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2021 Hong Kong Spencer Stuart Board Index

January 2022

The 2021 Hong Kong Spencer Stuart Board Index is a comprehensive study of the governance practices of the constituent companies in the Hang Seng Index (HSI) and Hang Seng Composite LargeCap Index (HSLI). It provides a snapshot of key governance practices, including board structure and composition, diversity, committees, meetings, remuneration and board evaluation. Among the key findings:

Trending toward smaller board size

The average board size for HSI companies is 11.3 directors, a decrease from 12.4 directors in 2018, consistent with a global trend towards smaller boards. The trend is similar among the broader group of HSLI companies: the average board size decreased to 10.7 directors in 2021 from 11.7 directors in 2018.

More HSI boards splitting the chair and CEO roles

There has been a slight increase in the number of HSI boards with separate chair and CEO roles — from 69% in 2018 to 71% in 2021. Only 9% of HSI company chairs are independent. We see the opposite movement among the broader HSLI companies, primarily driven by changes to the companies making up the index. 68% of the HSLI companies have separate chair and CEO roles, a decrease from 71% in 2018. Only 6% of chairs are independent.

Downward trend in board tenure

Independent non-executive directors (INEDs) at HSI companies have an average tenure of 7.5 years, compared with 8.3 years in 2018, while INEDs at HSLI companies have an average tenure of 6.9 years, compared with 7.7 years in 2018.

HKEX recently revised the Corporate Governance Code and the Listing Rules: effective since January 2023, INEDs serving more than nine years will be regarded as "long-serving INEDs,” and if all INEDs on the board are long-serving INEDs, the board will be required to appoint a new INED at the forthcoming annual general meeting (AGM). Six HSLI boards have all long-serving independent INEDs.

Very slow progress on gender diversity

Progress on gender diversity in Hong Kong remains far behind countries like the U.S. and the UK, and even behind Singapore. The representation of female directors on HSI boards inched up from 12.9% in 2018 to 13.9% in 2021, and from 11.9% to 14% on the broader-based HSLI boards over the last three years. 28% of HSI companies and 27% of HSLI companies have no female directors. Female directors only account for 18% of the new class of directors, with no movement at all from 2018.

HKEX has recently mandated NO single gender boards by 31 December 2024, the first major exchange to do so. If HSLI boards get more ambitious and work toward ensuring that 50% of new directors are women, they can reach 30% female representation by 2026, even if 25% of the retiring directors each year are women.

Boards met more often

In a year of unprecedented changes, boards met more often, going from six meetings in 2018 to 7.3 and 7.1 for HSI and HSLI boards, respectively. Nomination committees, which generally are accountable for reviewing board composition, met less often, typically having two meetings a year.

More focus on ESG oversight

Expanding/enhancing environmental, social and governance (ESG) oversight features as the 4th highest priority in our survey of nomination committee directors and INEDs. While the trend was nascent in 2018, currently 48% of HSI companies have an ESG committee at the board level, and 31% have an ESG committee at the executive level. Among the HSLI, 33% have a board-level ESG committee and 33% have an executive-level ESG committee.

A decline in board evaluations

While an annual board evaluation is the norm in many other countries, it is a bit disconcerting to see the prevalence of board evaluations decline among Hong Kong boards, from 39% (both internally and externally facilitated) in 2018 to 28% in 2021 for HSI companies, and from 27% to 20% for HSLI companies.

Average INED compensation has stayed generally flat

While average INED compensation has increased 48% from 2015, it remained flat from 2018 at US$96,000 for HSI companies and increased slightly from US$85,000 to US$95,000 for the broader-based HSLI companies.