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Exchange Reports on Implementation of Code on Corporate Governance Practices

Corporate
20 Feb 2009

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 third review of listed issuers' corporate governance practices.

The third review, which analysed the practices disclosed in the 2007 annual reports of 1,213 listed issuers, was aimed at determining how effectively the Code on Corporate Governance Practices (the Code) was being implemented.

The Code became effective in 2005. It 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 third review's findings included the following:

All 1,213 issuers met the requirement to comply or explain i.e. all issuers either said in their annual reports that they had complied with the 45 code provisions or explained their deviation from one or more code provisions;
About 98 per cent of the issuers (up from 96 per cent in the second review) complied with at least 41 of the 45 code provisions;
Same as the second review, larger issuers complied with more code provisions than smaller issuers (based on market capitalisation); and
The recommended best practices relating to quarterly reporting continued to have the lowest compliance rate.

“The Exchange's latest findings indicate that, overall, listed issuers' corporate governance practices have continued to improve since the second review was conducted,” said Richard Williams, HKEx's Head of Listing.

Mr Williams added, “When we conduct a review of the Code, we will take into account the results of our review findings in respect of listed issuers’ 2006 and 2007 annual reports. We will consult the market regarding any possible changes to the Code such as amendments to take account of developments in international best practices, increasing focus on environmental and social responsibilities, while giving regard to Hong Kong’s specific market conditions and requirements of all stakeholders.”

The report is available under the Issuer-related Information section of the HKExnews website.

Updated 20 Feb 2009