A two-month consultation process by the Hong Kong Exchanges and Clearing (HKEX) on a review of the city’s corporate governance code is set to conclude on 18th June. One of the key proposals, under a broad ranging set of new ESG rules put forth by HKEX, is to further promote gender diversity in the boardroom.
HKEX intends to prompt the companies under its purview to achieve greater diversity by not only stressing to them the benefits of shifting away from boards comprising solely of males, but also by requiring all listed issuers to set numerical targets and timelines to achieve gender diversity at both their board levels and across their entire workforces. Under the proposals, these targets would be included in mandatory disclosure requirements.
Already, since 2019, all Hong Kong issuers are required to have and disclose their board diversity policy, making the city the first jurisdiction to mandate such policy. IPO applicants are required to disclose their board diversity policy in their prospectus; and those with single-gender boards at the time of listing are required to explain the measures they have put in place to achieve gender diversity after listing.
The consultation document cited a report by MSCI, which found that in 2020 only 12.7% of Hong Kong listed companies’ directorships were held by women. As of 31st December 2020, out of 2,538 issuers, around 32.1% had no female directors on their boards, whilst around 37.4% had only one female director.
The problem with boards that lack diversity, according to the paper, is that “diversity is an important driver of (a) board’s effectiveness, creating cognitive diversity in the boardroom and breaking down a tendency towards ‘group think.’”
Under the proposal, failure to comply could result in range of penalties from a public reprimand to denial of access to fundraising facilities, training, suspension of trading and de-listing.