Institute of Securities Dealers Voices Concerns Over HKEX's Proposed Cap on INED Tenure

The Debate on HKEX's INED Cap

Bourse operator Hong Kong Exchanges and Clearing (HKEX) confronts significant challenges in implementing its proposal to cap the number and tenure of independent non-executive directors (INEDs). Amidst a backdrop of record company bankruptcies, differing perspectives from stakeholders—including Allan Zeman, founder of Lan Kwai Fong Holdings—surface. Zeman cautions against hasty regulatory changes during such austere economic conditions.

Proposals to Enhance Corporate Governance

• In June, HKEX introduced various proposals aimed at strengthening corporate governance, including:
• Limiting INEDs to serving on a maximum of six boards.
• Implementing a tenure cap of nine years for each INED.
• Newly listed companies must comply by January 2025.

Stakeholders at Odds

As Zeman articulates, meaningful survival during these dire economic times should take precedence over governance rule changes. Currently, 23 INEDs across 181 companies in Hong Kong exceed the proposed limit, highlighting a potential crisis in governance capacity.

The Asian Corporate Governance Association's Support

Contrasting viewpoints surface, with the Asian Corporate Governance Association (ACGA), representing major institutional investors, advocating for stricter measures to bolster governance standards. They call for enhancing the independence of directors to foster greater investor confidence.

Comparison with Regional Peers

Interestingly, HKEX’s proposed cap is less stringent than other regional frameworks, where Malaysia enforces a five-director limit, Taiwan imposes four, and mainland China restricts it to three. Meanwhile, the ACGA criticizes the idea of a cooling-off period for returning INEDs, asserting it may dilute the intent behind maintaining governance integrity.