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:
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, she 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 accountable to the Board for her performance and 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.
As at the date of this Annual Report, the Board comprises 12 Directors, of whom one is ED and nine are Non-executive Directors (“NEDs”). Among the ten NEDs, eight 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. Further, out of the 12 Directors, eight are female Directors, indicating a strong gender diversity on the Board.
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 “Biographical Details of Directors and Senior Management” 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 which is subject to annual review to ensure that diversity and inclusion are given serious consideration in the succession planning, selection, nomination, operation and evaluation of the Board. 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, characteristics, such as gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge, length of service, and any other factors that the Board may consider relevant and applicable from time to time.
The Board considers that its diversity, including gender diversity, is a vital asset to the business. Selection of female candidates to join the Board will be, in part, dependent on the pool of female candidates with the necessary skills, knowledge and experience. Where necessary, the Board will work with external agency to identify and approach suitable candidates that would enhance its composition and diversity, with a view to expanding the competencies, experience and perspectives of the Board as a whole.
As of the date of the Annual Report, the female representation of the Board was around 67%, which is above the Board’s aspirational target of a minimum of 40% female representation on the Board according to the Board Diversity Policy of the Bank.
The Bank has maintained on its website 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 guidelines issued by HKMA. Following such assessment, the Board has affirmed that all the INEDs continue to be independent, including those whose terms of appointment are over nine years.
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 without the presence of EDs at the end of each regular Board meeting, to facilitate an open and frank discussion among the NEDs on issues relating to the Bank. The Board, together with the Bank’s Senior Management, also held an annual sharing session, which formed part of the key development initiatives of the Bank to meet the Bank’s succession needs, with nominated talents from businesses and functions of the Bank and direct reports of the Bank’s Senior Management, to help the Bank develop its staff as well as sharing views on business continuity and opportunities. Head of Human Resources also assisted the Board in reviewing the performance of the Bank’s broader top team including, but not limited to, succession of senior roles and the Bank’s succession pipeline.
The Board maintains regular communications with HKMA through various means to exchange views and update itself about HKMA’s supervisory assessment of the Bank and 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.
Throughout 2022, the Bank has continued to embed HSBC Group’s governance requirements including those of its Subsidiary Accountability Framework (that aims to enhance the clarity and consistency of governance practices adopted across all entities within the HSBC Group), to enhance meeting efficiency and reporting quality. Those enhanced governance requirements have proved to achieve a step change in the quality and consistency of reporting. Better planning and inputs to meetings and pre-meetings with the chairpersons, lead to better discussions, and more agile and well-informed decision making, resulting in a more effective use of the Board and Management time and simplification of board and committee processes.
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. During 2022 and for the sake of health and safety under the prevailing pandemic, the Board and Board Committees had mostly met in hybrid mode with Directors having the option to join either in person or by zoom, with the meeting papers uploaded onto an electronic board portal for easy access by Directors.
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 financial resource planning 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 while promoting board effectiveness and accountability through best practices, standardised guidance, common tools and resources. In mid-2022, all Directors completed the questionnaire for annual evaluation of Board performance over a number of areas including the following :
- the role, composition and skills of the Board;
- effectiveness of Board Committees and their co-ordination;
- procedures and process of Board and Board Committees; and
- culture and boardroom behaviour.
Based on the outcome of the evaluation, the Board is considered as effective in the above aspects.
Directors also made suggestions on major areas covered the following:
- Board’s involvement in strategy setting and oversight of strategy implementation
- Board’s oversight and involvement in senior management succession planning
- Topics covered in Board agenda and duration/frequency of Board/Committee meetings
- Information flow to the Board/Committees
- Board’s involvement in and oversight of the Bank’s climate strategy
- Enhancement of virtual Board/Committee meetings
Follow up actions in addressing Directors’ responses to the evaluation had been taken during the year with the coordination of relevant businesses and functions of the Bank.
In addition to the annual board evaluation, there is also a regular process for the Bank to evaluate the performance of its Directors, which involves the Board’s regular reviews of the time commitment required from NEDs, independence of INEDs, structure, size and composition of the Board and the non-executive Board Committees, as well as trainings that Directors received during the year.
To allow HKMA to assess whether the Bank has a robust evaluation process, the Bank also submitted to HKMA in 2022 a list of outside mandates, including directorships and other commitments, held by each Director and the Chief Executive, together with an affirmation signed by the Board Chairman to confirm the annual performance evaluation of each director and the Chief Executive.
All Directors have access to the EDs and the senior management team 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 Policy was last updated in 2023 in alignment with the updated corporate practice.
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 2022, the Board held six meetings and the important matters discussed at Board meetings included but not limited to:
Financial and Business Performance, and Capital Planning
Governance and Culture
Human Resources and Remuneration
The Board has adopted a Nomination Policy which has also been made available on the Bank’s website to emphasise the Bank’s commitment on transparent nomination process in the selection of candidates for Board appointment.
Pursuant to the Bank’s Nomination Policy, the Bank uses a formal, considered and transparent procedure for the appointment of new Directors. With the adoption of the Bank’s Nomination Policy, greater demand has been imposed on the Board and/or the Nomination Committee on the independence and board diversity, amongst other corporate governance issues for better board effectiveness and diversity.
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. If necessary, the Bank may also engage external search firm to assist in the sourcing and identification of appropriate candidates for Board appointments.
The Bank will also consider the prospective Director’s time commitment to the role being applied for and any potential conflicts of interest identified, if he/she has outside mandates.
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 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 requirement. 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 SAF requirement on the term of appointment of NEDs, term of appointment of each NED is three years and NEDs should serve no more than two three-year terms with any extension subject to rigorous governance process. In renewing the term of appointment of each NED, the Board reviews whether such NED remains qualified for his/her position.
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.
The Bank recognises that independence of the Board is a key element of good corporate governance. The Bank has established effective mechanisms, including but not limited to entitling the Directors and Committee members to seek independent professional advice on matters relating to the Bank where appropriate at the Bank’s expense, to ensure independent views and input are available to the Board. These mechanisms in place are subject to annual review by the Board that underpins a strong independent Board.
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 2022.
Directors’ interests in securities of the Bank and HSBC Group as at 31 December 2022 have been disclosed in the Report of the Directors set out in the 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 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:
Further, all Directors should participate in continuous professional development to develop and refresh their knowledge and skills. They are provided with briefings and trainings on an on-going basis at the Bank’s expense 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. The Bank maintains proper records of the briefings and trainings provided to and received by its Directors from time to time.
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: