Whistleblowing Requirements to be Implemented for Hong Kong Listed Companies

Seyfarth Shaw LLP

On 16 April 2021, the Hong Kong Stock Exchange (HKSE) published its consultation paper on upgrading the Corporate Governance Code and changes to the Listing Rules. A key recommendation of the paper is the establishment of whistleblowing and anti-corruption policies for listed issuers as a Code Practice (CP).

While the listed companies currently without whistleblowing policy and procedure may be concerned at the potential introduction of whistleblowing arrangements, these should not be feared. Whistleblowing and anti-corruption policies are vital factors in a healthy corporate culture, and can help a company to underscore its commitment to ethics and integrity, as well as build trust within an organization by giving stakeholders the confidence to raise issues and concerns without fearing reprisal. Malpractice and unethical behavior in an organization can be hard to detect from outside, so an internal culture of escalation and clear reporting is vital and should be encouraged.

Established frameworks in the international context

Whistleblowing policies and regimes are commonplace for large corporations in the US and much of EMEA and ANZ, and global organizations will be familiar with these established reporting laws, which have far reaching implications and often extraterritorial reach.

This new CP in Hong Kong will, albeit in the limited context of the HKSE Code and Listing Rules, require organizations to understand not only the mechanisms and implications of operating these polices within Hong Kong, but also how to ensure that these dovetail with existing group policies and procedures at a global level.

What are whistleblowing policies?

Whistleblowing policies provide a means for an individual to report concerns and wrongdoing. Such policies are rarely complicated—and should not be—so as not to dissuade individuals from making such a report. At its essence, a well-drafted whistleblowing policy should set out a process for individuals to raise concerns internally (including clearly identifying to whom such concerns should be raised) and summarise the procedures for investigating disclosures made.

Even where local legislation allows for it, many large corporations do not define the types of disclosure that can be made under the policy too narrowly. Placing such limitations on disclosure limits the effectiveness of such a policy to drive change and achieve openness and accountability, which are ultimately the core aims of a whistleblowing regime. However, policies frequently exclude complaints relating to individual employees and HR matters at an individual level. These types of issues are usually addressed via separate policies and procedures (such as grievance procedures or bullying and harassment policies).

Who should operate the policy?

A whistleblowing policy is usually part of a wider set of governance documents, such as a Conduct of Conduct, Ethics and Compliance Policy or Employee Handbook. Where a whistleblowing policy is located is not critical. What is critical is the integrity of the policy’s application, and ensuring that the organization is committed to it from the outset, so that issues raised under the policy are thoroughly considered, with the organization taking accountability for any outcomes.

The HKSE is considering placing the oversight of these new whistleblowing requirements in the remit of a company’s Audit Committee or, potentially, the Board itself. In any case, organizations should establish an internal group and process for receiving whistleblowing reports, investigating them and determining any outcomes required. International companies that already operate such policies tend to implement multi-disciplinary groups for this purpose, involving representatives from areas like audit, risk, legal and compliance, human resources and employee relations.

How is whistleblowing reported?

There is no set method for receiving reports, and companies are generally free to set up their own arrangements. In some countries, those are via a phone hotline or web-based / email inbox system that is monitored either internally or via a third party company engaged for these purposes. As reports can cover anything from environmental concerns to fraud and corruption to health and safety breaches, these should be triaged so that they are escalated to the correct group for further review and action.

Anonymous reporting is not allowed in some countries, so it is important to take advice if looking at overseas requirements. Where anonymous reports are made, whilst the scope for full investigation may be more limited, the organization should still review the report and request any clarifications or follow-up from the reporter, to the extent possible. In the proposed new CP (D.2.6), it was suggested by HKSE that the listed company should establish a whistleblowing policy and system for employees and those who deal with it (e.g. customers and suppliers) to raise concerns, in confidence and anonymity, with the Audit Committee (or any designated committee comprising a majority of independent non-executive directors) about possible improprieties in any matter related to the listed company.

What procedures apply outside of the listing environment?

Outside of the listing context, Hong Kong employment law does not require businesses to introduce a whistleblowing policy, and there are no specific overarching protections for that apply to whistleblowers generally (although there are various piecemeal legislative provisions that apply in certain contexts (e.g. money laundering and the prevention of bribery)).

Save where one of these specific provisions is triggered, any impact to employees who are involved in or impacted by a report made under a whistleblowing policy should be considered under the Employment Ordinance, taking into account the common law principles of fairness and natural justice.

For guidance, Hong Kong companies should look to good practice developed in other jurisdictions. The single most important foundation in the employment context is that an employee who raises a concern under a whistleblowing policy in good faith or who properly participates in a whistleblowing process should not suffer as a result. However, this does not extend to those who act in bad faith, and employees who knowingly raise vexatious issues may be subject to disciplinary action.

Further guidance from HKSE expected

We can see from this consultation that the HKSE has accepted the value, role and function that a whistleblowing regime can bring to good corporate governance. While we are waiting for further guidance from HKSE on its requirements for formulating a whistleblowing framework, Hong Kong issuers should prepare themselves by reviewing any existing reporting mechanisms already operational within its group, reviewing any historical reports and complaints with any areas recommended for remediation to prioritize approach, familiarizing themselves with the concepts underpinning and best practice for operating a whistleblowing regime, and identifying key stakeholders who will form the multi-disciplinary group responsible for managing the whistleblowing arrangements, once introduced.

Link to consultation paper - https://www.hkex.com.hk/News/Market-Consultations/2016-to-Present/April-2021-Review-of-CG-Code-and-LR?sc_lang=en 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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