APPLICATION OF CORPORATE GOVERNANCE PRINCIPLES
The board (the "Board") of directors (the "Directors") of the Company is committed to enhancing the Group's corporate governance standards by improving corporate transparency through effective channels of information disclosure.
The Board believes that good corporate governance is beneficial for maintaining close and trustful relationships with its employees, business partners, shareholders and investors.
employees, business partners, shareholders and investors. The Company has adopted and complied with the code provisions under the Corporate Governance Code (the "Code") contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules") throughout the Year.
BOARD OF DIRECTORS
It is the duty of the Board to create value to the shareholders of the Company (the "Shareholders"), establish the Company's strategic direction, set the Company's objectives and plan in accordance therewith, and provide leadership and ensure availability of resources in the attainment of such objectives. The Board endeavours to manage the Company in a responsible and effective manner, and strive to ensure that each of the Directors carries out his duty in good faith and in compliance with the memorandum and articles of association of the Company (the "Articles of Association"), the applicable laws and regulations, and acts in the best interests of the Company and the Shareholders at all times.
The Board and management of the Company (the "Management") have clearly defined responsibilities under various internal control and checks-and-balance mechanism. The Board has delegated certain responsibilities to the Management, including implementation of decisions of the Board and organization and direction of the day-to-day operation and the Management in accordance with the management strategies and plans approved by the Board; preparation and monitoring of annual business plans and operating budget; and control, supervision and monitoring of capital, technical and human resources. The Board will review these arrangements on a periodic basis to ensure that they remain appropriate to the needs of the Group.
The Board currently comprises ten Directors, two of whom are executive Directors, three are non-executive Directors and four are independent non-executive Directors ("INEDs"). The composition of the Board is set out as follows:
Mr. CHEN Jiajun
Mr. MA Fei
Mr. LIANG Rui
(Ru re-designated from an executive Director to a non-executive Director with effect from 20 December 2020)
Mr. NG Wai Hung
Mr. XU Yibo
(Ru re-designated from an executive Director to a non-executive Director with effect from 8 October 2021)
Independent Non-Executive Directors
Mr. CHAN King Chung
Mr. GUO Jinghui
Mr. CHIU Sin Nang Kenny
(Appointed as an independent non-executive Director with effect from 21 December 2021)
Mr. NGAI Tsz Hin Michael
The biographies of the Directors are set out in the "Directors and Senior Management" on pages 27 to 31 of this Annual Report.
To the best knowledge of the Company, none of the Directors has any relationship (including financial, business, family or other material or relevant relationship) with any other Director or chief executive.
The Company has arranged for appropriate liability insurance to indemnify the Directors for their liabilities arising out of corporate affairs. The insurance coverage is reviewed annually.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Under code provision A.2.1 of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules, the roles of chairman and chief executive officer should be separated and should not be performed by the same individual. The division of responsibilities between the chairman and chief executive officer should be clearly established and set out in writing. On 20 December 2020, Mr. Liang Rui resigned as chief executive officer of the Company and Mr. Chen Jiajun was appointed as chief executive officer. Currently, Mr. Chen Jiajun is the chairman of the Board and the chief executive officer of the Company. The Board considers that this structure will not impair the balance of power and authority between the Board and the management and believes that this structure enables the Group to make and implement decision promptly and efficiently.
Save as disclosed above, none of the Directors is aware of any information which would reasonably indicate that the Company has not met the requirements under the Code during the year ended 31 December 2020.
The non-executive Directors provide various expertise and experiences and maintain balance of interest to safeguard the interests of the Group and the Shareholders. They participate in Board meetings and committee meetings and make independent judgements on issues related to the Group's strategies, performance, interest conflicts and management process so as to ensure the interests of all Shareholders are properly considered. Currently, the non-executive Directors are appointed for a period of three years.
INDEPENDENT NON-EXECUTIVE DIRECTORS
The INEDs have the same duties of care, skill and fiduciary duties as the executive Directors. They are expressly identified as such in all corporate communications that disclose the names of the Directors. The INEDs have expertise in respective areas of accounting, business management and possess in-depth industry knowledge. With their professional knowledge and experience, the INEDs have advised the Company on its operation and management; participated in the meetings of the audit committee of the Company (the "Audit Committee,"), the meetings of the remuneration committee of the Company (the "Remuneration Committee") and the meetings of the nomination committee of the Company (the "Nomination Committee"). The INEDs have contributed to provide checks and balance to protect the interests of the Company and the Shareholders as a whole, and to promote the development of the Company.
