targeted thematic inspections, with potential disciplinary action for issuers that fail to meet diversity or culture expectations.¹ Regulators globally are converging on board diversity and ESG oversight mandates, so aligning with HKEX’s enhanced code positions issuers to satisfy investor demands and cross-listing obligations. Boards should treat 2022 as a transition year to embed culture metrics, refresh INED rosters, and evidence ESG governance maturity.

Post-consultation outcome

The revised Corporate Governance Code and Main Board Listing Rules became effective on 1 January 2022, codifying diversity targets, succession planning, and ESG oversight responsibilities in Appendix 14.

HKEX’s 14 December 2023 climate-related disclosure conclusions require IFRS S2-aligned reporting for financial years commencing on or after 1 January 2025, elevating audit committee scrutiny of transition plans and scenario analysis.

Sources

• ¹ HKEX consultation conclusions — Review of Corporate Governance Code and Related Listing Rules.
• ² HKEX news release announcing Corporate Governance Code enhancements.

Zeph Tech guides issuers through HKEX governance diagnostics, diversity planning, and ESG disclosure upgrades aligned with the 2022 code.

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