Fostering growth through governance

Hong Kong’s International Financial Week 2025, coordinated by the Hong Kong Trade Development Council, was kickstarted by its anchor event, the Asian Financial Forum (AFF), on 13 and 14 January 2025 under the theme Powering the Next Growth Engine.

As part of this annual event, the Institute held a seminar on 16 January 2025, titled Governance: The Driver of Growth, to support the AFF theme. This article provides an overview of the seminar, spotlighting key takeaways on the role of governance in driving sustainable growth.

Moving beyond compliance

Opening the seminar, Gill Meller FCG HKFCG(PE), International Vice President and Institute Past President, and Legal and Governance Director, MTR Corporation Ltd, underscored the importance of governance in driving long-term financial sustainability. ‘The long-term aim of all our organisations is to be financially sustainable,’ Ms Meller remarked, pressing home the collective responsibility of all organisations – be they listed companies, law firms or sporting bodies – to achieve sustainable development.

Dr Kelvin Wong SBS JP, Chairman of the Securities and Futures Commission (SFC), highlighted the positive association between good governance and superior corporate performance in his speech. Drawing on his extensive experience, Dr Wong observed, ‘Governance, in whatever form, intends to drive performance. I believe that in order to make Hong Kong a sustainable international financial centre, we really need good performance from listed companies.’ While acknowledging Hong Kong’s recovery in 2024, which saw 71 new listings and HK$87 billion raised, Dr Wong stressed the need for listed companies to move beyond compliance.

He pointed out that effective shareholder communication enhances the performance of listed companies, particularly for small and medium-sized listed companies. ‘For company secretaries, corporate governance experts or investor relations professionals, you have a bigger role to play in terms of ensuring that the equity story can be delivered to the market,’ Dr Wong stated.

Definition of good governance

The seminar explored the elusive concept of ‘good governance’, with speakers offering diverse perspectives. Ms Meller, moderator of the discussion, commented, ‘Bad governance fills the front pages of newspapers,’ and challenged the panel to articulate what good governance looks and feels like.

Stephen Wong, Partner, DLA Piper, shared his expertise on promoting growth through innovation. With years of experience driving initiatives that have strengthened Hong Kong’s competitive edge, he flagged up the role governance plays in nurturing sustainable growth in a fast-changing business landscape. ‘Long-term returns for investors can only be generated by companies with a strong focus on sustainable corporate governance,’ he said.

Mr Wong linked good governance to a constant narrative. ‘When I perform well, I can tell a good story. When I don’t, I can explain why.’ He pinpointed the relevance of consistent communication with investors. ‘The more stories we are willing to share, the more the public will understand us, even in challenging times.’ He cautioned against silence, which often signals deeper problems such as delayed reports or trading suspensions.

Dr Renu Bhatia, Chairman of the Listing Committee of the Stock Exchange of Hong Kong Limited (the Exchange), shared her perspectives on governance from both regulatory and entrepreneurial angles. ‘Corporate governance is not just an abstract, but is something that becomes ingrained in the company’s culture, rather than being just a compliance issue,’ she said.

Dr Bhatia also put prominence on board dynamics. ‘Good corporate governance is the willingness to discuss things internally, the willingness to air things that might not necessarily be what the rest of the board members want to hear,’ she said. ‘It’s not about everyone having the same thought process, because in a complex business environment, when you’re dealing with challenges, you need to have that robust discussion.’ She added that effective internal communication is just as vital as external transparency, stating, ‘Good governance leads to better management and, ultimately, better profits.’

Michael Duignan, Executive Director, Corporate Finance Division, SFC, discussed the role of regulation in supporting effective governance. ‘When you’re simultaneously criticised for being too aggressive and for being too relaxed, you’ve probably got it right.’ He identified context as being crucial when discussing corporate governance. ‘Good governance varies depending on the company – for founder or family controlled firms, it’s about distinguishing between personal and company resources.’

Chris Brooke, INED, Link REIT, brought insights from his multifaceted roles across real estate, startups and sports governance. He accentuated how governance is a critical enabler of sustainable development across organisations of all sizes and stages, and expanded on long-term resilience. ‘The trust between management and the governance body is important. Foster a culture of collaboration, but bear in mind that there needs to be checks and balances at the same time.’

Diversity, accountability and the role of INEDs

The seminar also delved into key governance themes, focusing on diversity, accountability and the challenges faced by independent non-executive directors (INEDs).

Ms Meller asked Dr Bhatia about the link between diversity and governance. Dr Bhatia asserted, ‘If you want to succeed in today’s world, both from an investor perspective and from an issuer perspective – and you have cross-border customers and supply chains – it’s important to have some of that reflected not only in management but also at board level, so that you can have those differing viewpoints.’

Dr Bhatia emphasised the need for diversity not just in relation to gender but also age, skills and technological expertise, noting, ‘Boards need diverse skills to manage complex business situations.’ Reflecting on progress, she added that by the end of 2024, 98% of companies in Hong Kong had eliminated single-gender boards, with 800 new female directors appointed. ‘I think this is just the beginning of the journey into a deeper concept of diversity that will extend beyond gender, enabling a much wider range of stakeholders to play a role on the board. This ties in well with the idea of board refreshment,’ she suggested. Dr Bhatia also stressed that – given the current global hunt for talent – it is imperative that the very smart, innovative young individuals looking for a career feel they are being properly represented at the management and board levels, otherwise they will be reluctant to join a company. ‘Diversity is no longer simply a social responsibility – it is now an essential business responsibility to secure the right talent to manage the complex situation,’ she argued.

The conversation shifted to governance in sports organisations, where Mr Brooke discussed the Sports Federation and Olympic Committee of Hong Kong, China’s new governance code. He acknowledged its impact on smaller National Sports Associations (NSAs), saying, ‘It’s a radical but necessary step to ensure accountability for public money and government funding.’ Mr Brooke drew attention to proportional governance, explaining, ‘Larger NSAs can offer support to smaller ones, promoting best practices.’ He also cited the code’s value in protecting volunteers, adding, ‘It helps non-experts avoid making inadvertent governance errors, because they are not normally board experts.’

Finally, Mr Wong addressed the challenges INEDs face in regulatory enforcement. ‘INEDs are under increasing scrutiny, acting as gatekeepers who must raise red flags and ensure proper disclosures,’ he noted. However, he acknowledged the limited resources and guidance available, stating that some INEDs receive minimal compensation and lack support, making it hard to fulfil their duties. Mr Wong urged greater education and empowerment for INEDs, and stressed that INEDs must be bold in demanding timely information and should not hesitate to step down if their concerns are ignored.

Balancing independence and market readiness

The seminar then considered the Exchange’s consultation conclusions on the proposed amendments to the Corporate Governance Code, specifically those pertaining to INEDs. The discussion centred around the new nine-year cap on the tenure of long-serving INEDs and the introduction of a lead INED, both of which received mixed reactions from the market.

Dr Bhatia emphasised the consultation’s extensive public engagement, reflecting widespread interest in corporate governance. She indicated that, while there was significant pushback, ‘We’ve landed in a good position that balances forward movement on governance with the market’s readiness.’ On the nine-year cap, she explained the rationale: ‘The issue is whether or not INEDs can still be independent if they’ve been serving on the board for such a long time.’ She also highlighted the importance of a six-directorship cap to make sure that INEDs can dedicate sufficient time to their roles: ‘Research shows a person needs to spend at least 15% of their working hours on each board.’

Mr Duignan acknowledged the challenges when defining independence. ‘Nine is not a magical number, but 30 years of service is unlikely to ensure independence,’ he remarked, adding that independence depends on context, such as whether a company has a majority shareholder. He pointed out the value of international comparisons, but cautioned against over-reliance on such comparisons due to differing market structures.

Challenges in social and human capital disclosures

The seminar also explored the complexities of addressing social and human capital issues in corporate governance and sustainability.

Ms Meller started the discussion by concentrating on the increasing focus on the ‘S’ in ESG, given that the ‘E’ has, to a certain degree, been addressed by new standards such as IFRS S1 and IFRS S2 issued by the International Sustainability Standards Board (ISSB). She asked Mr Brooke about Link REIT’s approach to social issues. Mr Brooke shared that Link’s newly established Sustainability Committee is prioritising employee wellbeing, hybrid working models, and diversity and inclusion, as well as corporate culture. ‘For us, sustainability is about the long-term resilience of the business. The social aspect offers opportunities for material gains and is linked to the long-term sustainability of the organisation.’

Mr Duignan offered a regulatory perspective, acknowledging the early stage of ISSB’s work on social issues. He expressed concern about balancing flexibility with standardisation. ‘More flexibility may make disclosures practical, but it compromises comparability, which is the whole point of standardisation.’

Dr Bhatia underscored the challenges of standardising social disclosures, given cultural and regional variations. ‘It was hard enough with climate, but it’s going to be even more difficult when it comes to human capital because of local variation and the way people think culturally. It’s a long journey and the Exchange’s Listing Committee needs to deepen its expertise.’ Human capital issues like diversity, inclusion and labour standards are critical for attracting institutional investors, she pointed out.

Balancing survival and growth

The seminar concluded with a discussion on governance challenges faced by startups.

Ms Meller began by reflecting on notable governance failures in startups, emphasising the importance of building strong governance early. She asked Mr Brooke, who advises a number of startups, how he encourages them to approach governance. Mr Brooke explained: ‘We often recommend starting with a small advisory board, which could include seed investors and external advisors. This helps founders with market testing, product fit and networking, and it’s a value-add in the initial stage.’ He stressed the significance of having governance as the foundation. ‘Ensure you’ve got transparency and a well-managed business, and that you are well positioned for future growth.’

Dr Bhatia provided a broader perspective on the evolution of governance in startups. For most founders, she clarified, survival is key – getting a product to market and securing funding. Early stage investors typically play an informal advisory role, often keeping a close eye on their investments. However, as startups grow and attract serious funding, governance becomes more structured. ‘At the A and B stages, investors demand board seats, which leads to the development of a formal governance framework,’ she explained.