HKEx’s Enhanced Corporate Governance Code and Related Listing Rules

HKEx published conclusions in December 2024 to its consultation on Review of the Corporate Governance Code (“CG Code”) and related Listing Rules. The latest changes to the CG Code and related Listing Rules include (i) enhancement on the effectiveness of board of directors of listed issuers (the “Board”); (ii) emphasis on Board independence and diversity; (iii) improved risk management and internal controls; and (iv) additional capital management policies.

These requirements will come into effect on 1 July 2025 and will apply to corporate governance reports and annual reports for financial years commencing on or after 1 July 2025, with transitional arrangements for the cap on “overboarding” and the cap on independent non-executive directors as set out below.

Enhancement on Board Effectiveness

Companies with a non-INED board chair are encouraged (as a Recommended Best Practice) to appoint a Lead INED to improve shareholder communication. Disclosure of the Lead INED’s role is mandatory. The Lead INED, along with all other directors, will have the same fiduciary duties and the same level of liability. An announcement under HKEX Listing Rule 13.51(2) is not required for the designation of a Lead INED. However, when there is a change in the designation of a Lead INED, HKEX-listed companies should publish an updated list of directors stating their roles and functions on their own website and the HKEX’s website. The amended Mandatory Disclosure Requirement B(a) will also require HKEX-listed companies that appoint a Lead INED to disclose this in their corporate governance reports. 

Under new HKEX Listing Rule 3.09F and GEM Rule 5.02F, all directors will be subject to mandatory continuous professional development that covers at least the topics set out below:

• The roles, functions and responsibilities of the board, its committees and its directors, and board effectiveness;
• The company’s obligations and directors’ duties under Hong Kong law and the HKEX Listing Rules, and key legal and regulatory developments (including HKEX Listing Rule updates) relevant to the discharge of these obligations and duties;
• Corporate governance and environmental, social and governance (ESG) matters (including developments on sustainability or climate-related risks and opportunities relevant to the HKEX-listed company and its business);
• Risk management and internal controls; and
• Updates on industry-specific developments, business trends and strategies relevant to the company

Companies would need to disclose in their corporate governance report each director’s number of hours of training (without any minimum number of training hours); the topics of the training; the means of training (i.e., physical or online); and the name of the training provider. For first time directors, there is a minimum of 24 hours of training during the first 18 months after their appointment.

Board Independence and Diversity

An INED will no longer be considered independent after serving as an INED for a company for nine years. After nine years, the INED may either continue as a non-executive director (no longer being independent); or undergo a “cooling-off” period after which he/she may become an INED of that company again. This rule will be subject to a transition period of six years whereby for phase 1, by the first annual general meeting on or after 1 July 2028, long-serving INEDs must not represent a majority of INEDs on the board. For phase 2, by the first annual general meeting on or after 1 July 2031, companies must not have any long-serving INEDs.

The company must have a board diversity policy and disclose that policy in its Corporate Governance Report. The company must disclose in its Corporate Governance Report the results of its annual review of the implementation of its board diversity policy, conducted during the year covered in the report, including (i) progress towards the issuer’s objectives and (ii) how the issuer has arrived at its conclusions. The nomination committee of the company must contain at least one director of a different gender.

Improved Risk Management and Internal Controls

The board must conduct an annual review of the company’s risk management and internal control systems and disclose details of this review in the Corporate Governance Report. The review shall cover all material controls of the company and its subsidiaries ranging from financial, compliance, and operations internal control. The annual review need not be conducted externally and can be done in a mode of review that fits the company’s circumstances.

The new mandatory disclosure requirement will mandate the company to disclose:

• A board statement acknowledging its responsibility for the company’s risk management and internal control systems and a statement confirming that the risk management and internal control systems are appropriate and effective;
• The main features of the risk management and internal control systems in place (including the process used to identify, evaluate and manage significant risks and the procedures for ensuring timely and accurate disclosures);
• Significant changes in the assessment of risks and the risk management and internal control systems;
• Whether the company has an internal audit function;
• The responsibilities of internal departments and external providers for the review;
• The process used to conduct the review of the risk management and internal control systems and the frequency of reviews;
• The scope of the review; and
• The results of the review and details of any significant control failings or weaknesses identified during the review and/or previously reported but remaining unresolved, and any remedial steps taken or proposed

The above disclosure must include confirmation from the board, the relevant board committee(s), other internal control departments, the company’s independent auditors, and/or other external service providers that the company’s risk management and internal control systems are appropriate and effective.

Capital Management Policies

Companies with a dividend policy must disclose details of that policy and confirm that dividend decisions made by the board were in accordance with the policy. Companies without a dividend policy must state this fact and disclose the reasons for the absence of such a policy. Companies must disclose reasons for any variations in dividend rate compared to that of the previous corresponding period, or reasons for not paying a dividend and the measures the company intends to take to enhance investor returns.

Where a company does not have a dividend policy, this must be disclosed in its Corporate Governance Report and provide reasons for not having a dividend policy.

Conclusion

HKEx stated that it will publish updated guidance in the first half of 2025 to assist new listing applicants and listed issuers’ compliance with the aforementioned requirements.  Please contact us for any questions on the compliance with the new CG Code.