Below is an excerpt from ISS-Corporate’s recently released paper “Hong Kong Directorship Trends: Companies Pressed to Shorten Board Tenures, Reduce Overboarding, Improve Independence”. The full paper is available for download from the ISS-Corporate online library.
INTRODUCTION
Hong Kong companies stand out against many of their Asian and Western peers for having longer tenured Independent Non-Executive Directors (INEDs) few lead INED roles and directors who hold a large number of board seats on different companies, known as “overboarding.”
The Stock Exchange of Hong Kong Limited (SEHK) will soon implement new regulations that place limits on INED tenures and recommend the designation of a lead INED as best practice. The reform aims to strengthen Hong Kong’s position as a leading international financial center by enhancing board effectiveness, ensuring diverse perspectives in decision making, and addressing the practical challenges faced by listed issuers. Some of the world’s largest investors have expressed their support for these changes.
In this paper, ISS-Corporate will analyze the current distribution of long-tenured INEDs, overboarded INEDs and lead INEDs in Hong Kong compared with other major Asian markets excluding Japan. We will also examine the wider Asian landscape and discuss what potential challenges issuers may face in aligning with investor and regulatory pressure to change their boards’ composition.
KEY TAKEAWAYS
- Hong Kong and Taiwan are the only major Asian markets where a tenure limit is not yet effective or fully implemented. Singapore and Hong Kong (until the new rules go into effect) are the only Asian markets we analyzed with no limits on INEDs’ directorships.
- Among Hong Kong HSI companies, about 2% of the INEDs serve on more than six boards.
- The majority of companies on major Asian indices, other than the Singapore STI, do not have an independent board chair or a lead INED.
- Stricter governance regulations and shifting investors’ expectations may pressure companies to replace long-tenured and overboarded INEDs.
By:
Isaac Cheng, Associate Vice President – APAC Advisory, ISS-Corporate
Herman Choi, Head of APAC Advisory, ISS-Corporate
