/ 4 min read / Reed Smith In-depth

Latest Review of the Corporate Governance Code and Related Listing Rules by HKEx

Authors

KC Mok, Cynthia Wei, Andrea Zhou, Shirley Lin

Key takeaways

  • HKEx prescribes enhanced corporate governance standards and disclosure requirements with effect from 1 July 2025.
  • Highlight of the new rules:
    • require mandatory directors training. First-time directors need to complete 24 hours of training within 18 months of the date of their appointment.
    • impose a 9-year term limit for independent non-executive directors, to be implemented by phases within the 6-year transition period.
    • phase out overboarding independent non-executive directors by the first AGM held on or after 1 July 2028.
    • require issuers to appoint at least one director of a different gender on the nomination committee.

Introduction

In June 2024, The Stock Exchange of Hong Kong Limited (“HKEx”) published a consultation paper seeking views and comments from the public on its proposed changes to the Corporate Governance Code under the HKEx’s Listing Rules. The proposed changes touch upon various aspects of corporate governance concerning existing issuers and IPO applicants, requiring higher standards and enhanced disclosure on areas ranging from board effectiveness to independence of independent non-executive directors (“INEDs”), diversity, risk management and internal controls and dividends policy.
 
After receiving extensive market feedback, HKEx published its consultation conclusions in December 2024 (the “Consultation Conclusions”), adopting all of its proposals with certain modifications. The changes to the Corporate Governance Code and related amendments to the Listing Rules will come into effect on 1 July 2025 (while the implementation of certain proposals will be carried out in phases), applying to the Corporate Governance Reports (the “CG Report(s)”) and annual reports for financial years commencing on or after 1 July 2025.

Key changes

The following table provides a summary of the key changes which will affect issuers’ day-to-day corporate governance compliance and preparation of their CG Reports and annual reports. Issuers are particularly reminded to take note of the implementation dates of the relevant proposals.

Board Effectiveness

1.

Designation of Lead INED and shareholder engagement
  1. A recommended best practice is added that where the board chair is not an INED, the issuer should appoint an INED to be the Lead INED to (a) serve as an intermediary for the other directors and shareholders; and (b) be available to other directors and shareholders where normal communication channels with the chairman or management are inadequate.1

    In the Consultation Conclusions2, HKEx clarifies that Lead INED designation does not fall within the types of director changes that would require an announcement to be made pursuant to Listing Rule 13.51(2). Nonetheless, for the sake of transparency, issuers with a Lead INED should publicise any change in Lead INED designation as soon as possible through an updated list of directors and their roles and functions announced via the issuer’s website and HKEx’s website.

  2. The board, in particular the INEDs, should be accessible to shareholders to facilitate constructive engagement and to understand their views on matters affecting the issuer, including governance and performance against the issuer’s corporate strategy.3
     
    A mandatory disclosure requirement is added that details of the shareholder engagement conducted under new code provision F.1.1 during the relevant period must be included in the CG Report.4 Such details include (i) the nature and number / frequency of the engagements conducted; (ii) the group(s) of shareholders involved in these engagements; (iii) the representatives of the issuer involved in these engagements (e.g. chief executive, chairman of the board, independent non-executive directors, board committee chairmen and members of senior management); and (iv) the issuer’s approach to following up on the outcomes of these engagements.5

2.

Mandatory director training
  • New Rule 3.09F is added that every director of a listed issuer must receive continuous professional development in each financial year, and the topics of such training is provided under the new Rule 3.09G.

    It is specifically required under the new Rule 3.09H that:
  1. first-time directors must complete no less than 24 hours of the continuous professional development sessions within 18 months of the date of their appointment; and
  2. first-time directors who have served as a director of an issuer listed on an exchange other than the Main Board or GEM within the three years prior to their appointment must complete no less than 12 hours of the continuous professional development training within 18 months of the date of their appointment.

    The above requirements on first-time directors will apply to first-time directors appointed on or after 1 July 2025. 
  •  A mandatory disclosure requirement is also added that a confirmation of all directors’ participance in the training with sufficient details (including the hours, format or mode, and confirmation in respect of first-time directors) must be disclosed in the CG Report.6
     
    It is also codified that directors should provide a record of the continuous professional development they receive to the issuer, and the issuer should be responsible for arranging and funding the induction for newly appointed directors upon appointment and suitable continuous professional development for all directors.7

3.

Board performance review

A new code provision B.1.4 is added to require issuers to conduct a formal evaluation of their board’s performance at least every two years, with specific disclosure in the CG Report – issuers should confirm in their CG Report whether they have conducted a board performance review during the reporting period (details to be disclosed are further provided under this code provision) and if not, when the next board performance review will be conducted.
 
Such performance reviews can be conducted internally or externally facilitated. In its Consultation Conclusions, HKEx emphasized that the board performance review is not intended to be a personal assessment of individual directors; the focus should be on the overall performance of the board and whether its performance, together with the board’s skills, expertise and qualifications as identified by the board skills matrix, are aligned with the issuer’s broader business and strategic goals. 8

4.

