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Exchange Reports on its Review of Listed Issuers' Corporate Governance Practice Disclosure

13 May 2016

The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of  Hong Kong Exchanges and Clearing Limited (HKEX), today (Friday) reported the findings of its latest review of listed issuers' (issuers) corporate governance practices.

The Exchange reviewed the corporate governance reporting for the 1 April 2014 to 31 March 2015 financial year by 318 issuers (March FYE issuers) and analysed the issuers’ compliance with the Corporate Governance Code (the Code) in its Listing Rules1.  The review was intended to provide a more holistic view of issuers' overall compliance with the Code following a similar review of disclosures for 2014 by the issuers with a financial year-end date of 31 December (December FYE issuers)2.

Overall, the March FYE issuers' compliance level with the Code was high and comparable to the December FYE issuers', with two notable exceptions.  Firstly, fewer March FYE issuers (21 per cent) reported that they had an internal audit function compared with the December FYE issuers (47 per cent)3.  Secondly, more March FYE issuers (28 per cent) did not report aboard diversity policy compared with the December FYE issuers (12 per cent)4.

As with the December FYE issuers, the quality of explanations given for deviating from Code Provisions (CPs) by the March FYE issuers was varied and reflected a degree of "boilerplate" use.

"Giving a boilerplate response in the corporate governance report may seem easier than providing tailored, detailed explanations," said David Graham, HKEX's Chief Regulatory Officer and Head of Listing.  "However, issuers should bear in mind that no single set of corporate governance standards will fit all issuers; and by the same token, no single explanation will apply to all issuers." 

The Exchange expects that the explanation of any deviation from a CP should be informative and clear, and should:

  • Explain the manner in which the company deviates from the CP;
  • Explain the measure(s) taken instead of compliance;
  • Describe the decision process; and
  • Give considered reasons.

For further information, please see the report entitled "Analysis of Corporate Governance Practice Disclosure in March Year-end 2015 Annual Reports" in the Issuer-related Information section of the HKEXnews website.

1 The Listing Rules require issuers to state whether they have complied with the CPs set out in the Code for the relevant accounting period in their interim (or half-yearly) and annual reports. Where the issuer deviates from the CPs, it must give considered reasons(ie, "comply or explain").
2 news release on the results of the review has been posted on the HKEX website.
3 For the period reviewed, an internal audit function was a Recommended Best Practice, or RBP (ie, voluntary).Since then, it has been upgraded from RBP to CP (ie, "comply or explain") for issuers’ accounting periods beginning on or after 1 January 2016.
4 An issuer's nomination committee (or the board) should have a policy concerning diversity of board members, and should disclose the policy or a summary of the policy in the corporate governance report in its annual report.If it chooses not to do so, it must give considered reasons.


Updated 13 May 2016