A new Institute report, published in June 2023, makes recommendations on how governance professionals can raise their game in the fast-changing business and social environment of Hong Kong and the Mainland.
The roles of company secretaries and governance professionals vary depending on the nature of the organisations they work for. This is good news for practitioners in the sense that they acquire a broad and varied experience, but it presents challenges in terms of designing the education and training that will prepare them for their roles. This is further complicated by the fact that the governance professional role continues to evolve over time as organisations adapt to the changing business and social environments in which they operate.
The above trends have been closely followed by the Institute over many years and HKCGI has been focusing its education, training and research activities on preparing practitioners for broader strategic roles in areas such as risk management and applied governance. A new Institute research report – Corporate Governance and Governance Professionals in Hong Kong/China: Upping the Game (the Report), published in June this year, contributes new and useful insights into how practitioners can prepare themselves for their expanded roles and thus enhance the value they bring to the organisations they work for.
The Report, which is the result of a collaboration between the Institute’s Technical Consultation Panel (TCP) and three academics in Hong Kong and the UK, explores local and global trends impacting HKCGI members and makes recommendations for practitioners and the Institute to consider in mapping a path forward.
The Report acknowledges that the current global environment within which governance professionals work is unusually uncertain. Organisations of all types have been subject to multiple major challenges such as the Covid pandemic, climate change, digital transformation and ongoing geopolitical tensions. The Report adds, however, that this presents opportunities for the profession.
‘By combining the necessity of change brought about by issues such as Covid, climate change, technology and other challenges, there is an opportunity to reimagine the role of the company secretary/governance professional, not only as a key governance professional but as a key player in the boardroom makeup of the future,’ it says.
In this context, the Report explores a number of specific practice areas where governance professionals can upskill and add more value. These include the unique contribution they can make to ESG and technology risk management, and helping their organisations navigate between the two different business cultures on both sides of the Lo Wu border.
Assisting with digital transition
‘Digital transformation,’ the Report points out, ‘is a necessity rather than an option.’ Moreover, it is not something that can be left solely to technology professionals – many aspects of governance are being impacted as organisations accelerate their adoption of relevant technology. A good example of this is the adoption of virtual or hybrid meetings – an area where governance professionals are closely involved.
The Report highlights the fact that practitioners need to be more tech savvy in the emerging operating environment – both as a practical necessity in terms of using new technology to perform their roles, and also to be in a position to advise the board on technological and other related risks.
It also notes that the adoption of new technology is shaping the function of governance professionals in organisations. Generally, many of the traditional administrative functions of the company secretary, for example, are increasingly subject to automation. This has meant that practitioners can spend less time on regulatory filing, record-keeping and scheduling, and more time on advising directors on risk management and compliance issues.
‘While the traditional role of the company secretary/governance professional has been to ensure statutory compliance, recent trends have added new responsibilities. For example, risk monitoring, strategic resilience and stakeholder engagement are necessary to deliver positive governance outcomes,’ the Report notes.
Addressing ESG issues
The Report notes that organisations are facing increased pressure to improve their ESG performance and reporting. This is not only via the increased expectations of investors and other stakeholders in this space, it is also increasingly hardwired into the ESG legislation and regulation that organisations are subject to.
These trends have focused attention on the responsibilities of boards in ESG governance. In turn, governance professionals have been seeing climate change and ESG become an increasing part of their board advisory and compliance work, and the Report urges practitioners to ensure they are well-versed in relevant issues and developments so that they can effectively advise the board on the integration of ESG value drivers into sustainable business models.
Navigating cultural differences
The above trends are global and have been impacting governance professionals around the world, but the Report also highlights a local trend impacting HKCGI members.
‘It is well known that the business norms and practices in Hong Kong and other Greater Bay Area (GBA) cities on the Mainland are in many aspects different,’ the Report notes. Organisations will benefit from having governance professionals with an appreciation of the differences between the two cultures and business environments. HKCGI members can benefit from staying ‘in the loop’ with what is happening in key GBA cities.
