HONG KONG SAR, CHINA Law and Practice Contributed by: Vincent Lung and Mike Yeung, Parkside Chambers
Executive and Non-Executive Directors Larger companies often distinguish between execu - tive and non-executive directors. Executive directors are actively involved in management. Non-executive directors provide external judgment and maintain overall perspective. Listed companies usually have executive directors, non-executive directors and independent non-exec - utive directors. This structure is intended to balance management knowledge with independent and pro - fessional check and balance. Board Committees Board committees are common in listed companies and larger private companies. The audit committee focuses on financial reporting, internal controls and deals with the external auditor. The remuneration committee deals with pay structures and incentives. The nomination committee deals with board appoint - ments, succession and board composition. Committees do not remove the board’s overall respon - sibility. The board must ensure that committees have clear terms of reference and report back properly. 3.2 Board Members Chairperson The chairperson leads the board. The chairperson is responsible for ensuring effective discussion, encour - aging constructive challenge and maintaining a proper relationship between the board and management. A good chairperson also ensures that directors receive proper information and that dissenting views are heard. Depending on the articles, the chairperson may some - times be given a casting vote in case the votes are tied. Chief Executive or Managing Director The chief executive or managing director is usually responsible for running the day-to-day business. This role involves implementing strategy, managing senior employees and reporting to the board. In listed companies, combining the roles of the chair - person and chief executive is generally treated with
caution. If the roles are combined, it might be advis - able for the company to explain how proper checks and balances are maintained. Executive Directors Executive directors have both board and manage - ment functions. They provide the board with detailed knowledge of the business, operations and market conditions. Non-Executive Directors Non-executive directors are not involved in the daily management. Their role is to provide external judg - ment, monitor the management and contribute to overall strategy. They are expected to be independent-minded, but they are not passive advisers. They owe the same core legal duties as other directors. Independent Non-Executive Directors Independent non-executive directors are expected to bring objective and professional scrutiny. Their role is especially important in relation to financial reporting, managing conflicts of interest, and dealing with con - nected transactions, remuneration and board nomi - nations. They are often central to the proper running of the audit, remuneration and nomination committees. 3.3 Board Composition General Companies Every Hong Kong company must have at least one director who is a natural person. Private companies may have corporate directors, but they must still have at least one natural person director. On the other hand, public companies and companies limited by guaran - tee must have at least two directors. A company must also have a company secretary. Listed Companies Listed companies must comply with additional com - position requirements. They must have at least three independent non-executive directors and independ - ent non-executive directors must represent at least one-third of the board.
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