Hong Kong requires listed companies to have three independent directors - but it does not specify when companies planning a listing have to recruit independent directors, which is a loophole that the listing committee should investigate.
Private companies don't need to bother with independent directors because they don't have public investors to worry about. But after they are listed, they do have responsibilities to their investors, including small shareholders, and must add at least three independent members. Independent means not employed by the company and not in a business relationship with the companies.
Currently, private companies eyeing an initial public offering only appoint independent directors when they have submitted their A1 form to the stock exchange. In some cases, they may only have two independent directors, with another pending confirmation.
Paul Chan Mo-po, who represents the accountancy constituency in the Legislative Council, said in his experience firms only asked him to join the board as an independent director just before they submitted the A1 forms. In practical terms, this can be mere weeks away from their listings.
'This time frame is too short for independent directors to understand the companies or raise questions about the financial statements,' Chan said.
There are practical reasons why listing candidates may want to leave it to the last minute. For one thing, they have to start paying them - not to mention sharing their innermost financial details. But if the Stock Exchange doesn't approve the companies' listings, they have to fire the independent directors, wasting time and money.