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Board of Directors

The Board has collective responsibilities for promoting the long-term sustainability and success of the Bank by providing entrepreneurial leadership within a framework of prudent and effective controls. In doing so, the Board commits to high standards of integrity and ethics.

 

According to the Board’s terms of reference, specific matters reserved for the Board’s consideration and decision include:

strategic plan and objectives
annual operating plan and performance targets
annual and interim financial reporting
capital plans and management
risk appetite statement and profile update
appointment and oversight of senior management
internal control and risk management governance structure
effective audit functions
corporate values and standards
policies, practices and disclosure on corporate governance
policies and practices on compliance with legal and regulatory requirements
significant policies and plans and subsequent changes
acquisitions, disposals and purchases above predetermined thresholds

Chairman and Chief Executive

The roles of the Chairman and Chief Executive of the Bank are complementary, but importantly, they are distinct and separate with a clear and well established division of responsibilities. Details of their respective roles are set out in the Board’s terms of reference.

 

The Chairman of the Board, who is an Independent Non-executive Director (“INED”), is responsible for the leadership and effective running of the Board and for ensuring that decisions of the Board are taken on a sound and well-informed basis and in the best interest of the Bank. In addition, as the Chairman of the Board, he is also responsible for ensuring that all Directors are properly briefed on all issues currently on hand and receive adequate, accurate and reliable information in a timely manner. The Chairman possesses the requisite experience, competencies and personal qualities to fulfill these responsibilities.

 

The Chief Executive, who is an Executive Director (“ED”), is responsible for implementing the strategy and policy as established by the Board. The Chief Executive is also responsible for the management and day-to-day running of the Bank’s business and operations, as well as leading and chairing the Executive Committee.

 

Board Composition

As at the date of 2017 Annual Report, the Board comprises 16 Directors, of whom two are EDs and 14 are Non-executive Directors (“NEDs”). Among the 14 NEDs, nine are INEDs. There is a strong independent element on the Board, to ensure the independence and objectivity of the Board’s decision-making process as well as the thoroughness and impartiality of the Board’s oversight of the Management.

 

The Board possesses, both as individual Directors and collectively, appropriate experience, competencies and personal qualities, including professionalism and integrity, to discharge its responsibilities adequately and effectively. In addition, the Board collectively has adequate knowledge and expertise relevant to each of the material business activities that the Bank pursues and the associated risks in order to ensure effective governance and oversight.

 

Members of the Board, who come from a variety of different backgrounds, have a diverse range of business, banking and professional expertise. Biographical details of the Directors, together with information relating to the relationship among them, are set out in the section “Board of Directors” in the Bank’s website.

 

The Bank remains committed to meritocracy in the Boardroom, which requires a diverse and inclusive culture where Directors believe that their views are heard, their concerns are attended to and they serve in an environment where bias, discrimination and harassment on any matter are not tolerated. The Board has adopted a Board Diversity Policy for better transparency and governance. Board appointments are based on merit and candidates are considered against objective criteria, having due regard for the benefits of diversity on the Board including, but not limited to, gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service.

 

The Bank has maintained on its website (www.hangseng.com) and on the website of HKEx (www.hkexnews.hk) an updated list of its Directors identifying their roles and functions and whether they are INEDs. INEDs are also identified as such in all corporate communications that disclose the names of the Bank’s Directors.

 

Further, the Bank has received from each of the INEDs an annual confirmation of his/her independence. The independence of the INEDs has been assessed in accordance with the guidelines set out in Rule 3.13 of the Listing Rules and the revised SPM CG-1 issued by HKMA. Following such assessment, the Board has affirmed that all the INEDs continue to be independent.

 

Board Process

Board meetings are held about six times a year and no less than once every quarter. Additional Board meetings, or meetings of a Board committee established by the Board to consider specific matters, can be convened, when necessary.

 

Schedule for the regular Board meetings in each year, together with the standing agenda for such meetings, are made available to all Directors before the end of the preceding year. In addition, notice of meetings will be given to all Directors at least 14 days before each regular meeting.

 

Other than regular meetings, the Chairman also meets with NEDs (including INEDs) without the presence of EDs, to facilitate an open and frank discussion among the NEDs on issues relating to the Bank.

 

The Board also meets with the representatives of HKMA to maintain a regular dialogue with the regulator where HKMA shares with the Board HKMA’s overall supervisory assessment of the Bank and their key supervisory focuses on the banking industry in general.

