Summary of TWF's Submission on HKEX Review of the Corporate Governance Code and Related Listing Rules

TWF does not believe the existing Consultation Proposals go far enough to improve listed companies performance and transparency regarding board diversity.  As of September 2017, only 13.3% of Board members of Hang Seng Index listed companies were women, with only incremental change since the introduction of CP A.5.6 in 2013. Without bold and urgent reform, Hong Kong’s market will continue to fall behind other markets.  We urge the HKEX to include more measurable objectives and specific guidance to the process for nomination and board diversity review in the Corporate Governance Code.   
Below is a summary of TWF’s proposals and submission in reply to the Consultation Questions.   
TWF has indicated no comment to a number of questions in the Consultation that are not directly relevant to our mission. However, we encourage others to answer all questions in the Consultation based on your views.
In particular, we believe the following questions are the most important and we would ask that you please answer them with our suggested answers:

Question 2 – Answer Yes
Upgrade CP A.5.6 from a “comply or explain” basis to a Rule. This would require listed companies to have a diversity policy and to disclose the policy or a summary of it in their corporate governance reports.  In addition (add to ‘give reasons for your views’ section), we urge HKEX to:
•         Ask nomination committees to have in place a policy specifically concerning gender diversity; 
•         Set measurable objectives to achieve gender diversity; 
•         Provide recommended best practice and guidelines for diversity policy; and 
•         Limit the tenure of independent directors to nine years to reduce the lack of diversity due to entrenched Boards.

Question 3 – Answer Yes
Amend CP A.5.5 to bring more transparency to the appointment of directors.  In addition (add to ‘give reasons for your views’ section), we suggest:
•         HKEX to add more specification in how the identification process and the nominee would contribute to the diversity of the Board, by reference to the diversity policy of the company;
•         Require annual internal evaluation of the performance of each board member (by enhancing CP B.1.9), with external evaluation to be conducted at least every three years; and 
•         We would like to see minority shareholders have a greater voice by requiring separate disclosure of minority shareholder voting for the election of independent directors and where there is not majority support from minority shareholders, that independent director is required to stand for re-election at the following AGM. 

Question 4 – Answer Yes
Amend the Mandatory Disclosure Requirement L.(d)(ii) to reflect the upgrade of CPA.5.6 to a Rule.  HKEX should ask listed companies to disclose their nomination policies and focus on an established process for effective evaluation of incumbent directors, especially those due for re-election.  

Question 11 – Answer Yes
In addition (add to ‘give reasons for your views’ section), we suggest: 
•         The circular to shareholders should include numerical and graphical information to illustrate the composition of the incumbent Board by reference to the factors in the diversity policy and length of service, and how these factors would change following the election of the nominated individual. Suggest including a skills matrix as a best practice approach; and 
•         Annual disclosure of nomination policy should include evaluation of performance and how it has met measurable objectives for achieving gender diversity and progress towards achieving those objectives by disclosing proportions of men and women on the Board, in senior executive positions and across the whole organisation.