A. Explanation

This Provision provides for the minimum proportion of Non-Executive Directors (NEDs) on the Board.

A key purpose of the Board is to provide oversight of management. This becomes difficult where it comprises a majority of management members (i.e. Executive Directors or EDs).

For that reason, this Provision states that NEDs, whether independent (i.e. Independent Directors or IDs) or not (i.e. Non-Executive Directors NEDs or NI-NEDs), should form a majority of the Board.

Provision 2.3 should also be read in conjunction with the following Listing Rules and Provisions:

• MR 210(5)(c) and CR 406(3)(c) specify that a Board must have at least two non-executive directors who are independent and free of any material business or financial connection with the issuer, and that IDs must comprise at least one-third of the issuer’s board and any vacancy must be filled within two months but in any case not later than three months. (Note that there is a transition period for the requirement for IDs to comprise at least one-third of the board, to take full effect only from 1 January 2022.)
• Provision 2.2 specifies that IDs should make up a majority of the Board where the Chairman is not independent. Note that Provision 2.3 is automatically complied with if Provision 2.2 is complied with.

B. Practice Guidance

• Practice Guidance 2: Board Composition and Guidance.

C. Related Rules and Regulations

• Section 201B(2) of the Companies Act: Audit Committees [Composition].
• MR 210(5)(c) and CR 406(3)(c): Directors and Management.
• MR 720(1) and CR 720(1): Directors and Management.

D. CG Guides

• Board Guide 2.9: Independence [Board Composition].
• Board Guide 5.8: Types of Directors [Director Duties].
• Board Guide 5.10: The Non-Executive Director.
• NC Guide 3.4: Board Composition [Nomination and Appointment Process].
• NC Guide 4.1: Introduction [Director Independence].
• NC Guide 4.2: Number of IDs [Director Independence].

E. Related Articles

• “The search for independence” by Lim Chin Hu. (446KB)
• “Professionalising independent directorship” by Benedict Lim. (458KB)
• “The role and challenges of the non-executive board chair” by Lee Chong Kwee. (145KB)
• “Independent directors: Neither tigers nor pussy cats” by Anabelle Yip. (255KB)
• “Independent director recruitment: The new challenge” by SID. (258KB)
• “The idea of a ‘professional independent director’” by Umakanth Varottil. (130KB)
• “Will the truly independent director please stand up?” by Willie Cheng. (441KB)