In a recent statement of disciplinary action, The Stock Exchange of Hong Kong Limited (HKEX) censured a former executive director (the Director) for providing inaccurate, incorrect and/or misleading information to a listed company (Listco) in respect of her biographical details.
In addition to being publicly censured, the HKEX issued a ‘Prejudice to Investors’ Interest’ (PII) statement against the Director, which means in the opinion of HKEX, had the Director remained on the board of Listco, the retention of office by her would have been prejudicial to the interests of investors. Listco was also censured for publishing inaccurate information contained in the related appointment announcement.
In this case, Listco had announced in January 2021 the appointment of the Director whose biographical details (as set out in the announcement and repeated in the subsequent notice of annual general meeting) became subject of a complaint.
In response to enquiries from HKEX, Listco published in April 2021 a clarification announcement admitting that certain statements contained in the appointment announcement could not be satisfactorily verified.
Specifically, these unverifiable statements were that the Director “held senior positions in certain well-known companies and different international financial institutions” – and “has accumulated extensive experience in stock and bond analysis, trading and portfolio construction, currency trading, non-performing asset investment, quantitative research and derivative trading”.
Such statements would therefore “be deleted in its entirety”, and the Director’s remuneration was adjusted downwards from HK$300,000 per month to HK$2 million per annum.
However, the matter did not end with publication of the clarification announcement.
The Director tendered her resignation in November 2021. In addition to publishing the HKEX’s statement of disciplinary action, Listco issued a further announcement on 18 July 2022, admitting that neither the Director’s appointment nor her remuneration had been considered by its Nomination Committee and Remuneration Committee.
Listco and the relevant directors (i.e. directors at the time of the appointment announcement) apologised for failure to conduct due diligence of any newly appointed director – and those directors agreed to undergo 17 hours of training.
This case serves as a cautionary reminder that issuers must properly consider a director’s appointment in accordance with both the Corporate Governance Code and the terms of reference applicable to its Nomination and Remuneration Committees.
In particular, the background, education, qualifications, experience and other particulars of a director candidate must be independently verified.
Issuers cannot simply rely on information provided by a candidate or disclosed by other listed companies in their announcements, circulars and/or financial reports.