Disclosure of board skills matrix

A new code provision B.1.5 is added to require issuers to maintain and disclose their board’s skills matrix in the CG Report, with enhanced disclosure on the board’s skills.
 
In its Consultation Conclusions, HKEx emphasized that it does not expect individual directors to be singled out in the relevant disclosure9.

5.

Overboarding INEDs and directors’ time commitment
  1. INEDs holding seven or more listed issuer directorships (“Overboarding INED(s)”)

    A new Main Board Rule 3.12A (GEM Rule 5.07A) is added that an INED must not concurrently hold more than six directorships of issuers listed on HKEx. 

    • Issuers: a three-year transition period is imposed with compliance required by the first AGM held on or after 1 July 2028 by any issuer that an overboarding INED serves.

      In its Consultation Conclusions10, HKEx clarifies that during the transition period, the current requirements in respect of the election of Overboarding INEDs will continue to apply. Reference is made to code provision B.3.4(b), where the board proposes a resolution to elect an individual who would be an Overboarding INED, it should explain in the shareholder circular why the board believes such individual would still be able to devote sufficient time to the board.

    • IPO applicants: from 1 July 2025 onwards, IPO applicants will not be permitted to have Overboarding INEDs on the board upon listing.

  2. Directors’ time commitment

    A mandatory disclosure requirement is added that the nomination committee of an issuer should disclose in its summary of work during the year in the CG Report, among other things, its assessment of each director’s time commitment and contribution to the board, as well as the director’s ability to discharge his or her responsibilities effectively, taking into account professional qualifications and work experience, existing directorships of issuers listed on the Main Board (or GEM) and other significant external time commitments of such director and other factors or circumstances relevant to the director’s character, integrity, independence and experience.11

    In its Consultation Conclusions12, HKEx clarifies that while each director should be assessed, it does not expect the disclosure in the CG Report to be on an individual named basis.

Independence of INEDs

6.

Independence of INEDs after nine years

A new Main Board Rule 3.13A (GEM Rule 5.09A) is added that an issuer’s board must not include an INED who has served on the board as an INED for a period of nine years or more, as at the conclusion of the issuer’s annual general meeting that follows the end of the director’s nine-year tenure.
 
Transitional arrangements for the implementation of this requirement are as follows:

  • Phase One (compliance required by the first AGM held on or after 1 July 2028): an issuer must not have Long Serving INEDs representing a majority of the INEDs on their board; and

  • Phase Two (compliance required by the first AGM held on or after 1 July 2031): an issuer must not have any Long Serving INED on their board). 

A cooling-off period of three years is provided such that HKEx will permit an individual who has previously served as an INED on the board of a listed issuer for nine years or more to be subsequently re-appointed as an INED of the same issuer, provided that such individual: (i) satisfies the independence guidelines set out in rule 3.13; and (ii) has not, at any time during the three years immediately prior to the date of their proposed re-appointment, been a director of the listed issuer, of its holding company or of any of their respective subsidiaries or of any core connected persons of the listed issuer.13
 
In its Consultation Conclusions14, HKEx clarifies that during the transitional period, the current requirements in respect of Long Serving INEDs will apply as follows:

  • Before the expiry of Phase One, i.e. for any annual general meetings held on or before 30 June 2028: the current code provision B.2.3 on re-election of an INED who has served more than nine years and code provision B.2.4 for issuers whose INEDs have all served more than nine years will continue to apply. That is, any appointment of an INED who has served more than nine years should be subject to a separate resolution and the board should disclose the reasons underlying its determination of the candidate’s independence and its nomination process; where all INEDs of an issuer have served more than nine years, the issuer should disclose the tenure of all INEDs and appoint a further new INED on the board.

  • After the expiry of Phase One but before the expiry of Phase Two, i.e. for any annual general meetings held after 30 June 2028 but on or before 30 June 2031: code provision B.2.3 will continue to apply such that any re-election of INED who has served more than nine years will need to be subject to a separate resolution and accompanied by the disclosure of the board’s rationale underlying its determination of the candidate’s independence and the nomination process. 

A mandatory disclosure requirement is also added to require disclosure of the length of tenure and current period of appointment of each named director.15

Board and Workforce Diversity 

7.

Board and Workforce Diversity
  1. A new code provision B.3.5 is added to require issuers to appoint at least one director of a different gender on their nomination committee. 
     
  2. The requirement for annual review of the implementation of an issuer’s board diversity policy has been upgraded from a code provision to a mandatory disclosure requirement under the new paragraph J. (a) of the MDR. 
     
