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2023 Hong Kong Spencer Stuart Board Index

February 2024

The 2023 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:

Shrinking board size

The average number of directors on HSI companies’ boards decreased from 11.3 in 2021 to 10.6 in 2023, consistent with a global trend towards smaller boards. The share of HSI boards with eight or fewer directors rose from 21% to 26%, while boards with 12 or more directors decreased from 41% to 36%. A similar trend can also be observed among the broader group of HSLI companies. The average board size for HSLI companies slightly decreased from 10.7 directors in 2021 to 10.5 directors in 2023. The percentage of boards with eight or fewer directors increased from 25% to 29% this year.

More boards splitting the chair and CEO roles

76% of the HSI companies have separated the chair and CEO roles, an increase from 71% in 2021, with one more company combining the roles and five more companies separating the roles since our last study. Only 5% of chairs are independent. There has also been a slight increase in the number of HSLI boards with separate chair and CEO roles — from 68% in 2021 to 69% in 2023. Only 4% of chairs are independent.

Declining trend in board tenure

Since January 2023, under the revised HKEX Corporate Governance Code and Listing Rules, independent non-executive directors (INEDs) who are serving more than nine years would be regarded as “long-serving INEDs,” and if all INEDs on the board are long-serving INEDs, a new INED should be appointed at the forthcoming annual general meeting (AGM). This has encouraged some board refreshment — the average tenure of INEDs at HSI companies is 6.8 years, a slight decrease from 7.5 years in 2021. Similarly, INEDs at HSLI companies have an average tenure of 6.6 years, compared with 6.9 years in 2021. Almost half of the new directors appointed this year were INEDs. However, it should be noted that there are still three companies that have all long-serving INEDs.

Significant progress on gender diversity

HKEX has mandated NO single-gender board by the end of 2024, which effectively triggered the HSI and HSlI companies to increase gender diversity at the board level. The percentage of female directors on HSI boards increased from 14% in 2021 to 19% in 2023. Similarly, on the broader spectrum of HSLI boards, the representation of female directors rose from 14% to 19% over the past two years. 11% of HSI companies and 12% of HSLI companies have no female directors on their boards, compared with 28% and 27% in 2021, respectively.

Directors with technology expertise are in demand

In our survey of nomination committee members and INEDs in early 2023, cybersecurity and IT development expertise was identified as one of the top board priorities. Within the HSI companies, there has been a slight rise in the percentage of directors possessing a background in technology and digital expertise, increasing from 11% in 2021 to 14% in 2023. Similarly, the proportion of technology directors on the HSLI boards has also grown, from 13% to 16% during the same period.

Nomco activities remain low

In 2022, the HKEX has required all the Hong Kong-listed companies to establish a nomination committee. However, nomination committees of HSI and HSLI boards only meet 1.8 and 1.9 times a year on average, respectively, a slight decline in comparison to 2.1 and two times in 2021. The nomination committee plays a crucial role in board succession planning and renewal, directly impacting board composition. However, there seems to be a limited inclination to adopt more structured approaches for conducting these processes in alignment with the evolving needs of the board and the company’s strategy.

ESG committees are on the rise

Currently, 63% of the HSI companies have established an ESG committee at the board level, while 30% have an ESG committee at the executive level, compared to 48% and 31% in 2021. Among the broader group of HSLI companies, 61% have a board-level ESG committee and 31% have an executive-level ESG committee. In other words, over 90% of the Hong Kong boards have an ESG committee.

Slow progress on board evaluation

HKEX suggests that boards conduct a regular evaluation of their performance. There has been a marked increase in the prevalence of board evaluations (both internally and externally facilitated), from 28% in 2021 to 42% in 2023 for HSI companies, and from 20% to 37% for HSLI companies. Nevertheless, only 3% of HSI companies and 3% of HSlI companies have reported engaging an external facilitator, which is recommended every three years.

Independent non-executive director compensation increased slightly

The average total INED compensation (excluding INED chairs, including both cash, equity and committee fees) for HSI board members slightly increased by 3% to US$99,000. Among the broader-based HSLI companies, it also increased by 4% to US$99,000. It should be noted that the average total INED fees in the U.S. and Switzerland are three times that of the Hong Kong average, while the ranges in the UK and Italy are similar to Hong Kong.