The Company has received an annual confirmation of independence from each of the INEDs pursuant to Rule 3.13 of the Listing Rules and on this basis, considers that all INEDs are independent as at the date of this Annual Report.
Under Code Provision A.4.1 of the Code, non-executive Directors should be appointed for specific terms, subject to re-election. Currently, Mr. Guo Jinghui is appointed for a period of three years, while all other INEDs are appointed for a period of one year subject to renewal and retirement by rotation and re-election at the annual general meeting of the Company in accordance with the Articles of Association.
During the Year, five Board meetings, one Annual General Meeting ("AGM") and one Extraordinary General Meeting ("EGM") were held during the Year.
Attendance of individual Directors at the Board meetings in 2020, AGM and EGM is as follows:
|Name of directors||Board Meetings||AGM||EGM|
|Mr. CHEN Jiajun||5/5||1/1||1/1|
|Mr. MA Fei||5/5||1/1||1/1|
|Mr. LAM Ting Fung Freeman||5/5||1/1||1/1|
|Mr. LIANG Rui (re-designated from an executive Director to a non-executive Director on 20 December 2020)||5/5||1/1||1/1|
|Mr. NG Wai Hung||5/5||1/1||1/1|
|Mr. XU Yibo (re-designated from an executive Director to a non-executive Director on 8 October 2021)||5/5||1/1||1/1|
|Independent Non-executive Directors|
|Mr. CHAN King Chung||5/5||1/1||1/1|
|Dr. HUANG Dazhan||5/5||1/1||1/1|
|Mr. XIE Weixin||5/5||1/1||1/1|
|Mr. GUO Jinghui||5/5||1/1||1/1|
CORPORATE GOVERNANCE FUNCTIONS
The Board also assumes the corporate governance functions and is responsible for: developing and reviewing the Company's policies on corporate governance; reviewing and monitoring training and continuous professional development of Directors and senior management; reviewing and monitoring the Company's policies and practices on compliance with legal and regulatory requirements; developing, reviewing and monitoring the Company's code of conduct; and reviewing the Company's compliance with the Code and disclosure in this Corporate Governance Report. Besides, the Company has set up three committees including the Nomination Committee, the Remuneration Committee and the Audit Committee. Each committee has its specific terms of reference with reference to the Code.
The written terms of reference of the Remuneration Committee are in compliance with the Code. The primary duties of the Remuneration Committee include (without limitation):
|(a)||to make recommendations to the Board on policies and structure for remuneration of Directors and senior management and on the establishment of a formal and transparent procedure for developing policy on such remuneration; and|
|(b)||to determine the remuneration packages for executive Directors and senior management and to make recommendations to the Board on the remuneration of non-executive Directors.|
The Remuneration Committee is made up of all of the INEDs, namely, Mr. CHAN King Chung (Chairman), Dr. HUANG Dazhan, and Mr. XIE Weixin.
The Remuneration Committee had one meeting in 2020 which were attended by all the members of the Remuneration Committee, to review the remuneration packages of Directors and senior management of the Group. The attendance record of each member of the Remuneration Committee is set out below:
|Name||Number of meetings attended|
|Mr. CHAN King Chung (Chairman)||1/1|
|Dr. HUANG Dazhan||1/1|
|Mr. XIE Weixin||1/1|
No Director took part in any discussion about his or her own remuneration.
Pursuant to code provision B.1.5 of the Code, the remuneration of the members of the senior management by band for the year 2020 is set out below:
|Remuneration bands (HK$)||Number of persons|
|1 to 1,000,000||12|
|1,000,001 to 2,000,000||6|
|2,000,001 to 3,000,000||1|
|3,000,001 to 4,000,000||1|
|4,000,001 to 5,000,000||1|
The major responsibility of the Audit Committee is to conduct independent and objective audit of the truth and accuracy of the Group's economic operation and financial activities, financial policies, financial procedures, risk management, internal control, external audit, internal audit, financial information reporting and financial data and assist the Board in discharging its relevant duties.
The Audit Committee, comprising all of the INEDs, namely, Mr. CHAN King Chung (Chairman), Dr. HUANG Dazhan and Mr. XIE Weixin, has reviewed the accounting principles and practices adopted by the Company and has discussed the auditing, internal control and financial reporting matters.
