Corporate Governance

4.3. Corporate Governance

The Group strives to attain and maintain high standards of corporate governance best suited to the needs and interests of the Group as it believes that an effective corporate governance framework is fundamental to promoting and safeguarding interests of shareholders and other stakeholders and enhancing shareholder value.

Accordingly, the Group has adopted and applied corporate governance principles and practices that emphasise a quality Board, effective risk management and internal control systems, stringent disclosure practices, transparency and accountability. It is, in addition, committed to continuously improving these practices and inculcating an ethical corporate culture.

4.3.1. The Board
The Board is responsible for directing and guiding the strategic objectives of the Company and overseeing and monitoring managerial performance. Role of the Board
Directors are charged with the task of promoting the long-term success of the Company and making decisions in the best interests of the Company with due regard to sustainability considerations.

The Board, led by the Chairman, Mr Victor T K Li, determines and monitors Group-wide strategies and policies, annual budgets and business plans, evaluates the performance of the Company, and supervises

the management of the Company (“Management”). Management is responsible for the day-to-day operations of the Group under the leadership of the Group Co-Managing Directors.

The Board is supported by four permanent board committees, namely, the Audit Committee, the Remuneration Committee, the Nomination Committee and the Sustainability Committee. Board Composition
As at 31 December 2019 and up to the date of this Report, the Board comprised 19 Directors, including the Chairman and Group Co-Managing Director, Group Co-Managing Director, Group Finance Director and Deputy Managing Director, three Deputy Managing Directors, one Executive Director, five Non-executive Directors and seven Independent Non-executive Directors. Throughout the year, the number of Independent Non-executive Directors on the Board meets the one-third requirement under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

The following chart shows the diversity profile of the
Board as at 31 December 2019:

Biographical details of the Directors are set out in the Information on Directors on pages 76 to 81 of the 2019 Annual Report and on the website of the Company.

A list setting out the names of the Directors and their roles and functions is also posted on the websites of the Company and Hong Kong Exchanges and Clearing Limited (“HKEx”) ( Chairman and Group Co-Managing Directors
The Chairman is responsible for providing leadership to, and overseeing the functioning of, the Board to ensure that it acts in the best interests of the Group.

The Board, under the leadership of the Chairman, has adopted good corporate governance practices and procedures and taken appropriate steps to promote effective communication and ongoing engagement with shareholders and other stakeholders.

The Group Co-Managing Directors, assisted by the other Executive Directors, are responsible for managing the businesses of the Group, attending to the formulation and successful implementation of Group policies and assuming full accountability to the Board for all Group operations. Acting as the principal managers of the Group’s businesses, the Group Co-Managing Directors attend to developing strategic operating plans that reflect the long-term objectives and priorities established by the Board and are directly responsible for overseeing and delivering operational performance of the Group.

The position of Chief Executive of the Company has been jointly held by Mr Victor T K Li and Mr Fok Kin Ning, Canning as Group Co-Managing Directors since June 2015. Following the appointment of Mr Li as Chairman of the Company in May 2018, he continued to hold the position of Group Co-Managing Director. Accordingly, with Mr Fok acting as Group Co-Managing Director, the day-to-day management of the Company is led and shared between Mr Li and Mr Fok with no single individual having unfettered management decision-making power.

Further, the Board which comprises experienced and seasoned professionals continues to monitor the Management to ensure that joint management is effectively and properly exercised. Hence, the current arrangements provide checks and balances and do not jeopardise the independent exercise of powers of the Chairman and the Group Co-Managing Directors. Board Effectiveness
All newly appointed Directors receive extensive briefing materials including information on the Group, duties as a director and board committee member, as well as internal governance policies of the Group.

To ensure an appropriate balance of knowledge and experience that allows the Board to fulfil its duty, the Company arranges and provides Continuous Professional Development (“CPD”) training such as seminars, webcasts and relevant reading materials to Directors to help them keep abreast of current trends and issues facing the Group, including the latest changes in the commercial (including industry-specific and innovative changes), legal and regulatory environment in which the Group conducts its businesses and to refresh their knowledge and skills on the roles, functions and duties of a listed company director.

