COMPANIES listed in Hongkong are to be forced to appoint two independent directors to their boards, and professional advisers will face sanctions for failing to comply with local listing rules. In the face of fierce opposition from merchant bankers and law professionals, the stock exchange listing committee has agreed in principle to the amendments which were contained in a consultation document issued late last year. Sources said the proposed amendments were subject to final approval by the exchange policy-making council, and the Securities and Futures Commission would need to be consulted. Implementation was expected to be undertaken in phases. Stock exchange executive director Herbert Hui said yesterday that the listing committee had received submissions from market practitioners and listed companies in January. He said the committee had discussed the issues at recent meetings and arrived at some decisions on the implementation of certain rules, but he would not give details of the rules, or a timetable for implementing them. However, sources said the exchange was keen to put the rules into practice within two years. The exchange is known to be strongly in favour of the compulsory introduction of at least two non-executive directors to listed companies, which it believes could contribute to the integrity of companies and help boards ensure higher standard of financial probity. Despite concerns about the definition of independent directors, sources said the exchange would put forward a set of guidelines to avoid any conflict of interest. On the issue of sanctions against listed companies, shareholders, directors and professional advisers, the stock exchange is understood to be in favour of playing a more active monitoring role. It is proposed that sanctions take the form of a private reprimand, public statement or public censure. In this context, professional advisers are defined as any financial advisers, lawyers, accountants, property valuers or any parties retained by the company to provide professional advice. Aside from the issues of independent directors and sanctions against professionals, the 31-page consultation paper contains 29 proposals varying from rights issues and open offers requiring shareholder approval to payment of listing fees. Meanwhile, speaking at a luncheon meeting on the topic ''The Stock Exchange: Managing For Change'', Mr Hui said the role of independent financial advisers was a growing concern in the local financial community. ''To ensure greater protection for investors and shareholders, company directors need to be able to think independently, and minority shareholders must also be well informed of the merits of certain transactions,'' he said. In circumstances where certain directors or majority shareholders had a conflict of interest, the rules required the seeking of a second opinion which must be independent and free from the influence of the parties with conflicting interests, he said. ''In the interest of transparency for the market, this must surely mean the advisers must be free and seen to be free from such influence,'' Mr Hui said.
