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Hong Kong's publicly traded companies have come out to "strongly oppose" the plan by the city's stock exchange to cap the number of board seats each independent director can take, and limit the duration of their tenure.

"A hard cap on the number of directorships does not [ensure] better [performance]," said Mike Wong Ming-wai, chief executive of the Chamber of Hong Kong Listed Companies, whose members include Sun Hung Kai Properties, Henderson Land and most of the largest companies on the Hong Kong exchange.

"A director may take on many directorships but can still contribute sufficient time and effort to serve," Wong said in an interview with the Post. "It boils down to the integrity and discipline of the individuals. Directors are well aware of their duties and the consequences of failing them."

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Wong's comments represent the strongest pushback by one of the city's most powerful lobby groups against Hong Kong Exchanges and Clearing Limited (HKEX) as it collects public feedback until August 16 on its proposal to improve corporate governance. HKEX wants to set the maximum of board seats for independent non-executive directors (INEDs) at six, each for up to nine years, effective January 2025, with a three-year sunset period to rectify the "overboarding" problems.

Mike Wong Ming-wai, chief executive of the Chamber of Hong Kong Listed Companies, on 23 January 2007. Photo: Jonathan Wong. alt=Mike Wong Ming-wai, chief executive of the Chamber of Hong Kong Listed Companies, on 23 January 2007. Photo: Jonathan Wong.>

Two dozen corporate figures sit as INEDs on 181 companies in Hong Kong, each serving over the proposed six-board limit. The city's five busiest INEDs each sit on 10 boards, or more, according to the HKEX. As many as 1,500 INEDs have served as directors in 810 companies for longer than nine years, the data showed.

Hong Kong has lagged behind other stock exchanges in tackling its "overboarding" problem. In Beijing, Shanghai and Shenzhen, concurrent INED positions are capped at three. The London bourse limits full-time executive directors to one board seat in a FTSE 100 company.

Singapore has mandated a third of the boards of all publicly traded companies to be composed of INEDs, each for up to nine years, from 2022. Malaysia also has a nine-year limit, with an absolute cap of 12 years implemented in 2022.

Hong Kong's nine-year limit on INED tenure, starting in 2028, is "inappropriate", tantamount to "micromanaging" by the stock exchange, Wong said.

"The longer the director sits on the board, the more the director understands about the business, [which can lead to] better advice," he said. "There is no evidence of the purported benefit to listed companies. It will only limit the choice of INEDs and prevent companies from appointing the talent they think fit."

This is the second attempt by the HKEX in nearly two decades to improve corporate governance by curbing directorship in one of Asia's biggest capital markets, a task that the bourse's chief executive Bonnie Chan said was a "perpetual work in progress". A 2010 proposal to impose a hard cap was dropped after a backlash.

Bonnie Chan Yi-ting, Chief Executive Officer of Hong Kong Exchanges and Clearing Limited Limited (HKEX), spoke at LME Asia Week held at HKEX in Central on 27 June 2024. Photo: Xiaomei Chen alt=Bonnie Chan Yi-ting, Chief Executive Officer of Hong Kong Exchanges and Clearing Limited Limited (HKEX), spoke at LME Asia Week held at HKEX in Central on 27 June 2024. Photo: Xiaomei Chen>

"We are constantly looking for improvements," Chan said during a June interview with the Post after 100 days in the job. "One always wants to be better" when it comes to governance, she said.

Corporate governance is critical for HKEX as it reforms its listing rules to attract a broader crop of start-ups to raise funds. Many of the world's largest pensions and asset managers already include governance when they weigh their investments, including the gender diversity on boards, and ESG disclosures.

Hong Kong's asset managers and brokers supported the HKEX's plan.

"The proposals will help enhance corporate governance," said Katerine Kou, the chair of the Hong Kong Securities Association. "The cap is needed because the affairs of listed companies are complicated, requiring directors to spend sufficient time".

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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