Overstaying Their Welcome? A Close Look at Independent Directors Tenure in Hong Kong

How long should an independent corporate director stick around? When do fresh ideas and greater independence begin to outweigh experience and institutional knowledge?

As boards and shareholders debate these questions across the corporate landscape, we took a close look at Hong Kong, where companies stand out against many of their Asian and Western peers for having some of the longest-tenured Independent Non-Executive Directors (INEDs) and rarely having a lead INED.

The Stock Exchange of Hong Kong Limited (SEHK) will soon implement new regulations that place limits on INED tenures and recommend the designation of a lead INED as best practice. The reform aims to strengthen Hong Kong’s position as a leading international financial center by enhancing board effectiveness, ensuring diverse perspectives in decision making, and addressing the practical challenges faced by listed issuers.

Only 51% of member companies supported the SHEK’s INED tenure limits, with 49% opposed, indicating that many companies do not consider tenure length to be an issue. Opponents to the limits emphasized the value of expertise among these long-serving INEDs, particularly in specialized industries where qualified candidates are limited. After a consultation, SHEK implemented a tenure cap of nine years with a six-year phased implementation and an extended three-year cooling-off period.

Corporate practices and regulations vary widely across Asia. ISS-Corporate’s analysis of constituent companies in major Asian indices outside of Japan found that 23% of INEDs serving in the HSI companies and 13% in Taiwan MSCI companies have a tenure exceeding nine years. For India and Singapore, where a hard tenure limit was fully implemented in 2024, long-tenured INEDs have been significantly reduced. While 7% of INEDs serving in Nifty 50 companies have a tenure more than nine years, the remaining 1% of long-tenured INEDs in the STI companies will be subject to retirement or redesignation before the upcoming 2025 AGMs.

Hong Kong’s hard nine-year cap on INED tenures will be imposed with a transition period of three years (if a majority of INEDs are long-tenured) or six years. The transition periods are expected to allow issuers more time for succession planning and minimize sudden disruption. Going forward, companies will need to proactively manage board refreshment and balance the considerations between continuity, new perspectives and diversity.

Designation of a Lead INED, Independent Chair
SEHK’s proposal to recommend that companies designate a lead INED received mixed feedback, with 59% of respondents supporting it as a way to enhance minority shareholder representation and improve board oversight. Others questioned its necessity, citing existing shareholder communication policies and the collective role of INEDs. Eventually, the lead INED role will be adopted as a recommended best practice rather than a mandatory requirement.

The lead or senior INED role has been widely implemented in the U.S., the U.K. and Australia. Lead INEDs are expected to serve as a communication channel between boards and shareholders and to collaborate with other INEDs to resolve disputes or conflicts of interest within the board. In Asian markets, where boards are often chaired by a CEO or a non-independent director, the role of a lead INED is considered an effective counterbalance.

The role of a lead lNED exists at 55% of STI companies in Singapore, where those without an independent board chair are urged to have such role by the Code of Corporate Governance 2018. Additionally, 35% of Singapore STI companies have an independent board chair. By contrast, many companies on major Asian indices have neither an independent board chair nor a lead INED. In Hong Kong, only 2% of HSI companies have an independent board chair and only 1% have a lead INED.

The changes to the Corporate Governance Code and Listing Rules represent a significant step forward in strengthening Hong Kong’s governance framework. The new measures help address some key issues in the Hong Kong market, namely a lack of board independence and board refreshment due to long-tenured INEDs and shortage of counterbalance against non-independent board chairs. While there were mixed opinions about the hard tenure limit and the designation of a lead INED, the reform could be viewed as a commitment to aligning local governance standards with global investor expectations and the regulatory trends in other major Asian jurisdictions.

This article provides a snapshot of our comprehensive report on independent non-executive director issues in Hong Kong. To explore a more comprehensive analysis of these trends, including “overboarded” directors and attempts to limit the number of board seats one person can hold, see Part 1 of this series and download the full whitepaper here.