All Directors are required to provide the Company with details of CPD training undertaken by them from time to time. The training records are maintained by the Company Secretary. For 2019, each director received an average of approximately eight hours of training. Board Independence
The Board, with the assistance of the Nomination Committee (and its sub-committee), evaluates the independence of Independent Non-executive Directors, whose independence are assessed having regard to the criteria under the Listing Rules.  All the Independent Non-executive Directors of the Company have not been involved in the daily management of the Company nor in any relationship or circumstances which would materially interfere with their exercise of independent judgment.

In identifying suitable candidates for Independent Non-executive Directors, apart from independence which is is one of the key factors, the Nomination Committee (and its sub-committee) also take into account the Board’s composition as well as the various diversity aspects as set out in the Board Diversity Policy.  The Nomination Committee also reviews on a timely basis any changes in the Directors’ professional engagements as well as other directorships or commitments to ensure compliance with the independence criteria and their commitment and devotion to the Board.

Given the nature as a multinational conglomerate holding company, some Directors also hold board positions in material operating subsidiaries and associated companies to oversee and monitor these companies in order to ensure the Group’s interests are protected. All Directors have confirmed that they have given sufficient time and attention to the affairs of the Group for the year, which is evidenced by the Directors’ high attendance at Board and committee meetings (see Section Process). In addition, Directors disclose to the Company in a timely manner their other commitments, such as directorships in other public listed companies and major appointments, and also update the Company on any subsequent changes. Board Process
The Board meets regularly, and at least four times a year with meeting dates scheduled prior to the beginning of the year. Between scheduled meetings, the senior management of the Group provides to Directors, on a regular basis, monthly updates and other information with respect to the performance and business activities of the Group. Whenever warranted, additional physical Board meetings are held. Further, Directors have full access to information on the Group and independent professional advice at all times whenever deemed necessary and they are at liberty to propose appropriate matters for inclusion in Board agendas.

In 2019, the Company held four Board meetings with overall attendance of approximately 99%. All Directors attended the Annual General Meeting of the Company held on 16 May 2019 and the Board meeting held on the same day, except for one Independent Non-executive Director who was not able to attend due to personal reasons.

In addition to Board meetings, in 2019 the Chairman held regular meetings with Executive Directors every month and also met with Independent Non-executive Directors twice without the presence of other Directors. The Independent Nonexecutive Directors are encouraged to provide their independent views to the Board. Board Committees
The Board has established four permanent Committees: the Audit Committee, the Remuneration Committee, the Nomination Committee and the Sustainability Committee. Each committee is delegated with the authority to deal with specific matters with a view to operating effectively, and giving appropriate attention and consideration to these matters. The Chairman of each Committee reports to the Board regularly, including their decisions and recommendations.

The following table summarises the composition of board committees: Audit Committee
The role of the Audit Committee is to assist the Board in maintaining the integrity of the Company’s financial reporting, the effectiveness of internal control and risk management systems. It regularly reviews the scope, extent and effectiveness of the activities of the Group’s internal audit function, as well as develop and review the Company’s policies and practices on corporate governance including compliance with statutory and Listing Rules requirements.

The Committee comprises four Independent Non-executive Directors who possess the relevant financial and business management experience and skills to understand financial statements and monitor the financial governance, internal controls and risk management of the Company.

For more information, please refer to the Terms of Reference of the Audit Committee and 2019 Corporate Governance Report. Remuneration Committee
The responsibilities of the Remuneration Committee are to assist the Board in the administration of a fair and transparent procedure for setting remuneration policies for all Directors and senior executives of the Group. Whilst the Board retains its power to determine the remuneration of Non-executive Directors, the responsibility for reviewing and determining the remuneration package of individual Executive Directors and senior management of the Group is delegated to the Remuneration Committee.

The Remuneration Committee comprises four members with expertise in human resources and personnel emoluments. The composition of the Remuneration Committee meets the requirements of chairmanship and independence under the Listing Rules.

