Clarity urged on directors' money

money-glitz | Samantha Wong 7 Jan 2019

There is room to improve corporate governance for both private and public organizations, including detailing how directors are selected and remunerated, say industry watchers.

Eric Tong, immediate past president of the Hong Kong Institute of Certified Public Accountants, says greater transparency is needed in the nomination and appointment process for directors, and organizations should indicate what criteria are adopted for the selection of new directors.

The Stock Exchange of Hong Kong has amended the corporate governance code and related listing rules, which require the board to state in the circular to shareholders the criteria for assessing potential independent non-executive director candidates.

The amendments, which took effect last Tuesday, also require listed companies to promote board diversity, as well as improve greater dividend policy transparency.

Tong says remuneration policy and packages of directors and senior management should also be disclosed, adding the linkage between executive pay and company performance should be specified.

Tong spoke after recent market reforms, including the introduction of weighted voting right structures in listed companies and special arrangements for new-economy companies in Hong Kong.

He says there may be a need to clarify the distinction between independent non-executive directors and non-executive directors, for "greater transparency about the directors' backgrounds and skill sets, and how these benefit the relevant organizations."

For family businesses, the institute says it is important to reassure investors on the succession planning and board refreshments of the family-run companies for a smooth and progressive transition.

It also urges the boards to prioritize gender diversity and director skills and experiences as institutional investors are increasing their focus on the company culture of performance and gender pay disparity. The institute adds that "bringing new blood onto the board can be an opportunity to expand diversity, in terms of age, gender, background and expertise."

In another area, cyber threats will be an important area of focus for boards to monitor in the coming years as data breaches are a growing concern for global investors.

Accounting firm Grant Thornton had called on regulators to make the establishment of a separate risk committee a provision under the corporate governance code. A recent survey by the firm showed that only 11 percent of the listed companies with comprehensive data management had implemented data breach handling procedures.

Data breaches and cyber attacks are top risks of the companies as they can lead to immediate crises or the unintentional release of highly sensitive client and company confidential information, says Mina Wong, advisory director of Grant Thornton Hong Kong.

"Listed companies should communicate more with their investors in their annual reports by devoting a section to how their businesses are driven by technologies and how data privacy is governed," she says.

Companies in telecomunications and retail industries, which retain a high volume of customer data, are encouraged to have a separate risk committee to enhance the existing risk governance structure.

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