By Grace Gu

Recently, Heidrick & Struggles hosted an event in Shanghai about the evolving role of corporate boards of China-originated companies listed in Mainland China, Hong Kong, and US stock markets. Meeting attendees included “Heidrick Board Club” members, founders and directors of boards from China companies, and individuals hoping to secure a first-time board position. Joined by my colleague Markus Wiesner, who leads our consulting business in APAC, Middle East, and Emerging Markets, I talked broadly about the evolving landscape and how founders increasingly are perceiving boards, diversity of experience, and skill sets of board directors as a strategic advantage.

Specific to boards of China companies in the private sector, we highlighted four trends:

1. Boards are undergoing escalated regulatory requirements.
   Publicly traded China companies are navigating a weakened economy, intensifying geopolitical uncertainties, and government mandates to identify and deliver on ESG responsibilities. Recently, both Mainland China and Hong Kong stock markets introduced newly released regulatory policies intended to establish greater independence of boards. For the Mainland China stock market, the priority is setting the right foundation to enable directors to better perform their duties and fully leverage their roles. This includes clarifying independent non-executive director (INED) roles and responsibilities and optimizing the nomination mechanism to ensure impartiality and improve accountability. For the Hong Kong stock market, regulators are applying new measures to ensure a higher level of independence and effectiveness of boards, including an annual review of boards and disclosure requirements pertaining to their effectiveness and the length of tenure and factors considered for the re-election of long-serving INEDs. Amended corporate governance rules also include mandatory nomination committees, mandatory disclosure on shareholder communications, and calls for greater diversity, including a ban on single-gender boards.
   
   
2. Boards are becoming more diverse. 
   In the context of these new regulations, companies are reviewing and systematically planning the composition of their boards to embody different perspectives. With Hong Kong-listed companies, we are seeing an increase in new director appointments as well as more appointments of independent, non-executive directors with executive experience, as opposed to appointments of friends and family members; the fluctuating rate of appointments of first-time board members is also an index we are continuously tracking and studying its correlation with the macroeconomic landscape. (The share of appointments going to first-time public board directors: 49% in 2019; 43% in 2020; 53% in 2021; 38% in 2022) Across the listing jurisdictions in Mainland China, Hong Kong, and the US, we are seeing more women elected to the boards and more executives with C-level titles other than the conventional CEO and CFO. First-time directors more often hold C-level roles of functional expertise in corporate or government role or partners of professional service firms. These new directors also bring varied skill sets, such as expertise in sustainability, digital, social media, and cybersecurity, that align with the issues and technologies companies increasingly are using and need to stay ahead of to transact, protect, and grow their businesses.
   
   
3. Founders and other executives are seeing their boards offer new value.
   We are seeing a shift in mindset among company founders and executives about the role boards play. Founders and executives increasingly see boards as independent advisors and not an extension of themselves or their authority. Executives who previously were “too busy running the business” to focus on or consult their boards more than necessary (for example, during M&A, litigation, etc.) now see boards as providing a strategic advantage. Executives are more open to hearing about how to build an effective board and leverage the diversity of experience and expertise of directors because they understand the value a strong board can bring in a shifting market or during times of crisis to keep things moving and drive growth. We expect to see founders and other executives encourage board directors to play their roles and contribute toward corporate governance.
   
   
4. Interest in joining boards is high and increasing.
   As boards of China companies listed across Mainland China, Hong Kong, and US markets are becoming more sophisticated, more and more Chinese and multinational director-ready leaders are interested in joining boards of listed China companies. Aspiring directors of these boards are eager to learn more about board governance and best practices. Meeting attendees wanted to know how to evaluate potential director opportunities and determine if they would be a good fit for the role.

This was the first in a series of board events we will host in China. Heidrick & Struggles is currently conducting a survey to explore board topics relevant to listed China companies. We encourage you to participate if you are a director of a listed China company or an executive who collaborates with directors from listed China companies. We look forward to sharing more boardroom insights in the coming months.