For more information, please refer to the Terms of Reference of the Remuneration Committee and 2019 Corporate Governance Report. Nomination Committee
The Nomination Committee is responsible for reviewing the structure, size, diversity profile and skills set of the Board and the progress in achieving the diversity objectives of the Company.

The Nomination Committee is chaired by the Chairman of the Board with all Directors as members. An ad hoc sub-committee, chaired by the Chairman comprising members in compliance with the code provision requirements under the Listing Rules for a nomination committee, will be established as and when required to facilitate the Nomination Committee in the selection and nomination process. The Board is of the view that the ultimate responsibilities of the Nomination Committee rest with the Board as a whole and it is in the best interests of the Company that the Board collectively reviews and determines the structure, size and composition of the Board as well as the succession plan for Directors, as and when appropriate.

The nomination process is conducted in accordance with the Director Nomination Policy and Board Diversity Policy, which are available on the website of the Company.

For more information, please refer to the Terms of Reference of the Nomination Committee and 2019 Corporate Governance Report. Sustainability Committee
The Sustainability Committee, which has three members and is chaired by Mr Frank Sixt, Group Finance Director and Deputy Managing Director, was set up by the Board to oversee management and advise the Board on the development and implementation of the sustainability initiatives of the Group, including reviewing the related policies and practices, and assessing and making recommendations on matters concerning the Group’s sustainability governance, strategy, planning and risks.

For more information, please refer to Section 4.1 Sustainability Governance and the Reference of the Sustainability Committee.

4.3.2. Risk Management
The Group adopts an Enterprise Risk Management framework which is consistent with the COSO (the Committee of Sponsoring Organisations of the Treadway Commission) framework. The framework facilitates a systematic approach in identifying, assessing and managing risks within the Group, be they of strategic, financial, operational or compliance nature.

Risk management is integrated into all business and decision-making processes, where striking a sensible balance between risk and opportunity is critical to the longer term growth and sustainability of the Group’s business. It is also a continuous process carried out at all levels of the Group. There are ongoing dialogues between the Executive Directors and the executive management teams of each core business about the current and emerging risks such as megatrends on climate change, resource scarcity and technological breakthrough, their plausible impacts and mitigation measures. These measures include instituting additional controls and deploying appropriate insurance instruments to minimise or transfer the impact of risks to the Group’s businesses. The latter also includes the Directors and Officers Liability Insurance to protect the Directors and Officers of the Group against potential personal legal liabilities.

In terms of formal risk review and reporting, the Group adopts a “top-down and bottom-up” approach, involving regular input from each core business as well as discussions and reviews by the Executive Directors and the Board, through the Audit Committee. More specifically, on a half-yearly basis, each core business is required to formally identify and assess the significant risks their business faces, whilst the Executive Directors provide input after taking a holistic assessment of all the significant risks that the Group faces. Relevant risk information including key mitigation measures and plans are recorded in a risk register to facilitate the ongoing review and tracking of progress.

The composite risk register together with the risk heat map, as confirmed by the Executive Directors, form part of the risk management report for review and approval by the Audit Committee on a half-yearly basis. The Audit Committee, on behalf of the Board, reviews the report and provides input as appropriate so as to ensure effective risk management in place. Pages 69 to 75 of the Company's 2019 Annual Report provide a description of the Group’s risk factors which could affect the Group’s financial condition or results of operations to differ materially from expected or historical results.

4.3.3. Internal Control Environment
The Group’s internal control system is embedded in its day-to-day business activities and transactions. The Group has a well-established organisational structure with defined levels of authority and responsibility, as well as reporting procedures.

The Executive Directors are appointed to the boards of all material operating subsidiaries and associated companies for overseeing and monitoring those companies. The executive management team of each core business is accountable for the conduct and performance of each business unit within the agreed strategies. 
There is a comprehensive system for reporting information to the executive management teams and the Executive Directors. Business plans and budgets are prepared annually for review and approval by the executive management teams and the Executive Directors. Reforecasts for the current year are prepared on a quarterly basis and reviewed for variances to the budget.  The Executive Directors also review financial reports and key operating statistics, and hold monthly meetings with the executive management team to review the reports.

