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HKEX consultation conclusions on corporate governance revisions

On 19 Dec 2024, HKEX published its consultation conclusions on proposed enhancements to the Corporate Governance Code and related Listing Rules. (Press release; full document).

The proposals, as modified in some areas, will be effective from 1 July 2025. They will apply to corporate governance reports (CG reports)/annual reports for financial years commencing on or after such date. It is noted that HKEX will provide guidance materials during first half of 2025.

There will be transitional periods as regards:

• Independent directors (INEDs) serving more than 9 years (Long-serving INEDs)  (extended transitional period to 6 years, with phased implementation)

  • Phase one (compliance by the first AGM held on or after 1 Jul 2028):
    Majority NON-Long-serving INEDs

  • Phase two (compliance by the first AGM held on/after 1 Jul 2031):
    NO Long-serving INEDs

  • Cooling-off period extended to 3 years (original proposal: 2)

• Hard cap on “overboarding” (3-year transitional period, as originally proposed, compliance required by first AGM held on or after 1 Jul 2028)

The “Lead INED” proposal is modified to voluntary (“Recommended Best Practice”; “RBP”). Enhanced communications with shareholders are introduced.

For Long-serving INEDs, the consultation conclusions document (Para 129) explains that HKEX’s ultimate objective of phasing out Long-serving INEDs remains unchanged. The “phased approach” allows issuers more time and flexibility over 2 director rotation cycles to conduct comprehensive succession planning for “phasing out” in an orderly and measured manner.

HKEX also strongly encourages issuers to plan ahead of time to avoid significant abrupt changes to board composition that could impact board continuity and create gaps in experience and governance.

Key revisions are summarised in Appendix 1
(See consultation conclusions: (P.3) detailed summary of changes comparing with original proposals; (Appendix III) detailed rule amendments).

What you should do/watch out for:

• The board and relevant teams be updated on the revisions, following management’s initial assessment of the impact (in light of implementation timeframe), e.g.  overboarding, Long-serving INEDs, other gaps in policies/processes/disclosure

• Detailed analysis by management for board discussions in due course

• Note enhanced disclosure in CG reports, consider early-adoption where appropriate

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