 

Meeting agenda for regular meetings are set after consultation with the Chairman and the Chief Executive. All Directors are given an opportunity to include matters in the agenda.

 

Directors make their best efforts to contribute to the formulation of strategy, policies and decision-making by attending the Board meetings in person or via telephone or video-conferencing facilities.

 

Minutes of Board meetings with details of the matters discussed by the Board and decisions made, including any concerns or views of the Directors, are kept by the Company Secretary and are open for inspection by Directors.

 

In addition to the regular financial and business performance reports submitted to the Board at its regular meetings, the Board also receives financial and business updates with information on the Bank’s latest financial performance and material variance from the Bank’s annual operating plan during those months where no Board meetings are held. Directors can therefore have a balanced and comprehensive assessment of the Bank’s performance, business operations, financial position and prospects throughout the year.

 

The Board reviews and evaluates its work process and effectiveness annually, with a view to identifying areas for improvement and further enhancement. The Board also regularly reviews the time commitment required from NEDs.

 

All Directors have access to the EDs as and when they consider necessary. They also have access to the Company Secretary who is responsible for ensuring that Board procedures, and related rules and regulations, are followed.

 

Under the Articles of Association of the Bank, a Director shall not vote or be counted in the quorum in respect of any contract, arrangement, transaction or other proposal in which he/she or his/her associate(s), is/are materially interested.

 

The Board has adopted a Policy on Conflicts of Interest. The Policy identifies the relationships, services, activities or transactions in respect of which conflicts of interest may arise and sets out measures for prevention or management of such conflicts. The Policy also contains an objective compliance process for implementing the Policy, which includes notification by a Director of conflicts or potential conflicts, and a review/approval process. In addition, the Policy also sets out provisions of the Board’s approach to dealing with any non-compliance with the Policy.

 

The Board has been applying technology designed specifically around the Board to help the Directors manage their time more efficiently, while staying connected to the Board and other Directors in order to discharge their responsibilities effectively and securely.

 

During 2017, the Board held eight meetings (including one meeting with HKMA) and the important matters discussed at Board meetings included:

Strategic Planning
  • strategic plan (2018 – 2020)
  • annual review of strategic plan (2016 – 2018) with quarterly updates
  • impact of regulatory developments both in Hong Kong and the Mainland on the Bank’s strategic development
Financial and Business Performance, and Capital Planning
  • financial statements for the year ended 31 December 2016
  • interim financial statements for the six months ended 30 June 2017
  • declaration of the fourth interim dividend for year 2016 and first three interim dividends for year 2017
  • annual operating plan and capital plan for year 2017
  • reports on financial and business performance
  • internal capital adequacy assessment process
  • individual liquidity adequacy assessment
  • redemption of tier 2 subordinated loan
  • review of the Bank’s Disclosure Policy
Governance and Risk Management
  • global risk appetite framework addendum and risk appetite statement for 2017 with mid year review and quarterly profile update
  • enterprise risk management framework implementation and internal control system assessment
  • effectiveness of environmental, social and governance risk management and internal control systems
  • review of large credit exposures and risk concentrations
  • significant policies and plans including, but not limited to, Recovery Plan, Contingency Funding Plan, Liquidity Management Policy, Connected Lending Policy, Capital Management Policy and Large Credit Exposure Policy
  • board effectiveness evaluation for 2016
  • review of the Bank’s implementation of the guiding principles under HKMA’s Circulars on “Empowerment of INEDs in the Banking Industry in Hong Kong” and “Bank Culture Reform”, and the revised SPM CG-1
Human Resources and Remuneration
  • annual review of the remuneration policy and remuneration system
  • annual review of alignment of risk and remuneration
  • pay review for 2017 and variable pay for 2016
  • review of fees payable to Directors and Board Committee Chairmen/Members of the Bank and its subsidiaries
  • succession planning for the Board and senior management
  • appointments to the Board and senior management
  • performance management relating to senior management
  • re-election of Directors
  • terms of appointment of NEDs
  • review of independence of INEDs
  • annual review of the implementation of corporate values and business principles

 

Appointment and Re-election of Directors

The Bank uses a formal, considered and transparent procedure for the appointment of new Directors. Before a prospective Director’s name is formally proposed, opinions of the existing Directors (including the INEDs) will be solicited. The proposed appointment will first be reviewed by the Nomination Committee, taking into account the balance of skills, knowledge and experience on the Board. Upon recommendation of the Nomination Committee, the proposed appointment will then be reviewed and, if thought fit, approved by the Board after due deliberation.

