In June 2024, the Hong Kong Exchanges and Clearing Limited (HKEX) issued a consultation paper seeking input on proposed amendments to its Corporate Governance Code and related listing rules, with an aim to enhance corporate governance standards in Hong Kong by improving board effectiveness, independence, diversity, and disclosure transparency. Conclusions to the consultation paper was published in December 2024, with the regulations adopting all the proposed changes, some with modifications. Changes are expected to take effect from July 1, 2025.

Below, we outline the key areas addressed in the consultation and their implications for listed issuers and investors in the context of the upcoming 2025 proxy season.

Strengthening Independent Leadership: The Role of the Lead INED

The HKEX is introducing a recommended best practice requiring issuers without an independent board chair to appoint a Lead Independent Non-Executive Director (INED). As it is common in Hong Kong for the CEO (or an executive) to hold the position of the Board chair, a Lead INED will enhance board effectiveness by providing independent oversight and mitigating conflicts of interest. This role also ensures a pro-shareholder agenda and serves as a key point of contact for shareholder engagement, particularly benefiting minority shareholders in a market dominated by controlled companies. With only a third of the board currently required to be independent, HKEX recognition of the importance of the lead INED role should strengthen board independence and balance.

Tenure Limits for Independent Directors

One of the most significant changes is the introduction of a hard cap on INED tenure. The HKEX has introduced a “hard cap” of nine years on the tenure of INEDs, beyond which an INED will no longer considered to be independent, and a cooling-off period of three years after which they can be re-considered as an INED of the same issuer.

Glass Lewis’ benchmark policy currently applies a 12-year tenure limit for INEDs (9 years if no explanation provided for retaining such long-tenured directors) in recognition of the absence of a hard regulatory limit. The 9-year tenure cap aligns Hong Kong with best practices in APAC, where several markets, including Mainland China, Singapore, India, and the Philippines, have similar restrictions, typically ranging between six to ten years.

Notably, the cooling-off period has been increased from two years in the initial proposal to three years in the final rule, somewhat mitigating concerns about the provision serving to “reset the clock” for long tenured directors and undermine board refreshment.

Imposing Limit on Overboarding

HKEX is imposing a hard cap of six listed company directorships for INEDs. Glass Lewis’ benchmark policy applies a stricter limit of no more than five non-executive directorships for directors, and only one additional external board for public company executives, to ensure they can fulfill their duties effectively, particularly in times of corporate crises. A lower cap would better align with regional and global best practices, e.g, Mainland China’s recent three-directorship limit.

Further Improvements of Board and Workforce and Diversity

December 31, 2024 marked the conclusion of Hong Kong’s recent gender diversity reform which require all issuers to appoint at least one director of a different gender to their boards. This led to a notable increase in boards with female directors during the 2024 proxy season, with women now comprising an average of 19% of board members, a significant rise from previous years.

With this requirement fully implemented, HKEX has introduced further measures to promote diversity, including: (i) a Code Provision requiring at least one gender-diverse director on the nomination committee; (ii) a Listing Rule mandating issuers to have and disclose a workforce diversity policy; (iii) Mandatory Disclosure Requirement (MDR) of the annual review of the implementation of board diversity policy; (iv) separate disclosure of the gender ratio in senior management and the workforce in the CG report; and (v) codify arrangements during temporary deviations from the board diversity requirement.

The MDR requiring boards to assess the effectiveness of their diversity policies means that diversity will, by law, impact board performance and decision-making. Adopting a policy alone is not enough; boards will need to conduct meaningful annual reviews to evaluate their contribution to effectiveness and strategic goals.

Mandatory Director Training and Board Performance Review

The new rule mandates annual professional development for all directors and requires first-time directors to complete 24 training hours within 18 months of appointment (or 12 hours for those with recent directorship experience). A Code Provision for a board performance review every two years is also introduced.

Mandatory training enhances board effectiveness and investor confidence. However, the 18-month timeline could be seen as lacking urgency, particularly given the absence of a minimum annual training requirement for all directors.

Implementation Timeline, Practical Considerations and 2025 Proxy Season Outlook

Changes are expected to take effect from July 1, 2025, with new requirements applying to CG Reports and annual reports in respect of financial years commencing on or after this date, while certain changes to board requirements have a transition period of three years (and up to 6 years) to allow companies sufficient time for compliance.

Glass Lewis data from the 2024 proxy season shows that 18% of INEDs had served over 12 years, and 9% had served between 9 and 12 years, marking a decline in INED tenure. We anticipate this change will continue going forward into the 2025 season modestly, with slow changes phasing out over a transition period of up to six years in keeping with new regulations.

Overboarding remains an issue in the Hong Kong market, with some directors holding up to 20 directorships. During the 2024 season, more than 120 directors served on over five boards. While we’ve seen a gradual decline in directorships held per individual, the new limits should further reduce this trend, though changes will be gradual.

Although boards have now met the minimum gender diversity requirement, with the new measures, we can expect to see further increase the representation of women on boards, in senior management, and across the workforce in the coming proxy season.

That said, given the gradual nature of board refreshment, which involves careful planning and director recruitment, we do not anticipate major shifts in board composition during the upcoming proxy season. However, enhanced disclosure requirements are expected to be reflected in this year’s financial and CG reports at the earliest, with a portion being mandatory and some as code provisions/best practices. We are likely to see proactive adoption of disclosures and can expect to see disclosure improvements from the 2025 proxy season. Such disclosure may include board-related disclosures such as nomination committee’s director assessment disclosure, board skills matrix, implementation of board diversity policy, risk management and internal controls; and other financial disclosures and dividend policies.

Glass Lewis Benchmark Policy Updates

As these rules become effective, we will review our benchmark policy taking into consideration, among others, reducing INED tenure to a hard cap of 9 years and applying a limit of 6 boards for non-executive directorships. Any changes to our policies will include certain exemptions during the transition period, as suggested by the regulations. Moreover, we will continue to assess each issue and each company on a case-by-case basis.

Looking Ahead

These reforms represent a meaningful step toward strengthening corporate governance in Hong Kong. The emphasis on independent leadership, board refreshment, and enhanced disclosure aligns the market more closely with international standards and offer greater transparency and accountability to shareholders. As these changes take effect, we will continue to monitor their impact.