Is the Standard of Care of Directors Inverted in Hong Kong?

Abstract

With every change of the rules of corporate governance invariably comes an enhanced expectation of the role of the independent non-executive directors who are increasingly perceived to be the sentinels at the gate. However, as the pendulum continues to swing in the corporate governance debate, a key issue that has surfaced may be summarized aptly as 'Who should be responsible?' Are we perhaps in danger of imposing too much responsibility upon the shoulders of independent non-executive directors who are by definition part-time members of the board whose access to information depends significantly on the executive management of the company?

With reference to two recent decisions by the Listing Committee of The Stock Exchange of Hong Kong Limited this article seeks to address a crucial policy issue namely whether independent non-executive directors who are members of audit committees should be subject to a higher standard of care and accordingly be held as primarily responsible for breaches of Listing Rules.

Keywords: Duty of care, directors liability, indepenmdent non-executive directors

JEL Classification: G38, K22, K42