A Look at Hong Kong’s Corporate Governance Code, Regarding “Director Training”

Since Singapore has just set forth amendments to its Corporate Governance Code that are impressively well-refined and substantial, we thought we would look at some other Corporate Governance Codes (CG Codes) in Asia from the boardtraining perspective.

Background. Japan has no corporate governace code at all, even though as a member of the OECD it has arguably accepted the OECD's Corporate Governance Principles but then just did not implement a number of them. In contrast, many other Asian nations have at made an sustained and continuing effort to set up CG Codes. (These areoftensoftlaw that is not mandatory, but means a company can be criticized by the public or the regulator, similar tothe comply or explain systemdeveloped in the UK.)

Hong Kong and Singapore have done a rather good job in this respect, regarding a number of aspects including theuse of independent non-executive directors (INEDs), separation of Chairman and CEO roles, and rules regarding training of for directors and company secretaries.By oneview, this is one reason these markets are now taking business away from the TSE, which as (originally) the largest financial market in Asia, could have been much more of a success than it now is if it had only modernized both its IT systems and it practices/policies earlier.

Singapore's recent amendments to its CG Codes regarding requirements for the training of directors, and disclosure about it, can be found at this link:


It turns out that Hong Kong has also made substantial progress in this area, as shown by the excerpts below (in which the highlighting emphasis has been added by BDTI):

Hong Kong's CG Code Prior to Recent Amendment in11/2011


A.6.5 All directors should participate in continuous professional development to develop and refresh their knowledge and skills. This is to ensure that their contribution to the board remains informed and relevant. The issuer should be responsible for arranging and funding suitable training, placing an appropriate emphasis on the roles, functions and duties of a listed company director. Note: Directors should provide a record of the training they received to the issuer.

C.2.2 The board’s annual review should, in particular, consider the adequacy of resources, staff qualifications and experience, training programmes and budget of the issuer’s accounting and financial reporting function.

(Re Audit Committee duties) –

Oversight of the issuer’s financial reporting system and internal control procedures
(f) to review the issuer’s financial controls, internal control and risk management systems;
(g) to discuss the internal control system with management to ensure that management has performed its duty to have an effective internal control system. This discussion should include the adequacy of resources, staff

qualifications and experience, training programmes and budget of the issuer’s accounting and financial reporting function;

D.3 Corporate Governance Functions Code Provisions

D.3.1 The terms of reference of the board (or a committee or committees performing this function) should include at least:
(a) to develop and review an issuer’s policies and practices on corporate governance and make recommendations to the board;
(b) to review and monitor the training and continuous professional development of directors and senior management;

Recent Amendment of CG Code by theHK Exchanges

Consultation Conclusions on Review of Corporate Governance Code (November, 2011)

Morrison Foerster Memo Summarizing Amendments

General – Re meaning of CP (Code Provisions and RBP (Recommended Best Practice)

p 2……Shareholders should not consider departures from code provisions and recommended best practices as breaches. They should carefully consider and evaluate explanations given by issuers in the “comply or explain” process, taking into account the purpose of good corporate governance.

The Exchange’s response (re director training)

82. We agree that different directors require different levels of training and the eight-hour time frame may not suit everyone. So, we will not adopt the CP on directors’ training proposed in the Consultation Paper. Instead, we will leave it to the directors to undergo whatever training they consider appropriate. We have modified the proposal to require disclosure in an issuer’s Corporate Governance Report on how directors complied with the CP on training. We have also introduced a Note to the CP on directors training stating that directors should provide a record of the training they received to the issuer.

Consultation Conclusion

83. We have adopted our proposed upgrade of the RBP to a CP on directors’ training and added a Note as described in paragraph 82.
84. We have not adopted the proposal that directors should attend a minimum of eight hours of training per year.
85. We have amended Appendix 14 to require disclosure in the issuer’s Corporate Governance Report on how directors complied with the CP on training.

Regarding Company Secretaries (in the Summary, pages 4-10)

Moved the company secretary’s qualifications and experience requirements from Rule 8.17 to a new section in Chapter 3. Set out in a Note to the Rule the academic or professional qualifications that the Exchange would consider acceptable. They include a member of Hong Kong Institute of Chartered Secretaries, a lawyer or an accountant. Also clarified in a Note the factors the Exchange would consider in assessing “relevant experience”. These include the length of employment with an issuer, training received, familiarity with the Rules and relevant laws, and qualifications in other jurisdictions. Removed the requirement for a company secretary to be ordinarily resident in Hong Kong. Repealed Rule 19A.16 to make the requirements for company secretaries of Mainland issuers the same as for other issuers. Introduced a Rule requiring company secretaries to have 15 hours’ professional training in a financial year.

The Board Director Training Institute (BDTI) is a "public interest" nonprofit in Japan dedicated to training about directorship, corporate governance, and related management techniques. It is certified by the Japanese government to conduct these activities as a regulated nonprofit. Read a summary about BDTI here, and see a menu of its services for both corporations and investors here.

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