Hong Kong plans to limit directors to 6 board seats each to improve corporate governance

Hong Kong’s stock exchange plans to take the hatchet to directorships to whittle down the concentration of board seats among the city’s corporate elites to improve governance, a challenge that its chief executive called a “perpetual work in progress.”

Hong Kong Exchanges and Clearing Limited (HKEX) is seeking public feedback on its plan to limit independent directorships to a maximum of six per person, each tenure capped at nine years, according to a statement. The consultation is open until August 16.

Starting from January 2025, listing applicants will be barred from appointing a director who already sits on six boards, according to the plan. Existing publicly traded companies will be given three years until 2028 to rectify the “overboarding” among their directors.

“It is important that directors have the time and capacity to meet all of their responsibilities, including when there are unforeseen events and in times of crisis,” HKEX said. Independent non-executive directors (INEDs) “in particular have to be able to devote sufficient time and attention to the company’s affairs. They are expected to act in the interest of the company and shareholders as a whole and should, among other responsibilities, exercise independent judgment, scrutinise the issuer’s performance and take the lead where potential conflicts of interest arise.”

Hong Kong is catching up with regional bourses as it bolsters its governance standards ahead of an expected influx of new listings, as an expected drop in interest rates rekindles interest among start-ups to raise funds through initial public offers (IPOs).

“We are constantly looking for improvements,” said the HKEX’s chief executive Bonnie Chan, adding that corporate governance is a “perpetual work in progress” where “one always wants to be better”.