The present regulatory framework governing the appointment of independent non-executive directors has its roots in the market consultation which took place in early 2002. The rules were formulated after careful consideration of the comments raised in response to the consultation.
The Exchange indicated in January 2003 that it would introduce a requirement for three INEDs and that it recommended as a best practice that one third of the Board comprise INEDs. The rule amendments announced on 30 January 2004 provided a transitional period of a further eight months up to 30 September 2004 for existing listed companies to comply.
The Exchange has received reports of compliance from the majority of the companies listed on the Main Board and Growth Enterprise Market (GEM). Many announcements were made by listed companies in the last ten days of September. Further announcements have been made by some companies since 30 September 2004. The Listing Division is actively monitoring compliance with the new standards.
As at 30 September 2004, 792 companies listed on the Main Board representing 90.4% of the total number of Main Board companies had indicated compliance with the requirement for three INEDs. On GEM the comparable figure was 162 companies or 80.6% of the total number of GEM companies.
The Exchange will not be extending the transitional period.
Any company which fails to meet the 30 September deadline for having at least three INEDs is required under the rules to inform the Exchange immediately and publish an announcement containing the relevant details and reasons for non-compliance. Beyond these directions, the Exchange does not prescribe the form or content of the announcement and it will be for companies to provide an explanation and for shareholders to evaluate that explanation by reference to the company’s circumstances.
…/2 Commenting on the situation that some companies have yet to meet the new standards, Richard Williams, HKEx’s head of listing said, “we have a wide range of regulatory measures at our disposal to address instances of non-compliance. We will look to tailor our response to the listed company’s circumstances and will take into account any concrete remedial steps in hand. As facts and circumstances are likely to vary from case to case, we will need to assess the circumstances of each case individually. There is no one-size-fits-all approach.”
“The measures available range from steps to encourage compliance through to instituting formal disciplinary proceedings against the company and its directors. However, we anticipate most non-compliance would be dealt with by discussion and encouragement” Mr Williams said.