Shareholder activist David Webb says proposals to reform corporate governance from Hong Kong's stock market operator won't help address concerns about the efficacy of independent non-executive directors.
Listing rules require that a third of each board of directors be independent non-executive directors.
Hong Kong Exchanges and Clearing, the holding company of the stock exchange, published its consultation paper on corporate governance on November 3, and are invited views until December 8. Among its suggestions are to require boards, when nominating someone for election as an independent director, to explain why they think that person is independent.
But speaking at an event about shareholder engagement and activism, Webb said such directors are independent in name only as controlling shareholders can vote in their election.
"The truth is they're not independent. Ninety percent of companies have a controlling shareholder who elects all of the board in general meetings, including the independent directors – so that makes them not independent," he said.
He said the solution would be to allow independent shareholders on their own to vote in those elections.
"The board can propose any candidates it wants, but so can shareholders. And that way we would give independent directors a proper mandate and accountability."
Webb said HKEx appears to be heading in the opposite direction, because it is proposing to abolish a requirement in the Code on Corporate Governance that independent directors should attend general meetings and develop a full understanding of the views of shareholders.
He said by proposing to delete this requirement, HKEx is essentially saying that independent shareholders views aren't relevant.
"Now if that's their view, they should simply abolish all of the requirements to have so-called independent directors and be honest about it intellectually and just say 'Hong Kong just isn't ready to have real accountability for capital. The public can buy shares but they can't expect to be able to have any directors representing their interests in the boardroom'."
He said Hong Kong needs to raise its standards if it is going to be credible, because the status quo clearly isn't working.
"If you look at the Enigma network, for example, that I wrote about in May which collapsed in June, 50 listed companies, each of which must have had at least three so-called independent directors – there's 150 independent directors who weren't [independent] and were not doing their job, not supervising the behaviour of these companies and allowed that behaviour to carry on."