The COVID-19 pandemic continues to test companies’ corporate governance practices. It has also highlighted the need for good communication and disclosure. Alongside the 2020 Best Corporate Governance Awards, the Institute conducted a brief desktop research project on how Hong Kong-listed companies with financial years ending 31 March 2020, have been communicating the impact of COVID-19 on their operations. This article highlights the findings of the report. The full report is available on the Institute’s website.
Inclusion in annual report
Consolidating the major COVID-19-related information in a dedicated section of a company’s annual report is a stakeholder-friendly approach to disclosures. Information that would be useful for investors and other stakeholders, preferably in a dedicated section, in annual reports could include:
Disclosure under section 307B of SFO
In the course of assessing the overall impact of the pandemic on the business, the company should also consider whether it needs to make a timely disclosure under section 307B of the Securities and Futures Ordinance (SFO). This would be the case where, for example, disclosure of an assessment of the impact would be likely to materially affect the company’s share price.
According to Guidelines on Disclosure of Inside Information, issued by the Securities and Futures Commission, whether there is “inside information” depends on the following factors:
Having assessed all these factors, even if it is concluded that there is no inside information, the company is encouraged to voluntarily disclose relevant information, for the sake of greater transparency and better management of stakeholder expectations. This can demonstrate leadership and help the company stand out from competitors in the same industry.
Instead of simply disclosing the relevant piece of information, where applicable, the strategies and measures to restore or revive the business could also be discussed, to enhance shareholders’ and potential investors’ confidence in the future of the business.
Although the above recommendations focus on the effects of COVID-19, these recommendations could also be applied in relation to other future events that have a far-reaching or global impact on businesses and the community.