During the Year, the Audit Committee held three meetings. The attendance record of each member of the Audit Committee is set out below:
|Name||Number of meetings attended|
|Mr. CHAN King Chung (Chairman)||3/3|
|Dr. HUANG Dazhan||3/3|
|Mr. XIE Weixin||3/3|
The Audit Committee has carefully reviewed and discussed the Company's half-yearly and annual results for the Year under review and system of internal control and has made recommendations for improvement. The Audit Committee has carried out and discharged its duties set out in Code.
The principal duties of the Nomination Committee include reviewing the Board composition, developing and formulating relevant procedures for nomination and appointment of Directors and senior management, making recommendations to the Board on the appointment and succession planning of Directors and senior management, and assessment of the independence of the INEDs.
The Nomination Committee comprises one executive Director and two INEDs, namely Mr. CHAN King Chung (the Chairman of the Committee), Mr. CHEN Jiajun, and Mr. XIE Weixin as members.
The Nomination Committee carries out the process of selecting and recommending candidates for directorship and senior management by making reference to the skills, experience, professional knowledge, personal integrity and regulations. An external recruitment agency may be engaged to carry out the recruitment and selection process when necessary. The Nomination Committee held one meeting during the Year. The attendance record of the Nomination Committee meeting is set out below:
|Name||Number of meetings attended|
|Mr. CHAN King Chung (Chairman)||1/1|
|Mr. XIE Weixin||1/1|
|Mr. CHEN Jiajun||1/1|
The Nomination Committee recommended the re-appointment of the Directors standing for re-election at the next forthcoming annual general meeting of the Company.
PROVISION OF INFORMATION TO DIRECTORS
To assist the Directors in the discharge of their respective duties, the Company will provide every Director with a comprehensive induction program on the first occasion of his appointment, in which the Director will be provided with information on the Company's organisation and business, including the membership, duties and responsibilities of the Board, the various Board committees and the Management; corporate governance practices and procedures; and the latest financial information of the Company. Such information shall be supplemented with visits to the Company's key plant sites and meetings with key members of the Management.
Throughout their tenure, the Directors will be provided with updates on the business of the Company, latest developments of the Listing Rules and other applicable legal and regulatory requirements, corporate social responsibility matters and other changes affecting the Company from time to time.
CONTINUOUS PROFESSIONAL DEVELOPMENT
All Directors are encouraged to participate in continuous professional development to develop and refresh their knowledge and skills. The Company has arranged in-house trainings for Directors in the form of seminar and provision of training materials. A summary of training received by Directors during the Year according to the records provided by the Directors is as follows:
Name of directors
|Training on corporate governance,
and other relevant topics
|Mr. CHEN Jiajun||✓|
|Mr. MA Fei||✓|
|Mr. LAM Ting Fung Freeman||✓|
|Mr. LIANG Rui (re-designated from an executive Director to a non-executive Director with effect from on 20 December 2020)||✓|
|Mr. NG Wai Hung||✓|
|Mr. XU Yibo (re-designated from an executive Director to a non-executive Director with effect from on 8 October 2021)||✓|
|Independent Non-executive Directors|
|Mr. CHAN King Chung||✓|
|Dr. HUANG Dazhan||✓|
|Mr. XIE Weixin||✓|
|Mr. GUO Jinghui||✓|
SECURITIES TRANSACTIONS BY DIRECTORS
The Company has adopted a code of conduct for securities transactions and dealings (the "Code of Conduct") based on the Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 of the Listing Rules (the "Model Code"). The terms of the Code of Conduct are no less exacting than the standards in the Model Code, and the Code of Conduct applies to all relevant persons as defined in the Model Code, including all the Directors, all other employees of the Company, and director and employees of a subsidiary or holding company of the Company who, because of such office or employment, are likely to be in possession of unpublished price sensitive information in relation to the Company or its securities. Specific enquiry has been made of all the Directors who have confirmed in writing their compliance with the required standards set out in the Model Code and the Code of Conduct during the Year under review.
To supplement the Model Code, the Company has also put in place a disclosure of information policy for the handling and disclosure of inside information. The policy sets out the procedures and internal controls for the handling and dissemination of inside information in a timely manner and provides the Directors, senior management and relevant employees a general guide in monitoring information disclosure and responding to enquiries. Further, control procedures have been implemented to ensure that the unauthorized access and use of inside information is strictly prohibited.
