Ined in Hong Kong

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Independent non-executive directors (INEDs) are expected to represent minority shareholders and protect public interests. According to the HK Stock Exchange, INEDs’ major roles are to strike a balance between corporate management and shareholders (including minority interests). Yet, in reality, INEDs might not be “independent” enough to safeguard minority interests; thus reflecting the loopholes of existing system. Recent trend of INEDs jumping ships during company crisis has alarmed us about insufficient minority protection. For example, Dr Hans-Joachim Körber resigned as INED during Esprit’s difficult time. Mr. Lim Meng Ann resigned as INED amidst Li Ning Company Limited’s poor operating performance. So a question remains: Are INEDs part of an effective corporate governance mechanism? Problems

First, INEDs are elected by controlling interests instead of minority shareholders when they are supposed to speak on minority interests’ behalf during board meetings. At the very beginning, INEDs are invited by executive directors. As many Hong Kong listed companies are dominated by family members, these INEDs are usually close friends of executive directors or controlling shareholders. Therefore, the actions of INEDs may not be in the best interests of minority shareholders. Second, despite that Appendix 14 – Corporate Governance Code requires re-election of INEDs to go through AGM; the election result is still determined by controlling shareholders since they account for the majority among the shareholders who vote at the meeting. As a result, INEDs remain aligning with majority interests. Third, although Corporate Governance Code requires INEDs to give adequate attention to company affairs, statistics show that many INEDs hold more than 7 directorships in various listed companies. It is highly possible that these INEDs are not familiar with the business operations of the respective companies. Nonetheless, they are the ones who possess the decision-making rights and...
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