Issuers listed on the Stock Exchange of Hong Kong (SEHK) have markedly improved their compliance with the organisation’s Corporate Governance Code, according to a wide-ranging review.
In a 13 October statement, SEHK’s parent organisation Hong Kong Exchanges and Clearing (HKEX) explained that it analysed 1,428 issuers’ efforts to meet the relevant Code Provisions (CPs) over 2016.
Their performance broadly exceeded that recorded in HKEX’s previous review of compliance with the Code, which covered 1,237 firms listed on the Exchange throughout 2014.
HKEX’s findings from the new review showed that:
In 2014, just 35% of issuers complied with 75 of the CPs or more.
Additionally, the study revealed, the compliance rate among issuers with a larger market capitalisation was higher than that of listed firms with a smaller market cap.
In a report on its analysis, HKEX outlines the Code’s role in supporting stock market activity within Hong Kong. “One of the roles of the Exchange,” it says, “is to provide a sound and effective corporate governance framework.
“From a market regulator’s perspective, good corporate governance reduces information asymmetry – which in turn engenders investors’ trust and confidence.”
It notes: “The obligatory disclosure under the framework guides issuers to report on their corporate governance performance and practice, so as to ensure the interests of investors are protected and [they] maintain their confidence in our market.”
However, the organisation points out, it is vital for issuers to approach their governance commitments with sincerity – and even outpace the basic requirements of the CPs.
“Compliance with the Code is a good start,” it says. “But issuers need to go beyond compliance, to ensure that corporate governance is not treated as a ‘box-ticking’ exercise.”
Welcoming the findings, HKEX’s chief regulatory officer and head of listing David Graham said: “We are encouraged to see that the 2016 review shows that issuers’ overall compliance with the Code has improved since the 2014 review.
“Most notably, nearly all issuers have complied with the CPs on risk management and internal controls – which were only upgraded from Recommended Best Practices in the financial year 2016.
“Going forward we will continue to focus on enhancing issuers’ corporate governance performance.”