HONG KONG, Oct 8, 2020 - (ACN Newswire) - Recently, there have
been discussions in the financial market about the suggested
introduction of a lead independent non-executive director ("Lead
INED") on the boards of listed companies. The Hong Kong Institute
of Directors ("HKIoD") expresses strong reservations about the
suggested introduction and states its views regarding enhancing the
effectiveness and accountability of INEDs.
HKIoD's views stem from the legal stipulation that all directors
bear equal responsibility as well as the basic principle that INEDs
must serve on the board with independent perspective towards
protecting the long-term interests of the company and all
shareholders. INEDs carry the trust bestowed upon them. HKIoD
therefore affirms that INEDs should be effective and accountable in
fulfilling their roles. According to HKIoD's observation, there are
INEDs who perform their duties well, particularly those who are
recognised recipients of Directors Of The Year Awards. However,
there is still room for improvement in terms of change in culture
and general development.
"There are many measures that can be taken to enhance INED
effectiveness and accountability," said Dr Christopher To, Chairman
of HKIoD. "However, we do not think the appointment of a Lead INED
is the solution. Having a Lead INED may be effective where the
majority of the board consists of INEDs. If the majority of board
members are executive directors and the major shareholders are
holding more than 50% of the issued share capital of the company,
appointing a Lead INED does not help the independent shareholders
in the decisions of the board, except in the case of a connected
transaction, in which the major shareholder is already required to
abstain from voting."
"We are concerned with how the appointment of a Lead INED could
affect the other INEDs' perception of their roles and
responsibilities, and in turn their desire and motivation to
perform," added Dr To. "Having a number of INEDs on a board helps
to widen the opinion base and generate balanced views. The emphasis
on the Lead INED risks disrupting this balance."
Mr Henry Lai, Past Chairman of HKIoD and current Chairman of the
Institute's Corporate Governance Policies Committee, has in mind a
number of measures for enhancing the system of INEDs, though the
introduction of a Lead INED would not be among such measures.
"Firstly, we should review the selection criteria of INEDs, such as
independence, special roles expected of each INED, board diversity,
et cetera, including the procedures for appointing INEDs," said Mr
Lai. "In addition, priority must be given to initial and ongoing
education and training of INEDs. In some other jurisdictions, it is
a developed culture for the INED and the company to seek recognised
training in INED practices. Companies should also be encouraged to
have more professional and experienced directors appointed as
INEDs."
"Secondly, meetings with independent shareholders can be set up for
INEDs collectively before every EGM to discuss and explain the
resolutions that the EGM seeks to pass, in supplement to the
recommendations made by the independent board committee and
independent financial adviser ("IFA")," explained Mr Lai. "Such
meetings can be arranged in the interest of serving as another
bridge between shareholders and the board, in addition to the
company's Investor Relations communications. In performing their
duties, INEDs should be allowed to choose their own IFAs."
"Thirdly, the inclusion of an INED report in the company's annual
report is another measure to enhance the accountability of INEDs,"
added Mr Lai.
Dr Carlye Tsui, CEO of HKIoD, observed, "INEDs need to be educated
continually in order to remain up to date on trends of corporate
governance. Currently, many companies do not seem to understand or
appreciate the functions and benefits of INEDs; hence, they too
need to be educated. Continuing education, for both INEDs and other
directors and management, is significant in increasing
understanding and in encouraging collaborative working
relationships, which ultimately result in bringing the true value
of INEDs' contribution to realisation." She further said,
"Corporate governance is in continual evolution. While executive
directors and management may be preoccupied with business
development, INEDs can act as catalyst for championing board
leadership in such issues as ESG adoption and board evaluation.
This will enhance the effectiveness of INEDs."
Dr To remarked, "In some other listing regimes, the ecosystems are
characterised by a market with a high ratio of institutional
investors to retail investors. In Hong Kong, the reverse scenario
holds true, with retail investors outnumbering their institutional
counterparts. Having a Lead INED in dialogue with institutional
investors may therefore be unfair to the retail investors."
"In the evolution of corporate governance, HKIoD believes that the
number of INEDs in a board can be increased given time, leading
ultimately to an INED-majority board," remarked Mr Lai. "Now it may
be appropriate to consider the roadmap towards this majority. Then
a Lead INED may be able to serve the leading purpose. Otherwise, it
is unfair to the Lead INED as enormous pressure would be thrusted
solely upon him or her while the other INEDs would remain in the
back seat."
Dr Tsui posed a crucial question, "The final question is: Who will
be willing to take up the position of Lead INED, given the
tremendous responsibility and liability that the role entails? It
will be an immensely difficult task, if not impossible, to look for
candidates to fill this position. This also brings up the issue of
awarding reasonable remuneration to INEDs, particularly a Lead INED
to attract the right candidates."
About The Hong Kong Institute of Directors
The Hong Kong Institute of Directors is Hong Kong's premier body
representing directors to foster the long-term success of companies
through advocacy and standards-setting in corporate governance and
professional development for directors. A non-profit-distributing
organisation with membership consisting of directors from listed
and non-listed companies, HKIoD is committed to providing directors
with educational programmes and information service and
establishing an influential voice in representing directors. With
international perspectives and a multi-cultural environment, HKIoD
conducts business in biliteracy and trilingualism. Website:
http://www.hkiod.com.
Media Enquiries:
Strategic Public Relations Group
Brenda Chan, +852 2114 4396, brenda.chan@sprg.com.hk
The Hong Kong Institute of Directors
Moni Ching, +852 2889 1414, moni.ching@hkiod.com
Source: The Hong Kong Institute of Directors
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