Hong Kong's `Old Boys' Club' Faces Threat of Board Shakeups

(Bloomberg) -- Hong Kong legislator Abraham Shek sits on so many corporate boards that he sometimes can’t keep track of the exact number.

Shek in an interview said he’s on "15 or 16 myself" and rejected any suggestion that this could leave him over-extended. “Some people are very efficient in reading documents,” he said.

Shek is a director for 16 public companies and two real estate investment trusts, including Hong Kong’s subway operator MTR Corp. and Macau casino owner SJM Holdings Ltd., according to data compiled by Bloomberg. He received a total of about HK$8 million ($1 million) for his board memberships in the most recent fiscal years reported by the companies, stock exchange filings show.

Hong Kong Exchanges & Clearing Ltd. is attempting to address what it calls overboarding. Even as the city’s heft as a premier trading hub has grown, it’s periodically been rocked by corporate scandals that have fueled dramatic share declines, increasing pressure on independent directors to ramp up oversight.

“It’s a concern when we see someone on 10 or 11 boards,” said Pru Bennett, BlackRock Inc.’s managing director and head of investment stewardship for Asia Pacific. Independent directors “are really our representatives on the board and we need them to have the time and capacity to contribute and represent minority shareholders.”

Hong Kong has 113 companies with a director who serves on more than six boards, a Bloomberg News analysis showed. That compares with just 39 companies on the New York Stock Exchange and eight in London.

New Rules

Starting January, Hong Kong’s stock exchange will require companies to explain why any new directors already serving on six other corporate boards will have time to represent the interests of shareholders.

“Where a director sits on too many boards, particularly if they are listed companies’ boards, it is questionable whether they would be able to devote sufficient time to their duties in respect of each issuer on whose board they sit,” the exchange said in a paper when it initiated the rules review in November 2017.

Critics say the overboarding problem contributes to another problem: the lack of gender diversity. “There are so many candidates out there, why keep on going to the same people?” said Fern Ngai, chief executive officer of Community Business, a Hong Kong non-profit promoting inclusive business practices. “Many companies just use their circle of friends -- the old boys’ network -- to find new board members.”

Sitting on many boards can be time consuming: Hong Kong directors need more than 240 hours a year for each of their corporate board commitments, according to a recommendation by San Francisco-based advisory firm Glass, Lewis & Co. It recommends investors vote against a director who serves on more than five boards of Hong Kong-listed companies, according to its 2018 proxy guidelines.

“Probably those people who make suggestions, they take a long time to understand problems,” Shek said. The 73-year-old lawmaker said he reviews the required paperwork before each board meeting and also performs all other duties professionally.

To meet the Glass, Lewis standard, Shek would need to spend over 4,300 hours -- about half of a year -- just doing his board jobs. That doesn’t take into account the time he would need to eat, sleep and fulfill his responsibilities as a member of Hong Kong’s legislature and chairman of the city’s English Schools Foundation, an organization that runs schools in the city.

Hop Hing Group Holdings Ltd., one of the companies where Shek is a director, said all its board members have high attendance rates at meetings and that it will continue to follow HKEX rules. MTR, the transport operator, also said it supports the exchange’s proposals. SJM didn’t respond.

“So far as the company is willing and the person is able to perform, I don’t think it will be a problem,” said Poon Chiu Kwok, who serves on a dozen boards in Hong Kong.

The new Hong Kong rule would only require a disclosure but not enforce a cap, continuing to keep the city behind other financial centers. Shanghai and Shenzhen’s exchanges limit independent directors to no more than five boards, according to the HKEX report.

About one third of companies on the Standard & Poor’s 500 Index have a limit of three boards per director, and half cap board memberships at four, according to a 2017 report from executive recruiter Spencer Stuart.

For some shareholder-rights advocates, Hong Kong’s new policy doesn’t go far enough.

“The idea that a responsible individual would think that they could fulfill their obligations easily and serve on more than five boards really strains belief,” said Melissa Brown, partner at Hong Kong-based advisory firm Daobridge Capital Ltd.

Henry Lai, chairman of the Hong Kong Institute of Directors, which represents board members, questions whether anyone can serve on seven boards unless he or she is retired and doesn’t have other work commitments.

Still, things can’t be changed overnight, Lai said. “It’s step by step.”

--With assistance from Jeffrey Hernandez.

To contact the reporters on this story: Bruce Einhorn in Hong Kong at beinhorn1@bloomberg.net;Benjamin Robertson in Hong Kong at brobertson29@bloomberg.net

To contact the editors responsible for this story: Emma O'Brien at eobrien6@bloomberg.net, ;Sam Mamudi at smamudi@bloomberg.net, Anjali Cordeiro

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