Letters | A finance hub like Hong Kong should see independent board directors live up to their name. Why the lag?

In other markets, independent directors are usually accessible to investors, reflecting the priority given to shareholder interests. But in Hong Kong, this is typically not the case. The Hong Kong Exchange must protect shareholders

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Signage for Hong Kong Exchanges & Clearing Ltd (HKEX) at Exchange Square in Central. Photo: Bloomberg

Published: 6:40am, 29 Sep 2020Updated: 6:40am, 29 Sep 2020

There is a problem with many boards of listed companies in Hong Kong. We have rarely – if ever – seen independent directors resign due to fundamental disagreement with the company. Hong Kong has yet to see a board remove a CEO for doing a poor job. Why are company boards so often letting their shareholders down?

In most cases, independent directors in Hong Kong are not accountable to anyone other than those who appointed them to the board.

The fundamental problem is a lack of accountability of the board to anyone other than the board. Board members are subject to annual performance reviews, but these are generally done by other board colleagues. Controlling shareholders in Hong Kong have little reason to change incentives to encourage independent directors to act with independence. Very few such shareholders can be expected to willingly cede real control of their company. Independent directors are most often there for compliance reasons, paid at a level signalling the minimal expectations of them.

Investors need access to independent directors who are best positioned to give a true picture of whether boards are functioning properly.

Independent directors also have an important role in explaining to investors the board considerations on executive remuneration and succession, and explaining their logic to shareholders, not via investor relations intermediaries representing management.

Independent directors need to have the right incentives, be accountable to investors and provide a truly unbiased, readily accessible perspective on the board. But without a lead, designated point of contact, independent directors can only be expected to be followers – of those with dominant control.