Hong Kong Exchanges and Clearing Limited has published a consultation paper in September 2012, to propose amendments to the Corporate Governance Code and Corporate Governance Report concerning Board Diversity. The consultation was finalized in December 2012. A substantial majority of respondents supported the proposal. The implementation date of the revised Corporate Governance Code will be on 1 September 2013.
The principal objective of the amendments is to enhance the effectiveness of the board and corporate governance.
Potential Benefits of Board Diversity
Board Diversity may lead to the potential benefits as follow:
Members of the board with diverse backgrounds bring different concerns and questions to the table, and allow the board to consider a wider range of options and solutions to corporate issues.
Utilizing the Talent Pool
Expanding the pool of potential directors by actively including sectors of society that are currently under-represented may help to alleviate some corporate governance issues.
Access to Resources and Connections
Diverse of board may find it easier to understand its customers and where future growth will come from, connect with employees as to how the listed company operates, and obtain multiple stakeholders’ perspectives to highlight new opportunities or challenges for the listed company.
Diversity in the boardroom may signal to employees that the listed company is committed to equal opportunity or at least that minority status is not a hindrance to their careers in the listed company.
Listed Company Reputation, Investor Relations and Social Responsibility
Board Diversity can convey a commitment to equal opportunity, responsiveness to diverse stakeholders, and a general message of progressive leadership, which enhances the corporation’s public image.
Amendments of the Corporate Governance Code
Either adopts the amendments of the Corporate Governance Code or if it does not, the listed company is allowed to explain the reasons for its decision under the “comply or explain” principle.
A.3 Board Composition
Adding “and diversity of perspectives” to the Principle. When the listed company reviews its board composition, in addition to considering whether it has a balance of skills, experience and independence, it should also consider the benefits of diversity.
A.5 Nomination Committee
Adding a Principle under this section.“In carrying out its responsibilities, the nomination committee should give adequate consideration to the Principles under A.3 Board Composition and A.4 Appointment, Re-election and Removal”.
- A.5.6“The 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.”
Section L of Mandatory Disclosure Requirement on Corporate Governance Report
“If the nomination committee (or the board) has a policy concerning diversity, this section should include the board’s policy or a summary of the policy on Board Diversity, including any measurable objectives that it has set for implementing the policy, and progress on achieving the objectives”.
Although board diversity may lead to more conflict and less group cohesiveness, it helps to improve corporate equality and thus enhance the corporate social responsibility. To achieve diversity of the board, the listed company may encounter difficulties when seeking qualified candidates to cope with the corporate culture and board requirements. Therefore, we suggest relevant institute to establish a database of potential directors to facilitate the selection process. The listed company may effectively approach appropriate candidates before the nomination.
Board Diversity will differ according to the circumstances of each listed company. Diversity of board members can be achieved through consideration of a number of factors, including but not limited to gender, age, cultural and educational background, or professional experience. Each listed company should take into account its own business model and specific needs, and disclose the rationale for the factors it uses for this purpose.
If there are any aspects which we may assist, please do not hesitate to contact our partner Mr. Roy Lo at 3583 8048 (email@example.com) or our Risk Manager Ms. Gloria So at 3583 8517 (firstname.lastname@example.org).
SHINEWING Risk Services Limited