  3. In addition to a board diversity policy, the new Main Board Rule 13.92(1) (GEM Rule 17.104(1)) requires issuers to have a policy concerning the diversity of their workforce (including senior management), and requires mandatory disclosure of such policy in their CG Report.16
     
  4. A mandatory disclosure requirement is imposed for separate disclosure of the gender ratios of their senior management and workforce.17
     
  5. The Main Board Rule 13.92(2) (GEM Rule 17.104(2)) provides that HKEx will not consider diversity to have been achieved by an issuer with a single gender board. 

    It is further codified under the new Main Board Rule 13.92(2) (GEM Rule 17.104(2)) that if an issuer is unable at any time to meet the requirement to have directors of different genders on its board, it must immediately publish an announcement containing the relevant details and reasons. The issuer must use all reasonable endeavours to appoint appropriate member(s) to its board to meet such requirement on a timely basis, and in any case within three months after being unable to meet such requirement.

Risk Management and Internal Controls 

8.

Risk Management and Internal Controls
  1. Enhanced disclosure is required under the mandatory disclosure in the CG Report on the board’s review of the effectiveness of the issuer’s risk management and internal control systems, which shall be conducted at least annually (“RMIC Systems”).18
     
  2. The scope of the annual review of the effectiveness of the RIMC Systems is refined under the new code provision D.2 of the Corporate Governance Code. 

In its Consultation Conclusions19, HKEx clarifies that it does not mandate the review of the RMIC Systems be facilitated externally. Issuers should consider the benefits of external assistance in their review. Where external providers (such as the auditors or other external consultants) are involved in the review process, issuers should make relevant disclosure in their CG Report on their involvement and any assurances received.

Dividends 

9.

Dividends policy and disclosure

A mandatory disclosure requirement is added to require issuers to disclose in their CG Report specific information on their dividend policy (or explain the reason(s) for the absence of a dividend policy), including a confirmation that all dividend decisions have been made in accordance with the dividend policy or an explanation of deviation.20
 
It is required that, regardless of whether it has a policy on payment of dividends, the issuer must disclose: (i) where its board declares a dividend (whether interim or final) during the year, the reason(s) for any material variation in the dividend rate compared to that for the previous corresponding period; and (ii) where the board decides not to declare any dividend, the reason(s) for the board’s decision and the measures that the issuer intends to take to enhance investors’ return (if any).

There are also certain minor amendments to the HKEx Listing rules that will be in effect from 1 July 2025, covering areas including:

  • Codification of the requirement on setting a record date.21
  • Codification of disclosure in the annual report of issuers’ modified auditors’ opinions.22
  • Clarification of HKEx’s expectation on the provision of monthly updates to the board. The information provided should (where available) include monthly management accounts and management updates. Where directors consider that they have not been provided with sufficient information by management, they should be able to request further information.23
  • Alignment of the requirements for the nomination committee, audit committee and remuneration committee on establishing written terms of reference and the arrangements during temporary deviations from requirements.24

Further Guidance by HKEx

In its Consultation Conclusions, HKEx promises that, in the first half of 2025, HKEx will add to its Corporate Governance Practices portal a new guidance (the “Further Guidance”) for boards and directors to assist issuers’ compliance with the new Corporate Governance requirements and address the public’s requests for guidance by providing further guidance on the required disclosure of specific topics in the CG Reports and annual reports. HKEx has not yet published the Further Guidance as of the date of this Update. We will provide updates once the Further Guidance is available.

1. New code provision C.1.8 under the Corporate Governance Code
2. Paragraph 38 of the Consultation Conclusions
3. New code provision F.1.1
4. New paragraph L. (d) of the Mandatory Disclosure Requirements under the Corporate Governance Code (“MDR”)
5. New code provision F.1.1
6. New paragraph B. (i) of the MDR
7. New Code provision C.1.1
8. Paragraph 82 of the Consultation Conclusions
9. Paragraph 90 of the Consultation Conclusions
10. Paragraph 102 of the Consultation Conclusions
11. New paragraph E.(d).(iii) of the MDR
12. Paragraph 112 of the Consultation Conclusions
13. New Note 3 to Main Board Rule 3.13A and New Note 3 to GEM Rule 5.09A
14. Paragraph 131 of the Consultation Conclusions
15. New paragraph B.(a) of the MDR
16. New paragraph J. (b) of the MDR
17. New paragraph J. (c) of the MDR
18. New paragraph H. of the MDR
19. Paragraph 188 of the Consultation Conclusion
20. New paragraph M. of the MDR
21. New Main Board Rule 13.66(1) and GEM Rule 17.78(1)
22. Paragraph 3.1 of Appendix D2 to the Main Board Listing Rules and Note to GEM Rule 18.47
23. New code provision D.1.2
24. New Main Board Rules 3.23, 3.27, 3.27B and 3.27C and GEM Rules 5.33, 5.36, 5.36B and 5.36C (for all issuers except for issuers with a weighted voting rights structure), and new Main Board Rule 8A.28A (for issuers with a weighted voting rights structure). The requirements for the nomination committee, the audit committee and the remuneration committee do not apply to secondary listed overseas issuers.

Client Alert 2025-061

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