CORPORATE ACCOUNTABILITY AND INTERNAL CONTROL
The Board is responsible for the Group's risk management and internal control system and has the responsibility for reviewing its effectiveness. Such system is designed to manage rather than eliminate the foreign exchange exposure of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. The Directors are responsible for the preparation of the financial statements of the Group. In the preparation of financial statements, the Hong Kong financial reporting standards have been adopted and the appropriate accounting policies have been consistently used and applied. The Board aims to present a clear and balanced assessment of the Group's performance in the annual and interim reports to the Shareholders, and make appropriate disclosure and announcements in a timely manner. Pursuant to code provision C.1.1 of the Code, management would provide sufficient explanation and information to the Board to enable the Board to make an informed assessment of the financial and other information put before the Board for approval.
Procedures have been designed for safeguarding assets against unauthorised use or disposition, the maintenance of proper accounting records for the provision of reliable financial information for internal use or for publications and the compliance of applicable laws, rules and regulations.
The Directors conducted a review of the overall effectiveness of the internal control system of the Group for the Year. An internal audit department has been established to perform regular reviews and conduct audit of the Company and its subsidiaries and reported to the Board on any material issues and make recommendations to the Board. The work carried out by the internal audit department will ensure the internal controls are in place and functioning properly as intended.
The Board has taken further steps to review its internal control and established an independent board committee to look into and investigate the outstanding audit issues. The independent board committee is doing its best to identify and engage an independent legal advisers and internal control expert to conduct an overall review on the internal control of the Group.
BT Corporate Governance Limited (formerly known as Corporate Governance Professionals Limited and Baker Tilly Hong Kong Risk Assurance Limited), an external professional adviser, was engaged by the Company in December 2020 to conduct an independent internal control review and to assist the management to improve the internal control system of the Group.
The Board also reviews, at least annually, the adequacy of resources, staff qualifications and experience of the Group's accounting and financial reporting function, internal audit function, risk management functions, and their training programmes and budget.
PROCEDURES FOR IDENTIFYING, ASSESSING AND MANAGING MATERIAL RISKS
The Company has set up procedures to identify, assess and manage material risks based on assessment basis, assessment dimension, risk rating and dispersion.
Firstly, the Company grades risks from aspects of assessment basis, assessment dimension, risk rating and dispersion:
In respect of assessment basis: risks will be graded by reference to the risks currently controlled by the Company (without taking into account the risks that may be controlled by the Company in the future).
In respect of assessment dimension: each risk will be graded according to the possibility of their occurrence and their impacts. The possibility represents the probability that a risk may occur, the impact represents the economic, operating, reputation and other losses that the risk may incur, and both adopt five-mark systems. Value at risk= probability × impacts, and as a result, value at risks ranges from 1-25 and the higher the value at risk, the greater the risks.
In respect of risk rating: risks are classified into high, medium and low three levels in accordance with risk assessment standard based on the value at risk calculated.
In respect of dispersion: dispersion represents the extent that a group of figures deviate from the average number, and the smaller the dispersion, the more consistent the assessment results.
Through identifying and assessing risks, the risks faced by the Company are categorized into 4 primary risks including strategic risk, financial risk, operational risk and legal risk and 18 secondary risks.
Secondly, the Company calculates the final assessment results of each risk after considering the grade of each assessment, pursuant to which the material risks faced by the Company during the Year are assessed.
DIRECTORS' RESPONSIBILITIES FOR FINANCIAL REPORTING IN RESPECT OF FINANCIAL STATEMENTS
The Directors have acknowledged their responsibilities for preparing the financial statements of the Company for the Year. The Directors' responsibilities for preparing the financial statements of the Company for the Year are set out in the Report of the Directors on page 45 of the Annual Report..
BOARD DIVERSITY POLICY
The Board has adopted a "Board Diversity Policy" in relation to the nomination and appointment of new Directors, which sets out: the selection of board candidates shall be based on a range of diversity perspectives with reference to the Company's business model and specific needs, including but not limited to gender, age, race, language, cultural background, educational background, industry experience and professional experience.
The above measurements were also reviewed and adopted when the Nomination Committee reviewed the composition of the Board. After assessing the suitability of the directors' skills and experience to the Company's business, the Nomination Committee confirmed that the existing Board was appropriately structured and no change was required.
All Directors have access to the advice and services of the company secretary. The company secretary reports to the Board, and is responsible for ensuring that Board procedures are followed and for facilitating information flows and communications among Directors as well as with Shareholders and the management, Mr. Ma Fei and Mr. Tsang Hing Bun were appointed as the joint company secretaries of the Company in 2019 and have complied with the 15 hours training requirements under Rule 3.29 of the Listing Rules.
