Home

I'm looking for:

We're using cookies, but you can turn them off in your browser settings. Otherwise, you are agreeing to our use of cookies. Learn more in our Privacy Policy

CFA Institute Urges More Independent Directors on Boards

23 March, 2012
Hong Kong SAR China
Greater Board Independence Recommended for Hong Kong Listed Companies

CFA Institute, the global association of investment professionals, release a report "Board Governance – How Independent are Boards in Hong Kong Main Board Companies?" to ascertain the level of independence of boards of Hong Kong main board companies and the level of compliance with Hong Kong regulatory requirements. Only a small number of Hong Kong main board companies were found to have independent directors constituting a majority of the board.

The findings showed that 77 percent of main board companies had independent directors representing at least one-third of their boards, and where only 9.3 percent had a majority of independent directors. Hence, compliance with the amendment to the Hong Kong Exchanges and Clearing Limited (HKEx) listing requirement by 31 December 2012 might not be an issue. However, the size of boards tended to be small, where three-quarters of the companies reviewed had 10 or less directors. This meant that independent directors might be stretched when fulfilling their roles and responsibilities on the board and board committees. More so when the amendments to the HKEx's Corporate Governance Code and Associated Listing Rules called for the establishment of remuneration and nomination committees with majority independent non-executive directors (INEDs). In view of this, CFA Institute strongly recommends that the board should consist of a majority of independent board members.

The other finding of note was that while close to two-thirds of the main board companies had separated the roles of chairperson and chief executive officer (CEO), only 1.7 percent of the chairpersons were independent directors.

"Board independence is an important measure of the quality of a company's corporate governance. The newly amended stock exchange rule where at least one-third of a listed company’s board should be INEDs is not sufficient; an independent majority on the Board is more likely to consider the shareowners’ best interests first," said Mr. Lee Kha Loon, CFA, head of Standards and Financial Market Integrity, Asia Pacific at CFA Institute.

The findings were based on 1,184 main board companies listed on the main board of the HKEx; as well as analysis of data from the annual reports of 45 Hang Seng Index constituent companies, 121 H-share companies, and 92 red chip companies as at 31 August 2010.

The analysis also showed that the average attendance of board and board committee meetings was above 90 percent. This implied that overall, directors of listed companied in Hong Kong were able to ensure that sufficient time and attention was given to fulfilling their duties.

The report continues a series of analysis CFA Institute has conducted on corporate governance in the Asia Pacific region, including reports relating to executive compensation disclosure in Asia, independent non-executive directors, related party transactions, and a manual on corporate governance of listed companies for investors. CFA Institute maintains regular dialogues with regulators to provide views on the subject. A response was submitted together with The Hong Kong Society of Financial Analysts on the HKEx’s consultation on review of the corporate governance code and associated listing rules last year.

Additional CFA Institute publications for reference: