Composition of the Board
Boards of directors cannot function effectively if they do not have the "right people" as members and the "right chairman" as leader. Moreover, they must also be supported by the "right" attitudes on the part of management, the external auditor and other advisors.
According to Chapter 3 of the Hong Kong Listing Rule, every board of directors should at least has three independent non-executive directors and at least one of the independent non-executive directors must have appropriate professional qualifications or accounting or related financial management expertise. The Code on Corporate Governance Practices issued by the Hong Kong Stock Exchange also recommends that the board should include a balanced composition of executive and non-executive directors (including independent non-executive directors).
Before establishment of the board and appointment of the directors, there are some important issues for boards to consider. These include:
According to the listing rule in Hong Kong, the board of directors of listed company should at least have three independent non-executive directors. When accessing the independence of directors, the listed company should determine whether the director:
For the detail requirements of director's independence, please refer to Chapter 3 of the Hong Kong Listing Rule.
The purpose for the inclusion of non-executive directors is for the independent and objective perspective they can bring to board deliberations. Non-executive directors can make vital contribution as part of the checks and balance mechanisms to ensure that executive directors do not treat the company as their private possession.
It is important to note that it is the responsibility of the board of directors to make the judgment as to whether or not any relationship that exists between the director and the company could reasonably interfere with the exercise of independent judgment.
Some argue that the independence requirement imposes an unduly heavy burden on some smaller public companies. On the other hand, the advantages that result from having independent directors far outweigh any perceived inconvenience.