Pursuant to Rule 8.17 of the Listing Rules, a listed issuer must appoint a company secretary who meets the requirements under Rule 3.28 of the Listing Rules. Rule 3.28 of the Listing Rules provides that a listed issuer must appoint as its company secretary an individual who, in the opinion of the Stock Exchange, is capable of discharging the functions of company secretary of the listed issuer by virtue of his/her academic or professional qualifications or relevant experience. Mr. Ma currently does not possess the qualifications of a company secretary as required under Rules 3.28 and 8.17 of the Listing Rules. As the Company could not find any other suitable candidates internally or externally to replace the vacancy left by the resignation of Mr. Leung, the Company considers that it is in its best interests to appoint Mr. Ma as a joint company secretary of the Company. Mr. Ma joined the Group in 2006 and is primarily stationed in Shenzhen, where some of the Directors are also based in. Mr. Ma is familiar with the Group's operations and has effectively been doing and assisting with, among other things, company secretarial work for the Company. The Company considers that the arrangement to appoint Mr. Ma to act as a joint company secretary and assist the Board, while appointing Mr. Tsang, who was nominated by an external corporate secretarial services firm engaged by the Company, to assist Mr. Ma in respect of the requirements of a company secretary of a listed company on the Stock Exchange is in the best interests of the Company. The Company has applied to the Stock Exchange for, and the Stock Exchange has granted a waiver (the "Waiver") on 29 October 2019 to the Company from strict compliance with the requirements of Rules 3.28 and 8.17 of the Listing Rules for three years from the date of the Waiver (the "Waiver Period") in relation to Mr. Ma's eligibility to act as a joint company secretary of the Company, on the condition that:
|(i)||Mr. Ma will be assisted by Mr. Tsang during the Waiver Period;|
|(ii)||the Company shall notify the Stock Exchange at the end of the Waiver Period for the Stock Exchange to re-visit the situation. The Stock Exchange expects that after the end of the Waiver Period, the Company will be able to demonstrate that Mr. Ma satisfies Rule 3.28 of the Listing Rules, having had the benefit of Mr. Tsang's assistance such that a further waiver will not be necessary; and|
|(iii)||the Company will announce details of the Waiver, including its reasons and conditions.|
The Group has not changed external auditors in the past three years. Ernst & Young have been appointed as the External Auditor of the Group for the year under review. An amount of approximately HK$3.29 million was charged by Ernst & Young for its audit services provided to the Group in 2020 (2019: HK$3.37 million). The responsibilities of the external auditor with respect to financial reporting are set out in the section headed "Independent Auditor's Report" on page 50 to 51 of this report.
During the Year, HK$1.16 million (2019: HK$0.69 million) was incurred as remuneration to Ernst & Young for the provision of non-audit services to the Group which represented tax advisory and agree-upon procedures services.
COMMUNICATION WITH SHAREHOLDERS AND SHAREHOLDERS' RIGHTS
The Company recognizes the importance of good communications with all Shareholders and investors. The Company's annual general meeting is a valuable forum for the Board to communicate directly with the Shareholders. The Company provides information relating to the Company and its business in its annual and interim reports and also disseminates such information electronically through its website www.coolpad.com.hk and the website of the Stock Exchange. All Shareholders are given a minimum of 21 days' notice of the date and venue of such annual general meeting. The Company supports the Code's principle to encourage Shareholders' participation.
Pursuant to the Article 58 of the Articles of Association, any one or more Shareholders holding at the date of deposit of the requisition not less than one tenth of the paid up capital of the Company carrying the right of voting at general meetings of the Company shall at all times have the right, by written requisition to the Board or the company secretary of the Company, to require an extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition, and such meeting shall be held within two months after the deposit of such requisition. If within 21 days of such deposit the Board fails to proceed to convene such meeting, the requisitionist(s) himself (themselves) may do so in the same manner, and all reasonable expenses incurred by the requisitionist(s) as a result of the failure of the Board shall be reimbursed to the requisitionist(s) by the Company.
The Group values feedback from the Shareholders on its effort to promote transparency and foster investor relationships. Comments and suggestions are always welcomed. Specific enquiries and suggestions by Shareholders can be sent in writing to the Board or the Company Secretary at the Company's registered address or by e-mail to the Company's email address at firstname.lastname@example.org.
During the Year under review, the Company has not made any changes to its Memorandum and Articles of Association. An updated version of the Company's Memorandum and Articles of Association is available on the websites of the Company and the Stock Exchange.
updated 18th January, 2022
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