Too Many Hats: Hong Kong Companies Pressed to Cut Down on “Overboarding”
The Hong Kong Stock Exchange’s plan to limit the number of total board seats that can be held by independent non-executive directors (INEDs) at listed companies reflects investor concern that so-called “overboarding” can limit director effectiveness.
In the second of this two-part series, we examine overboarding across Asian markets, excluding Japan, to show how different markets and authorities are addressing the issue. In part one we looked at long-tenured independent non-executive directors (INEDs) and the role of lead INED as an important bridge between management and shareholders.
The Hong Kong exchange’s proposal to cap INED directorships at six received 69% support, much higher than the backing given to limits on INED tenure. Backers highlighted concerns about directors with too many board commitments and the impact that has on overall board performance. Opponents noted that finding qualified INEDs is challenging and not all board seats are equally demanding. After a three-year transition period starting with the first AGM after July 1, 2028, INEDs will no longer be able to serve on more than six boards of companies listed in Hong Kong.
Our data suggest that INEDs who sit on more than six public boards are common in India, Taiwan and Hong Kong.
| Market | Regulatory Limit on INED’s directorships |
|---|---|
| Hong Kong | 6 (effective from 2028) |
| Singapore | None |
| India | 7 |
| China (A share) | 2 |
| Taiwan | 3 |
| South Korea | 3 |
Singapore and Hong Kong are currently the only Asian markets we analyzed that do not have a limit on the number of INEDs’ directorships. Overboarding does not appear to be an issue among Singapore STI companies, while 2% of Hong Kong HSI companies have INEDs serving on more than six boards. India has the most overboarded INEDs (4% of the total serving on Nifty 50 companies), probably due to its less stringent limit of seven seats.
Increasing investor expectations for board oversight across a wide range of topics such as Environment & Social issues, Cybersecurity and Artificial Intelligence imply more time commitment from INEDs. In fact, INEDs currently attend more meetings than ever before, as more board committees are established to keep pace with these complex demands. When INEDs sit on too many boards, investors could reasonably cast doubt about their ability to effectively exercise their fiduciary duties against the backdrop of accelerating responsibilities. As a result, INEDs who serve on more than six boards are generally considered “overboarded.” Some investors have a stricter limit of five.
Less Competitive Director Fee
Listed companies in Hong Kong often describe the difficulties in finding INED candidates within a limited pool of qualified directors. As discussed above, institutional investors have higher expectations of INEDs in fulfilling their fiduciary duties and committing adequate time to attend board committee meetings. Potential INED candidates may be reluctant to accept an appointment without a pay increase that reflects this additional time commitment.
Our data show that Hong Kong INEDs who are not a board chair or lead INED receive significantly lower director fees than their counterparts on major indices in Hong Kong, Australia the U.K. and the U.S.
Furthermore, a small proportion of INEDs of CSI 100 and Taiwan MSCI index constituent companies were found to have exceeded the regulatory limits. One possible reason for non-compliance could be that their calculation of directorships excludes board seats taken in other markets. For example, INEDs in China’s A share market sometimes take additional board seats in Hong Kong while some INEDs in Taiwan serve on boards in companies listed in the US.
While there was opposition to hard limits on overboarding in Hong Kong, the reform more closely aligns governance standards with global investor expectations and the regulatory trends in other major Asian jurisdictions.
This article provides a snapshot of our comprehensive examination of independent non-executive director issues in Hong Kong. To explore a more comprehensive analysis of these trends, including long-tenured directors and the role of of a lead INED as an important bridge between management and shareholders, see Part 2 of this series and download the full whitepaper here.