The Stock Exchange of Hong Kong Limited, a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEx), today (Friday) published the findings of its fourth review of listed issuers' corporate governance practices.
The fourth review analysed corporate governance disclosure in the 2009 annual reports of a representative sample of 132 issuers. The review’s methodology* was different to previous reviews. However, its purpose is the same. This was to determine the effectiveness of the Code on Corporate Governance Practices’s implementation.
In the 2009 review, the Exchange also analysed issuers' practice on setting up board committees such as a nomination committee, remuneration committee and corporate governance committee. These were not covered in previous reviews.
The Code, Appendix 14 of the Main Board Listing Rules and Appendix 15 of the GEM Listing Rules, became effective in 2005. It includes code provisions and recommended best practices. Code provision requirements are not mandatory but issuers must disclose in their interim and annual reports whether they have complied with each one. If issuers deviate from a code provision requirement, they must give reasons. All issuers reviewed disclosed whether or not they had complied with the code provision requirements.
Recommended best practices are for guidance only. 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:
99 per cent of the issuers reviewed (up from 98 per cent in the third review) complied with at least 41 of the 45 code provision requirements;
39 per cent of issuers reviewed complied with all code provision requirements (the same as in the third review of 2007);
as in the 2007 review, larger issuers complied with more code provision requirements than smaller issuers (based on market capitalisation); and
98 per cent of issuers reviewed had established a remuneration committee and 37 per cent had established a nomination committee. Both were composed mostly of independent non-executive directors with an average of four members.
"We will use the results of our analysis in the current review of the Code," said Mark Dickens, HKEx's Head of Listing. “We hope to publish a consultation paper on proposed changes to the Code before the end of this year.”
The report is available under the Issuer-related Information section of the HKExnews website.
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For the 2006 and 2007 reviews the Exchange sent a questionnaire to issuers and based its analysis on a large number of replies. For the latest review, the Exchange analysed the annual accounts of a representative sample of 132 issuers and did not burden issuers with a lengthy questionnaire.
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