‘The skills, emotional intelligence, and in-depth appreciation of the subtle cultural differences should not be overlooked, requiring mental dexterity and diplomatic skills at times to bridge the differences and bring about positive outcomes for the board and shareholders. This added value that the role brings the board often goes unacknowledged by the wider business community,’ the Report says.
It adds that practitioners can play a valuable role in assisting organisations to develop better corporate governance practices that consider both local conditions and international standards.
The Report’s recommendations focus on two main areas – getting the company secretary/governance professional role the recognition it needs to function effectively and ensuring that the training practitioners receive is best suited to the varied roles they need to perform.
1. Re-titling the role as Chief Governance Officer
The Report notes that both authority and autonomy are crucial for governance professionals to be able to function effectively. ‘Formal authority and recognition from internal and external stakeholders of the company must be conferred onto the company secretary/governance professional,’ the Report says.
While governance professionals have been gaining in seniority as their roles evolve – the company secretary role has long been a part of senior management for example – the Report suggests there is room to further enhance their standing and reputation. It therefore recommends retitling this role as the Chief Governance Officer (CGO).
The CGO, the Report suggests, could have responsibilities in risk management and compliance. ‘One of the key responsibilities of a company secretary/governance professional for listed entities is to take the lead in compliance with the Listing Rules, plus a miscellaneous number of compliance obligations. Taking on the head of compliance would be an organic growth,’ it says.
The CGO would also be closely involved in monitoring compliance risk at the board level. The Report points out that this aspect of the job would be critical in the current operating environment. ‘Compliance obligations are expected to increase, especially for companies in Hong Kong or those listed on Hong Kong Exchanges and Clearing Ltd dealing with a complicated maze of Mainland laws and provincial rules in the GBA on the one hand, and on the other hand, a large number of laws from various foreign jurisdictions around the world arising from trade in goods and services, including sensitive matters like sanctions,’ it says.
2. Enhancing CPD training
A consistent theme of the Report is that governance professionals need to upskill and its second recommendation is a logical extension of this theme. The Report recommends enhancing the CPD training of practitioners in areas formerly outside the traditional domain of the company secretary’s duties.
In particular, this would include:
- crisis management and business continuity management
- digital literacy and competence (including basics on AI)
- cybersecurity management
- climate risk management, and
- business and related laws in the Mainland.
Furthermore, the Report suggests that the Institute’s international qualifying scheme, currently recognised as a postgraduate Master’s degree, could be upgraded to become a Doctor of Business Administration (DBA) in Governance, Risk and Compliance.
The expansion of the responsibilities of governance professionals into ESG and technology governance was explored in the research report (Roles of Governance Professionals in Today’s Post-Pandemic and Dynamically Changing Risk Environment) published by the Institute in May 2022 and available from the Institute’s website: www.hkcgi.org.hk.
The Report reviewed in this article was authored by:
- Dr Angus Young, Senior Lecturer/Programme Manager of the LLM in Corporate & Financial Law and LLM in Compliance & Regulation at the Department of Law, The University of Hong Kong
- Dr James McCalman, Professor of Leadership Studies within the Business and Law Faculty of the University of Portsmouth in the UK, and
- Professor Aris Stouraitis, Director of the Centre for Corporate Governance & Financial Policy at Hong Kong Baptist University.
The Contributing Editor was Institute Deputy Chief Executive Mohan Datwani FCG HKFCG(PE) and the project was supervised by the Institute’s Technical Consultation Panel (TCP), chaired by April Chan FCG HKFCG. The Institute expresses gratitude to TCP members, Ernest Lee FCG HKFCG(PE), Institute President, and Ellie Pang FCG HKFCG(PE), Institute Chief Executive, for their contributions to this project. The authors would like to acknowledge the contributions of Jessa Alfajardo, Research Assistant at HKBU Business School.