Board effectiveness has always been at the heart of good corporate governance, and this month’s CGj casts light on two essential components of building and maintaining an effective board – board refreshment and director training.
These topics are very timely since Hong Kong Exchanges and Clearing Limited (HKEX) has proposed to introduce requirements into our Corporate Governance Code and Listing Rules relevant to both board refreshment and director training.
These include new Code Provisions, for example, requiring – subject to comply or explain – regular board performance reviews and the disclosure of a board skills matrix, and a new Listing Rule requiring mandatory director training.
At the time of writing my message this month, those proposals have not yet been finalised, but I would like to focus on the role our Institute intends to play in helping directors stay ahead of the game via ongoing training.
Firstly, our Institute supports the move to make director training mandatory. As our Chief Executive, Ellie Pang FCG HKFCG(PE) explains in this month’s In Conversation column, it is vital for directors to fully understand their roles, functions and responsibilities, and – crucially – their fiduciary duties and legal obligations towards the companies they serve.
She also points out that the Chinese mainland, Singapore and Malaysia have all introduced mandatory director training requirements, so Hong Kong will certainly not be alone if it goes ahead with the proposals put forward in the HKEX consultation. Nevertheless, while there is a growing recognition of the importance of director training globally, mandatory requirements are still relatively rare. Most jurisdictions encourage training through guidelines rather than enforce it through regulations.
Given the crucial role that director competency plays in achieving and maintaining good corporate governance, our Institute believes that the move to position Hong Kong ahead of the curve in terms of mandatory training requirements is well advised. We are also working on many fronts to play our part in enhancing board effectiveness – a guide on board performance reviews has just been issued and we intend to play a practical, enabling role in terms of ensuring that directors have access to relevant, flexible and price-competitive training options provided by respected industry and governance leaders.
To this end, the Institute will shortly be launching a director training package, which will be closely aligned with the regulatory requirements put forward by HKEX – in particular, the package targets the five specified topics set out in the HKEX consultation paper. The package has also been designed with maximum accessibility in mind. It will therefore be calibrated for both new and experienced directors and will include training videos in English, Cantonese and Putonghua.
To conclude, our Institute believes that Hong Kong’s proposed mandatory director training requirements will bring directors into alignment with other governance gatekeepers (in particular our members), who have long been subject to mandatory continuing professional development requirements. In the current era of rapid and large-scale change, directors must continuously update their knowledge and skills, and without a structured training programme they may struggle to navigate the complexities of the current business environment. The time has come to recognise that training is not just beneficial, but is also essential for directors to fulfil their pivotal role in governance.
