HONG KONG SAR, CHINA Law and Practice Contributed by: Vincent Lung and Mike Yeung, Parkside Chambers
way, but any deviation must be explained. Recom - mended best practices are voluntary, but they indicate the governance standards expected of well-managed listed companies. Board Composition Listed companies must have a sufficient number of independent non-executive directors. HK Stock Exchange requires that an issuer must have at least three independent non-executive directors and that independent non-executive directors must represent at least one-third of the board. At least one independent non-executive director must have appropriate professional qualifications, or accounting or related financial management expertise. This reflects the importance of independent financial overview. Through the latest amendments introduced in July 2025 (see further below), by the first annual general meeting after 1 July 2031, listed companies may not have an independent non-executive director who has served more than nine years. Board Committees Listed issuers must maintain three separate com - mittees: audit, remuneration and nomination. These committees play a central role in financial reporting, remuneration policy, board appointments and succes - sion planning. In practice, board committees are also an impor - tant method of managing conflicts. For example, independent board committees may be required for approving connected transactions, takeovers or con - ducting investigations into matters involving control - Listed companies must disclose corporate govern - ance arrangements in their annual reports. They must also publish annual audited financial statements, ESG reports and make announcements of material infor - mation. The governance regime is disclosure-led, but it is not merely procedural. Failure to comply may lead ling shareholders or directors. Disclosure and Accountability
to regulatory enquiries, public criticism, disciplinary sanctions, suspension of trading or, in serious cases, delisting or even civil or criminal liability. 1.4 Stock Exchange Requirements Developments 2025 Corporate Governance Amendments HKEX introduced significant amendments to the Cor - porate Governance Code and the Listing Rules, effec - tive from 1 July 2025. The amendments strengthen governance expectations on director training, board performance reviews, board skills matrices, board diversity, a tenure cap for independent non-executive director, risk management and dividend policy dis - closure. These changes reflect a move away from formal compliance and towards more substantive assess - ment of board effectiveness. Listed companies are expected to explain how their boards actually func - tion, not merely relying on compliance with formalities and rules. Disclosure Implications The amendments require more meaningful disclosure in corporate governance reports. Investors will expect issuers to explain board evaluation, director training, succession planning, diversity objectives, risk over - sight and dividend policy in a specific and company- focused way. Generic wording is unlikely to be satisfactory. The practical effect is that listed companies should review their governance reports early, rather than treating them as a year-end compliance exercise. Shareholder Implications For shareholders, the changes should improve visibil - ity over the board’s effectiveness, independence and competence. They may also affect voting decisions on director re-election, remuneration and governance- related resolutions. Institutional investors are likely to use the enhanced disclosure to assess whether a company’s board is appropriately refreshed, diverse and sufficiently inde - pendent from management or controlling sharehold - ers.
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