Following a consultation process conducted in June 2024, the Stock Exchange of Hong Kong Ltd. (HKEX) has announced finalized amendments to the Rules Governing the Listing of Securities on HKEX (Listing Rules) to improve corporate governance of listed companies, with a focus on the areas of board effectiveness and independence, diversity, risk management and capital management.
The amendments are set out in conclusions to the June consultation paper and largely adopt the proposals made in the consultation paper, with some modifications, in particular, to the requirements relating to director training, and implementation of the requirements on overboarding and independence for independent non-executive directors (INEDs) is now phased.
The new rules will come into effect on 1 July 2025 (later than the 1 January 2025 originally proposed) and apply to corporate governance reports issued for financial years commencing on or after that date. This means that, for companies with a 31 December financial year-end, the new requirements will apply to annual reports published in 2027 in respect of the financial year ending 31 December 2026. Additional transitional arrangements will apply to certain measures, as noted below.
A summary of the final amendments is set out below.
Note that the requirements are categorized as follows:
- Rule: A compulsory requirement under the Listing Rules.
- Code Provision (CP): Companies must “comply or explain” under the Corporate Governance Code.
- Recommended Best Practice (RBP): Companies are encouraged to adopt the measure as a recommended best practice under the Corporate Governance Code, but such measure is not subject to the “comply or explain” requirement.
- Mandatory Disclosure Requirement (MDR): A compulsory item for disclosure in a company’s annual Corporate Governance Report.
| TOPIC | DETAILS OF NEW REQUIREMENT | NATURE OF REQUIREMENT |
| Lead INED | Where the chairman of the board is not an INED, the company will be required to appoint a “Lead INED,” who will:Act as a channel of communication with shareholders.Facilitate communication (i) among INEDs and (ii) between INEDs and the rest of the board. | RBP |
| Shareholder engagement | Companies must disclose details of the board’s engagement with shareholders during the reporting period, including:The nature and number/frequency of such engagements.The groups of shareholders and representatives of the company involved.The company’s approach to following up on the outcomes of these engagements. | CP/MDR |
| Mandatory director training | All directors must participate in mandatory continuous professional development training (CPD) each year. No minimum-hours requirement is specified. CPD must cover each of the following topics:(a) The roles, functions and responsibilities of the board, its committees and directors, and board effectiveness.(b) Issuers’ obligations and directors’ duties under Hong Kong law and the Listing Rules, and key legal and regulatory developments (including Listing Rule updates) relevant to discharging those obligations and duties.(c) Corporate governance and ESG matters (including developments on sustainability or climate-related risks and opportunities relevant to the issuer and its business).(d) Risk management and internal controls.(e) Updates on industry-specific developments, business trends and strategies relevant to the issuer. | Rule |
| First-time directors (those who have not been a director of an HKEX-listed company in the three or more years prior to their appointment) will be required to undertake a total of 24 hours of CPD within 18 months of their appointment.This requirement is reduced to 12 hours of CPD for first-time directors who have served as director of a company listed on an exchange other than HKEX within the three years prior to their appointment. | Rule | |
| For each director, companies must disclose:The total number of hours of CPD attended.The format or mode of CPD, including whether internal or external provider, or self-study.In respect of each mode of CPD, the number of hours attended, the topics covered and a description of the relevant providers (name and/or type). | MDR | |
| Board performance review | The company should conduct a board performance review at least every two years, and disclose details of this review in its Corporate Governance Report. | CP |
| Board skills matrix | The company should maintain a board skills matrix and disclose:The company’s existing board skills mix.How the skills, experience and diversity of the board serve the purpose, values, strategy and desired culture of the company.Details and plans to acquire further skills. | CP |
| INED overboarding | An INED must not concurrently hold more than six listed-company directorships.* As a transitional arrangement, this new rule will apply from the first annual general meeting (AGM) held on or after 1 July 2028 by any company that an overboarding INED serves. For IPO applicants, the rule will apply starting 1 July 2025. | Rule |
| Directors’ time commitment and contribution | The nomination committee must annually assess each director’s time commitment and contribution to the board, taking into consideration each director’s other significant external time commitments and other factors relevant to their character, integrity, independence and experience, and disclose this assessment. | MDR |
| Long-serving INEDs | An INED will no longer be considered independent after serving as an INED for a company for nine years (calculated from the later of the company’s listing date and the INED’s appointment date). After that period, the INED may:Continue as a director if redesignated as a non-executive director (not independent); orBecome an INED again after a three-year “cooling-off” period.* This rule will be subject to phased implementation over a transition period of six years as follows:(a) Phase 1: by the first AGM on or after 1 July 2028, long-serving INEDs must not represent a majority of INEDs on a company’s board.(b) Phase 2: by the first AGM on or after 1 July 2031, companies must not have any long-serving INEDs. | Rule |
| Nomination committee diversity | At least one director of a different gender must be appointed to the nomination committee. | CP |
| Board diversity policy | The company must have a board diversity policy and disclose that policy in its Corporate Governance Report. | Rule / MDR |
| Board diversity policy annual review | The company must disclose in its Corporate Governance Report the results of its annual review of the implementation of its board diversity policy, conducted during the year covered in the report, including:Progress toward the issuer’s objectives.How the issuer has arrived at its conclusions. | MDR |
| Workplace diversity policy | The company must have a workplace diversity policy and disclose that policy in its Corporate Governance Report. | Rule / MDR |
| Gender ratio disclosure | The company must disclose in its Corporate Governance Report the gender ratios of:Senior management.Workforce (excluding senior management). | MDR |
| Temporary deviation from board diversity requirements | If a company fails to have directors of different genders on its board, the company must:Immediately publish an announcement setting out details and reasons for the omission; andComply with the requirement within three months. | Rule |
| Risk management and internal controls review | The board must conduct an annual review of the company’s risk management and internal controls systems, and disclose details of this review in the Corporate Governance Report.This disclosure must include confirmation from the board that the company’s risk management and internal control systems are appropriate and effective. | MDR |
| Dividend policy | Companies with a dividend policy must disclose details of that policy and confirm that dividend decisions made by the board were in accordance with the policy.Companies without a dividend policy must state this fact and disclose the reasons for the absence of such a policy.Companies must disclose reasons for any variations in dividend rate compared to that of the previous corresponding period, or reasons for not paying a dividend and the measures the company intends to take to enhance investor returns. | MDR |
| Shareholder record dates | Companies will be required to set a record date for general meetings and for receiving entitlements (such as dividends).The record date and any related book closure date must be announced 10 business days in advance. | Rule |
| Management’s monthly updates to board | Monthly updates provided by management to the board should include, among other matters, monthly management accounts and management updates. | CP |
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.
For further information, please contact:
Paloma Wang, Partner, Skadden
paloma.wang@skadden.com
