In late September, Hong Kong's stock market regulator, the Hong Kong Exchanges and Clearing Ltd (HKEx), invited its stakeholders to respond to its consultation paper on having a more diversified board of directors in listed companies.

 

Briefly, the Hong Kong Exchange proposed in its paper that board diversity be promoted among listed companies, that diversity be demanded in the Corporate Governance Code; that the nomination committees of such boards develop and disclose a policy of diversity in their corporate governance reports.

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The Hong Kong Exchange broadly sought its stakeholders' views on some key issues.

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Hong Kong Exchange: Do you agree that the Hong Kong Exchange should promote diversity on boards?

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Yes, we do think that it is important for the Hong Kong Exchange to promote gender diversity on corporate boards. Globally, we are seeing a wave of change and many significant market regulators, which include the United States, Britain, Australia and Malaysia as well, have already revised their rules and guidelines to require such diversity.

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So, as one of the world's major stock exchanges, the Hong Kong Exchange would do well to follow suit because companies and their stakeholders around the world consider diversity crucial to their success.

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This is especially so when you consider the issue of multiple listings, as well as, how interconnected countries and companies are today. This of course, means that the more board members can bring different perspectives and cultures to the table, the more likely the board's deliberations will be more balanced and comprehensive.

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If your answer to the above question is “Yes”, do you agree that our Corporate Governance Code and the Corporate Governance Report is the appropriate place for the new measures on board diversity?

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We do believe that emphasising the need for gender diversity in rules and regulations is one way to effectively persuade companies to do so. Otherwise, there will be the tendency of companies to stick to the tried and tired way of keeping corporate boards all-male.

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Despite such an emphasis in the rules and regulations, there is still the risk that companies will just tick boxes to get women on boards, and not look for the appropriate skill set requirement for their potential board members.

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We are well aware that companies may opt for boilerplate disclosure and just comply with the rules in form which is what we are seeing in so many corporate boards today.

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Do you agree with our proposal to introduce CP A.5.6, which requires a company's nomination committee or the board should have a policy on board diversity, and should also disclose this policy, or at least a summary of it, in its corporate governance report?

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We think this proposal is necessary, as we believe that such a policy will help a listed company's nomination committee or board members to focus on the issue of what is the required skill set and how it affects the company itself. The policy will then guide the committee or board on strategy and direction that the company needs to pursue so that it adds value to its business.

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Such a policy should also disclose where the company is in terms of diversity in any year, the changes it will have to make to reflect true diversity and how it will prioritise such changes.

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Do you agree with our proposal to introduce a new mandatory disclosure provision in the code stating that if the issuer has a policy concerning diversity, it should disclose details of the board's policy or a summary of the policy on board diversity, including measureable objectives that it has set for implementing the policy, and progress on achieving the objectives?

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We do believe that there should be a new mandatory disclosure provision in the code as this will help ensure that companies set targets on diversity and also make it a point to inform all stakeholders on their targets.

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For companies that do have such a policy already, it is important that they disclose to all their stakeholders, as well as, state what their strategies on diversity are for the future.

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This is especially important for astute investors who are looking for strong corporate governance practices that encourage robust board decision making processes.

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Which of the following would prefer as the implementation date of the amendments set out in this paper?

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i. Jan 1, 2013
ii. April 1, 2013
iii. June 1, 2013
iv. Sept 1, 2013
v. Other (please specify)

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Clearly, the Hong Kong Exchange is looking to make the implementation date of the amendments within 2013 which is certainly encouraging to note that it has the issue of diversity as a high priority.

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Given all this as a background, we find the Hong Kong Exchange's consultation paper as a huge step in the right direction for Hong Kong as well as for the region.

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However, we have to stress that this wave of change will require deeper waves of change within companies before the effects are truly effective.