Nomination and diversity on Hong Kong boards: Best practice and in practice

Summary

One year on from the introduction of “comply or explain” requirements as to board diversity in the Hong Kong Corporate Governance Code, Linklaters in partnership with the 30% Club Hong Kong conducted a study examining regulation and practice in Hong Kong relation to nomination committees and the director nomination process and how Hong Kong compares globally in this respect.

The report's key findings include:

  • Of all the listed companies we looked at, around 93% have established a nomination committee and around 63% have implemented a board diversity policy. Interestingly, whilst a lower proportion of the listed companies that make up the Hang Seng Index have established anomination committee(around 86% as compared to 94% of other listed companies), significantly more of those companies have implemented some form of board diversity policy (around 90% as compared to 61% of other listed companies).
  • The board diversity policy is enshrined in less than half of the terms of reference of the nomination committees of all the listed companies we looked at.
  • Very few of the listed companies we looked at have measurable objectives against which to assess the diversity of their board’s composition or formal evaluation processes for their nomination committees.
  • The key means of identifying potential directors in Hong Kong continues to be suggestions from the nomination committee (or board) members based on their own contacts and knowledge of the market. The use of search firms to identify candidates remains limited for these purposes.
  • Extensive training is given to boards on technical corporate governance matters, but there is little specific training on issues such as unconscious bias and the impact of diversity.
  • Regulation and practice in Hong Kong compare favourably with those elsewhere in the world, in particular in requiring diversity by reference to a broad range of factors.
  • Overall, regulating Hong Kong listed companies’ board diversity requirements seems to have succeeded in aligning Hong Kong with international best practice. Many listed companies in Hong Kong have already taken steps to implement these requirements, but there is still more that could be done
Sep
2014

Linklaters Nomination and diversity on Hong Kong boards: Best practice and in practice