 

Pursuant to Group policy, the Bank will conduct enhanced vetting for non-employee NEDs before his/her appointment and thereafter once every three years, as one of the measures to verify the continual fitness and propriety of the NEDs.

 

In accordance with the requirement under the Banking Ordinance, approval from HKMA will also be obtained for appointment of new Directors.

 

The Bank issues appointment letters to each of the NEDs, setting out the terms and conditions of their appointment, including the time commitment expected of them. Additional time commitment is necessary if the NEDs also serve on committee(s) of the Board.

 

All new Directors are subject to election by shareholders at the next Annual General Meeting (“AGM”) after their appointments have become effective. Further, the Bank’s Articles of Association provide that all Directors shall be subject to retirement by rotation at least once every three years. Retiring Directors are eligible for re-election at AGMs of the Bank.

 

According to the policy on the term of appointment of NEDs, term of appointment of each NED is three years except that where a NED has served on the Board for more than nine years, then his/her term of appointment is one year. In renewing the term of appointment of each NED, the Board reviews whether such NED remains qualified for his/her position.

 

Responsibilities of Directors

Directors have full and timely access to all relevant information about the Bank so that they can discharge their duties and responsibilities as Directors. In particular, through regular Board meetings and receipt of regular financial and business updates, all Directors are kept abreast of the conduct, business activities and development, as well as regulatory updates applicable to the Bank.

 

There are established procedures for Directors to seek independent professional advice on matters relating to the Bank where appropriate. All costs associated with obtaining such advice will be borne by the Bank. In addition, each Director has separate and independent access to the Bank’s Management.

 

The Bank has adopted a Code for Securities Transactions by Directors on terms no less exacting than the required standards set out in the Model Code for Securities Transactions by Directors of Listed Issuers (set out in Appendix 10 to the Listing Rules) with periodic review. Specific enquiries have been made with all Directors who have confirmed that they have complied with the Bank’s Code for Securities Transactions by Directors throughout the year 2017.

 

Directors’ interests in securities of the Bank and HSBC Group as at 31 December 2017 have been disclosed in the Report of the Directors set out in 2017 Annual Report.

 

Appropriate Directors’ liability insurance cover has also been arranged to indemnify the Directors against liabilities arising out of the discharge of their duties and responsibilities as the Bank’s Directors. The coverage and the sum insured under the policy are reviewed annually. Further, the Bank’s Articles of Association provide that Directors are entitled to be indemnified out of the Bank’s assets against claims from third parties in respect of certain liabilities.

 

Induction and Training for Directors

Induction programmes on the following key areas will be arranged for newly appointed Directors so that they can discharge their responsibilities to the Bank properly and effectively:

directors’ duties and responsibilities
business operations and financial position
risk management framework
governance structure and practices
control and support functions

Further, all Directors are provided with briefings and trainings on an on-going basis as necessary to ensure that they have a proper understanding of the Bank’s operations and business, and are fully aware of their responsibilities under the applicable laws, rules and regulations. Such briefings and trainings are provided at the Bank’s expense. The Bank maintains proper records of the briefings and trainings provided to and received by its Directors.

 

In addition, all Directors are provided with a “Memorandum of Directors”, which sets out the scope and nature of Directors’ duties and liabilities, particulars of Group policies and local regulatory and statutory requirements of which the Directors must be aware. Such memorandum is updated from time to time so as to reflect the latest internal policies/guidelines, regulatory/statutory requirements, and best practices.

 

During the year, Directors received briefings and trainings on the following topics:

HKMA Development Programme - 2017 Independent Non-executive Directors Conference
Supervisory focuses in 2018 and review on prominent risks of authorised institutions
“Are Independent Non-executive Directors in Hong Kong performing their roles effectively?”
Corporate Governance - Compliance and Beyond
“All an Authorised Institution director needs to know about Trade-based Anti-money Laundering”
Fighting corruption: challenges confronting bank directors
Cyber security update
Digital technology and innovation initiatives
Machine learning and artificial intelligence
Site visit to HSBC-ASTRI Research & Development Innovation Laboratory
Common Reporting Standards
Implementation of IFRS9