The Group has established guidelines and procedures for the approval and control of expenditures. Operating expenditures are subject to overall budget control and are monitored within each business according to its defined authorisation levels and procedures. Capital expenditures are also subject to overall budget control, in particular, material and unbudgeted expenditures require approval from the Group Finance Director and Deputy Managing Director prior to commitment.

The Group’s Treasury function oversees the Group’s investment and lending activities, evaluates and monitors financial and operational risks, and makes recommendations to management to mitigate those risks. The Group also has established treasury policies covering specific aspects such as bank account controls, loan covenants monitoring and compliance, and derivatives and hedging transactions approval and reporting.

In terms of formal review of the Group’s internal control system, an internal control self-assessment process is in place that requires the executive management team and the senior management of each core business to review and evaluate the controls over the operations, devise action plan to address the issues if any, and declare the effectiveness of the overall controls. These self-assessment results are reviewed by the Executive Directors, then submitted together with the risk management report as mentioned earlier and the independent assessments by the auditors to the Audit Committee who formulates its opinion on the effectiveness of the Group’s risk management and internal control systems.

4.3.4. Ethics and Integrity
The Group values and upholds the highest standards of business integrity, honesty and transparency in its overall business activities. The Board sets a tone of zero-tolerance towards fraud and corruption. The Board, through the Audit Committee, holds the overall responsibility for business ethics as an essential part of its corporate governance responsibilities.

On behalf of the Board, the Audit Committee oversees the compliance efforts and also regularly reviews the effectiveness of the Group’s risk management and internal control systems on an ongoing basis.

The Group has a strong internal control framework to guide its businesses in maintaining the highest standards of ethics and business conducts. The framework has five core elements: Governance Policies
The Code of Conduct (the “Code”) sets out the professional and ethical standards for its Directors and employees to observe in all business dealings, including provisions dealing with conflict of interest, fair dealing and integrity, corruption, political contribution, confidentiality, personal data protection and privacy, as well as reporting of illegal and unethical behaviour.

The Code applies to all subsidiaries and controlled affiliates of the Company, where every Director and employee requires strict adherence to the Code including all applicable laws, rules and regulations within the jurisdictions in which the Group operates. For those non-controlled affiliates, employees serving as directors should, to the extent possible, encourage such affiliates to adopt and follow the Code. 

Likewise, business partners and suppliers who are working for the Group are encouraged to maintain the highest standards of ethical conduct and professionalism in accordance with the Supplier Code of Conduct. In particular, they are required to implement appropriate anti-fraud and corruption policies as well as compliance programmes to verify if the policies are being properly complied with. Suitable anti-fraud and corruption clauses are incorporated in the contracts with those business partners and suppliers to ensure that they are fully aware of the Group's requirements.

In particular, the Anti-Fraud and Anti-Bribery Policy outlines the Group’s zero-tolerance stance against bribery and corruption and assists employees in recognising the circumstance which may lead to or give the appearance of being involved in corruption or unethical business conduct. It includes provisions dealing with kickbacks, political and charitable contributions, facilitation payments, gifts and hospitality, and procurement of goods and services.

For political donation, it is the Group’s general policy not to make any form of donation to political associations or individual politicians.

For more information, please refer to the Anti-Fraud and Anti-Bribery Policy and Media, Public Engagement and Donation Policy

For other relevant governance policies on ethics and integrity, please refer to Section 4.2.1. CSR Pillars and Policies and the Company’s 2019 Corporate Governance Report. Communication and Training
All employees are well informed of the Code as well as other related policies. Relevant trainings are provided to all new joiners as part of their induction programmes. For specific topics such as anti-fraud and corruption, tailor-made trainings are assigned to employees based on their role and area of responsibility (e.g. employees of a senior grade, employees whose positions have frequent dealings with suppliers) at least once every two years. In addition, periodic fraud alerts are circulated within the Group to draw management attention to new or common fraud schemes. Fraud sharing sessions are also held among core businesses and business units to increase staff awareness, for example, 3 Group Europe, comprising representatives from each telecom business unit, organises fraud intelligence sharing forums each year, with three forums held in 2019. Employees are also required to make self-declaration on their compliances with the Code and related policies on an annual basis. Due Diligence
The Group’s commitment to anti-fraud and corruption is also reflected in its management of business partners, suppliers, and third party representatives such as advisers, agents, consultants, introducers and finders, and political lobbyists. 

The Group conducts appropriate level of due diligence on the selection and renewal of new and existing business partners or suppliers based on an assessment of risk factors including transaction size, product or service nature, financial and compliance status, qualification, potential conflict of interest, and country risk. Moreover, the Group adopts a comprehensive set of procurement and tendering procedures to ensure that related activities are carried out in a fair and transparent manner.  The appointment of third party representatives requires prior approval from an Executive Director, and material capital expenditure projects (in excess of pre-defined thresholds) require Head Office review and approval prior to any binding commitment. Proper measures are taken should those business partners, suppliers and third party representatives be found to be in breach of laws and regulations. The internal audit function would perform independent review of the related areas.

For more information, please refer to the Anti-Fraud and Anti-Bribery Policy and Policy and Policy on Appointment of Third Party Representatives. Ongoing Assessment
Business practices and controls for preventing and combating corruption and other misconducts are continuously assessed by business units, especially when there are major changes in terms of organisation, operational scale or nature, regulatory requirements, and macro environment. The outcome of the assessment not only drives the necessary improvement and additional mitigating controls, but also reinforces the importance of operating in a fair, ethical and legal manner. Such self-assessment results, as part of the Group’s half-yearly internal control self-assessment process, are reviewed independently by the internal audit function, and reported to the Executive Directors and the Audit Committee half-yearly.

For more information, please refer to Section 4.3.3. Internal Control Environment. Monitoring and Review
The Group has implemented sound financial controls (including adequate segregation of duties, authorisation controls, records logging, supporting documentation, and audit trail) to prevent and detect irregularities or misconducts. Such control system is subject to regular review and audit. In particular, the internal audit function, who is responsible for assessing the effectiveness of the Group’s internal control system, performs audits in accordance with its risk-based audit plan, where the scope of review includes, amongst others, the Group’s compliance with its governance policies and applicable laws and regulations.

The Group encourages employees and those who deal with the Group (such as customers, suppliers, creditors and debtors) to raise concerns about any suspected or real impropriety, misconduct or malpractice through confidential reporting channels. All reported incidents are treated confidentially, and the individuals raising the concerns are assured of protection against unfair dismissal, victimisation or unwarranted disciplinary action. The Group also prohibits retaliation of any kind against those who raise a business conduct concern. The whistleblowing channels that the Group has established allow anonymous reporting of improprieties.

In addition to the whistleblowing channels as published on the corporate websites, each core business derives its own set of internal escalation procedures to cater for its operational needs, and under all circumstances, is required to report the incident to the Group Finance Director and Deputy Managing Director and the head of the internal audit function within one working day should the amount involved exceeds the de minimis threshold (as agreed between the Group Finance Director and Deputy Managing Director and the executive management team of each core business).

Incidents or suspected incidents of fraud and corruption are immediately investigated. The internal audit function has the responsibility to review every reported incident, seek relevant stakeholders for direction or comment, determine which incident requires a more in-depth investigation, and escalate promptly to the Executive Directors and the Audit Committee if the incident is of a significant nature, in accordance with the established fraud incident escalation and reporting procedures. A summary of the reported incidents and relevant statistics (including results of independent investigations and actions taken) is presented to the Audit Committee and the Executive Directors on a quarterly basis.

For concerns that are substantiated, disciplinary actions including verbal or written warning and termination of employment are taken after due management consideration.  Violation of the laws and regulations are reported to the police or other law enforcement organisations for civil and criminal proceedings.

For more information, please refer to the Code of Conduct, Anti-Fraud and Anti-Bribery Policy and, Procedures for Reporting Possible Improprieties in Matters of Financial Reporting, Internal Control or Other Matters.

The head of internal audit, or the Audit Committee Chairman where warranted, will maintain dialogues with the Reporter, if contactable and deemed necessary.