The Hong Kong Institute of Certified Accountants says the Hong Kong Exhanges and Clearing Ltd.'s latest proposals to tighten governance in companies that are listed or about to be listed will help keep Hong Kong in line with major financial centres, but suggests that more guidance may be needed in areas such as the chairman's and the board's role, board evaluations, and policies on shareholder communication and whistleblowing.
The institute also suggests that the exchange should consider introducing recommended best practices on sustainability reporting and review the existing code requirements on internal controls.
Given the numberous changes put forward in the consultation, the institute suggests that the exchange needs to be very clear about its expectations on compliance with the code on corporate governance practice. Under the current "comply or explain" approach, issuers have the flexibility of either complying with a code provision or explaining in their corporate governance report why they have not adopted that provision. However, the institute says it is not made clear whether a listed company is expected to strive hard for compliance with best practices or whether it is free to adopt a lower standard, so long as it discloses and rationalizes its position. The second approach may weaken the effectiveness of the code.
The Hong Kong Exhanges and Clearing Ltd. issued a review of the code on corporate governance practices for consultation in December 2010. HKICPA is finalizing its submission on the consultation and is in agreement with many of the exchange's proposals, but emphasizes the need for further guidance before the revised code is implemented.
MORE ARTICLES ON CORPORATE GOVERNANCE