The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), today (Friday) published a report on the findings from its second annual review of listed issuers’ corporate governance practices.
The review, which analysed the practices disclosed in 1,114 listed issuers’ 2006 annual reports, was aimed at determining how effectively the Code on Corporate Governance Practices (the Code) is being implemented.
The Code became effective, with one exception, for accounting periods commencing on or after 1 January 2005. The exception, the code provision on internal controls, became effective for accounting periods commencing on or after 1 July 2005.
The Code includes two levels of recommendations: 1) code provisions; and 2) recommended best practices. Code provisions are not mandatory but issuers must disclose in their interim and annual reports whether they have complied with each code provision; where issuers deviate from a code provision, the issuer must give reasons for the deviation. The recommended best practices are for guidance only i.e. issuers are encouraged, but not required, to state whether they have complied and give reasons for any deviation.
The review’s findings included the following:
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Larger issuers complied with more code provisions than smaller issuers (based on market capitalisation).
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“The Exchange’s latest findings indicate that, overall, listed issuers’ corporate governance practices continue to improve,” said Richard Williams, HKEx’s Head of Listing. “Listed issuers are not only choosing to comply with the Code’s code provisions, they are also commonly adopting many of the Code’s recommended practices.”
Mr Williams added, “We plan to use the results of our work in respect of listed issuers’ 2005 and 2006 annual reports in a review of the Code. We will consult the market regarding possible changes to the Code including amendments to take account of developments in international best practice and increasing focus on issues such as corporate social responsibility.”
The report is available under the Listing Matters and Listed Companies section of the HKEx website.
Background
The first annual review analysed the corporate governance practices disclosed in listed issuers’ 2005 annual reports. The report on the findings in the first annual review was published by the Exchange on 30 March 2007. It is also available under the Issuer-related Information section of the HKExnews website.