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Hong Kong Exchange Evades ‘Real Problem’ With Reform, Says Webb

Hong Kong Exchanges & Clearing Ltd.’s proposal to raise the required number of independent directors in the boards of the city’s listed companies is “ignoring the real problem,” shareholder activist David Webb said.

The stock exchange is proposing to require independent non-executive directors to make up one-third of the boards of the companies, compared with the current requirement of at least three such directors.

Webb, who quit as an independent director of the stock exchange in May 2008, citing poor corporate governance as part of his reasons, proposed companies should have independently elected directors rather than “pretending that we have ‘independent’ directors” that are appointed by the companies.

The South China Morning Post cited Hong Kong Exchanges’ Head of Listing Mark Dickens as saying companies should find an adequate pool of candidates with the knowledge and experience to be independent directors. The proposals form part of a market consultation on corporate governance released Dec. 17, which also proposed requiring directors to spend eight hours of training on law and company regulation annually. The deadline for submission to the consultation paper is March 18.

“All of these proposals are just ignoring the real problem, which is that INEDs are only as independent as the controlling shareholder wants them to be, which in most cases, is not at all,” Webb said in an e-mailed reply to Bloomberg News today. “It doesn’t make any difference how many committees you have, or what fraction of the board is labeled ‘independent,’ if they all serve at the pleasure of the king.”

The stock exchange proposed a transitional period until Dec. 31, 2012 for companies to comply with the new quota because 21 percent of companies listed in Hong Kong don’t meet the proposed requirement.

The stock exchange also recommended that companies set up a remuneration committee whose chairman and a majority of members must be independent non-executive directors.

Companies’ audit committees should meet at least twice a year with their external auditor instead of only once a year, the consultation document said. Those committees should set up “whistle-blowing” policies for employees and external persons to raise concerns.

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