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Is your Board on board with training?

How many of Hong Kong’s Board members are up to speed with the ESG training that they need? asks TPB’s Business Development Lead, Fiona Donnelly.

What is a Board director responsible for?

The Hong Kong Companies Registry publication A Guide on Directors’ Duties starts, “In general the responsibilities and liabilities of directors derive from various sources, including the constitution of the company, case law and statute law.”  So while there is no ready laundry list of what directors are required to do, there are a few ‘go to’ sources that together give a strong steer.  Here are some:

Board members of Hong Kong-incorporated companies must look to the Companies Ordinance (Cap 622).  Section 465 states, “A director of a company must exercise reasonable care, skill and diligence” and such actions “that would be exercised by a reasonably diligent person with the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company.”

The core aspects of the same law are set out arguably in a more user-friendly form in guidelines issued by the Hong Kong Institute of Directors. Another relevant highlight: “Directors have collective responsibility for the decisions made by the board” (para 49), which means that they must take a team approach and be comfortable and assured that people assigned roles and responsibilities are up to the task and together they have all the skills they need.

Hong Kong-listed companies must factor in the codes and guidelines issued by the Hong Kong Stock Stock Exchange (HKEx).  For example, Appendix 14 Corporate Governance Code and Corporate Governance Report includes a number of relevant recommendations, such as Code Provision A 6.5 which states, “All directors should participate in continuous professional development to develop and refresh their knowledge and skills… The issuer should be responsible for arranging and funding suitable training, placing an appropriate emphasis on the roles, functions and duties of a listed company director. Note: Directors should provide a record of the training they received to the issuer.”

And recently Hong Kong Exchange added another layer of expectation in its Guidance for Boards and Directors (para 6.2).  With effect from 1 January 2019, in discharging their duties a Company Secretary should “ensure that the board receive continuous training on regulatory developments that are relevant to their business developments and needs.”

 

Responsibility for up-to-date knowledge includes ESG

Overlay directors’ own responsibilities, for example to comply with continuing professional development (CPD) requirements to maintain their personal memberships’ to professional institutes, there are many agents encouraging/requiring more training of directors.

But is this happening and reflected in Boards comfort with ‘arising’ topics such as sustainability and environment, social and governance (ESG) issues?

Evidence suggests not.

37 per cent of Hong Kong business leaders report that limited ESG knowledge and expertise is the greatest barrier to addressing ESG issues within their companies

As the team at The Purpose Business engages with directors, the feedback we hear can be condensed into one or a combination of the following phrases:

“We don’t give ESG much consideration – we have more important things to worry about.”

“It’s hard to fathom – we can’t map it to dollars and cents.”

“I think it’s a misunderstood topic.”

These sentiments are reflected in ESG: A recent view from the top. This survey of over 200 business leaders done by Hong Kong Institute of Chartered Secretaries et al found that 37 per cent of respondents report that limited ESG knowledge and expertise is the greatest barrier to addressing ESG issues within their companies.

So it seems that Hong Kong Boards are carrying a risk – a lack of understanding about ESG and its knock on impacts – that is easily and quickly addressed, and may require more urgent attention come 2019 because of HKEx’s latest guideline.

 

It’s a risk as well as a lost opportunity, in terms of not considering ways to future proof the business and make it more sustainable.  As former Secretary-General of the United Nations Kofi Annan said,

“Knowledge is power. Information is liberating. Education is the premise of progress.”

 

TPB can help your Board and senior management stay up to date with bespoke training and programmes. Contact Fiona to find out how we can help your company thrive.

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