Diversity brings unique perspectives to the boardroom and drives innovation for businesses. Yet, the underrepresentation of women on boards has been a persistent issue in Hong Kong. As at end of 2020, over 32% of the 2,538 issuers in the city had no female directors. While women filled 34.3% and 19.5% of director seats of listed issuers in the UK and Singapore respectively, the figure for Hong Kong stood at a mere 12.7% as of October 2020, according to a report by MSCI. To address the issue, Hong Kong Exchanges and Clearing Limited (HKEX) made a series of proposals in its Consultation Paper on Review of  Corporate Governance Code and Related Listing Rules, published in April 2021. In a submission to HKEX this month, the EOC voiced support for the proposals and recommended additional steps to promote gender balance on boards.

The EOC fully supports HKEX’s proposals to: (i) highlight in the note to one of the Rules that diversity is not considered to be achieved by a single-gender board; (ii) introduce a Mandatory Disclosure Requirement on all listed issuers to set and disclose numerical targets and timelines for achieving gender diversity at board level and across the workforce, including senior management; (iii) introduce a Code Provision under the Corporate Governance Code requiring the board to review the implementation and effectiveness of its board diversity policy annually; and (iv) amend relevant forms to include directors’ gender information and display board diversity-related information (including age, gender and directorships) on the HKEX website. These are all welcome moves for enhancing board accountability and transparency in relation to gender diversity.

According to HKEX, after revisions to the Rules take effect, existing issuers with single gender boards will be allowed a three-year transition period to appoint at least a director of the absent gender on their boards, while IPO applicants are not expected to have single gender boards. The EOC believes that the transition for existing issuers may be shortened to accelerate change that is long overdue, especially when, by comparison, the same Consultation Paper has proposed introducing a new Code of Practice requiring issuers to appoint a new Independent Non-Executive Director at the forthcoming AGM.

The EOC also recommends that HKEX consider introducing sustainable measures to prevent tokenism. A 2011 study on boards in the Norwegian context suggests that women directors are able to effectively influence the level of organisational innovation only when they form a consistent and critical minority (at least three women) rather than a tokenistic presence (one to two women). Sample benchmarks therefore should be set to indicate the need for a critical minority on boards.

Further, gender diversity goals should extend beyond the Board to all Board Committees. This is particularly important in relation to the Nomination Committee, whose duties include making recommendations to the Board on the appointment or reappointment of directors and succession planning for directors, in particular the Chairperson and the Chief Executive.

To learn more about the EOC’s recommendations to HKEX, please click the link below.