Hong Kong stock exchange’s proposal on dividend policy disclosure gains support

A proposal by the exchange operator Hong Kong Exchanges and Clearing (HKEX) to require listed companies to disclose their dividend policies has received wide support from market participants, who believe it will enhance transparency and attract investors.

“The dividend policy is one of the most concerning topics for institutional investors,” said Eva Chan Yee-wah, chairwoman of the Hong Kong Investor Relations Association (HKIRA), which represents 1,300 investor relation officers in Hong Kong-listed companies.

“The HKEX proposal on dividend policy disclosure, if implemented, will add transparency and will enhance overall corporate governance of the Hong Kong market. This will attract more international investors to trade in Hong Kong.”

Many brokers and accountants echo Chan’s support of the proposal, which is one of the corporate governance reforms discussed in a consultation paper issued by the bourse operator. The two-month consultation period for the paper ended on Friday.

HKEX proposed that listed companies should disclose their dividend payment policies or explain why they are not disclosing them. They should also explain in detail how they determine whether to pay dividends and the level of payment.

“Dividend payments are an important means of investor return and a basic component of investment decision-making,” the paper said. “Consistent and sustainable dividend payouts are an indication of an issuer’s stability and future prospects.”

The proposals aim to safeguard shareholder interest and promote a better understanding of board stewardship and issuers’ capital management aims, as well as being consistent with recent international regulatory developments, HKEX said.

Singapore and mainland China both require listed companies to disclose reasons for not declaring a dividend, while Japan and South Korea require listed companies to introduce incentives to enhance returns to investors, according to the HKEX proposal.

“It is absolutely a good move to enhance the transparency of how listed companies set their dividend policies, because it is a subject of concern for most shareholders,” said Roy Lo, honorary adviser in the Greater China Division of CPA Australia.

HSBC, the city’s biggest lender, faced protests from local retail shareholders when it suspended dividends in 2020 on the orders of British regulators.

“Many retail investors are investing in certain stocks due to their high dividend payout ratio,” said Tom Chan Pak-lam, the permanent honorary president of the Institute of Securities Dealers, a brokers’ industry body. “The new proposals would be helpful for investors to make their investment decisions.”

Meanwhile, an HKEX proposal in the same consultation that aims to address “overboarding” has received a mixed reaction.

The proposal suggests setting the maximum number of board seats for independent non-executive directors (INEDs) at six, each for up to nine years, effective January 2025, with a three-year sunset period.

“We did not find that investors have many concerns about overboarding,” said HKIRA’s Chan. “As long as the independent directors can manage the time to serve on the board, it should allow the investors to decide whether to vote for them to join the board. Adding a hard cap may make it more difficult for listed companies to find candidates to be independent directors.”

Earlier, the Chamber of Hong Kong Listed Companies voiced strong opposition to the proposal.

The Institute of Securities Dealers, however, supports the change.

“There are some independent directors who are sitting on the board for 20 or 30 years, and they may not be that independent,” said the institute’s Chan. “In addition, if one is an independent director for six companies, they may not have sufficient time to perform their duties well.”

Informing the public about the importance of independent directors is “the right direction” but it is “not easy to set a hard cap on the number”, said CPA Australia’s Lo.

The Hong Kong Investment Funds Association supports all of the HKEX proposals.

“If we compare Hong Kong against major international finance centres, and even other regional markets, the introduction of the full set of proposals means that we are only playing catch-up,” said CEO Sally Wong. “We believe that the HKEX should demonstrate its commitment to enhancing corporate governance standards by implementing the full set of proposals.”