LexisNexis | The role of culture in corporate governance

Produced in partnership with LexisNexis and Maëva Slotine. More about our Corporate Governance practice.

Company culture, purpose, values and strategy have been brought to the forefront by the Covid-19 pandemic. Simon Sinek’s best-seller Start with Why (first published in 2009) and Mihaly Scikszentmihalyi’s Good business (first published in 2003) are inspiring a new generation of CEOs and board members.

Between the 00’s and 2021 United Kingdom, Australia and Singapore authorities, to quote only Hong Kong closest Common Law jurisdictions, have introduced those concepts into their corporate governance rules and guidance. Hong Kong stock exchange is about to follow suit. What does it mean for Hong Kong listed company? And for private companies?


On 16 April 2021, the Stock Exchange of Hong Kong (HKEX) launched a consultation paper, the Review of Corporate Governance Code[1] and Related Listing Rules (HKEX 2021 Consultation Paper), introducing the concept of corporate culture for Hong Kong incorporated companies.

The HKEX 2021 Consultation Paper had invited readers to submit their comments on or before 18 June 2021. Responses will be published in a consultation conclusion paper and taken into account before the HKEX decides upon any appropriate further action. Finally, the revised rules should be implemented from the financial year commencing on 1 January 2022.

The proposals regarding corporate culture are:

Proposals Code Provision (CP)[2]
“The board should establish the issuer’s purpose, value and strategy, and satisfy itself that these and the issuer’s culture are aligned. All directors must act with integrity, lead by example, and promote the desired culture. Such culture should instill and continually reinforce across the organisation of acting lawfully, ethically and responsibly.” A.1.1.
“The issuer should establish policy(ies) that support anti-corruption laws and regulations.” D.2.7.
“The issuer should establish a whistleblowing policy and system for employees and those who deal with the issuer (e.g., customers and suppliers) to raise concerns, in confidence and anonymity, with the audit committee (or any designated committee comprising a majority of independent non-executive directors) about possible improprieties in any matter related to the issuer.” D.2.6.


First, the HKEX proposes to introduce a new CP to “require an issuer’s board to align the company’s culture with its purpose, value and strategy”.

The HKEX gives some key elements commonly identified as a sound culture:

a) “Tone from the top The board is responsible for setting the company’s As the leadership of the company, the board plays an important role in promoting, monitoring and assessing the culture, and making sure the desired culture is embedded at every level of the organisation.”

b) “Accountability – The board is expected to conduct periodic reviews to make sure the culture is aligned with the company’s purpose and value, and is able to deliver long-term sustainable growth. Employees at all levels should understand the core values of the company’s culture, and are capable of performing their prescribed roles and be held accountable for their actions.

c) Effective communication and challenge – There should be an environment of open communication and effective challenge to encourage a range of views.”

d) Incentives – Performance and talent management encourage and reinforce maintenance of the company’s desired culture. It is important to ensure the company’s financial and non-financial incentives support the company’s culture at all levels.”

Plus, the HKEX Consultation Paper gives some ideas that companies can use to have a quality disclosure about their corporate culture, such as:

a) “Description of the vision, value and strategy of the company, alongside with the company’s culture, and how all these affect the business model.”

b) “Discussion on the measures used for assessing and monitoring culture (e.g., any specific indicators such as turnover rate; whistleblowing data; employee surveys; breaches of code of conduct; and regulatory breaches).”

c) “Description of the measures in place to ensure the desired culture and expected behaviours are communicated to all employees, for example through developing a code of conduct.”

Moreover, the HKEX introduces new CPs requiring listed companies to establish anti-corruption and whistleblowing policies, because it considers that a healthy corporate culture goes through the establishment of such policies. The introduction as CPs is linked to the suggestions to include the requirements regarding such policies in the CG Code, following the Consultation Paper on Review of the Environmental, Social and Governance Reporting Guide and Related Listing Rules (HKEX 2019 Consultation Paper). However, it is not a real innovation because under the ESG Guide[3], issuers are already required to disclose anti-corruption and whistleblowing policies on a “comply or explain” basis subject to materiality.

As regards CPs, the “comply or explain approach” applies: companies are expected to comply with the rules but if they do not, they have to provide an explanation for the deviation; there is no sanction in the Code; it is left to the market to appreciate the new information available.

Finally, it is considered that there is no one size fits all model when it comes to culture, and companies covered by the CG Code may adopt whichever corporate culture they are willing to, as long as there is an alignment between their culture and their purpose, values and strategy.


The new CPs in the HKEX 2021 Consultation Paper require the board to establish the company’s purpose, values and strategy, and satisfy itself that these and its culture are aligned. As authorities from other jurisdictions have similar requirements in their corporate governance rules for listed companies, we use their references to understand the concepts of culture, value, purpose and strategy.

From the United Kingdom perspective, the Financial Reporting Council[4] (FRC) defines culture in a corporate context as:

“a combination of the values, attitudes and behaviours manifested by a company in its operations and relations with its stakeholders”.

In other words, it is how a company behaves in its daily operation and how it deals with its stakeholders as influenced by the values it in practice subscribes to. According to the FRC Report on Culture and the Role of Board (July 2016):

  • “the values of the company need to inform the behaviours which are expected of all employees and suppliers”; and,
  • the company’s purpose is why the company exists and what it is there to

From the Australian perspective, the Australian Stock Exchange (ASX) provides in its corporate governance code (ASX CG Code)[5] that a company’s values are:

“the guiding principles that define what type of organisation it aspires to be and what behaviours it requires to achieve that aspiration”.

The ASX CG Code specifies that “values create a link between the entity’s purpose (why it exists) and its strategic goals (what it hopes to do) by expressing the behaviours it expects from its employees and directors to fulfil its purpose and meet its goals (how it will do it)”.

Concrete examples of entities purpose (why they exist) can be found in Simon Sinek’s Start with Why:

  • Apple: “challenge the status quo”[6]; or
  • Volkswagen: “power to the people”[7]

The asset management firm Bridgwater has a well-documented culture of “radical transparency”[8]. A telling example of how such culture translates is given in Bridgewater founder’s Principles: Life and Work[9] books where he recalls an early incident when an employee forgot to put in a trade for a client, causing a loss for the company[10]. The management decided to focus on learning from the mistake, rather than dismiss the employee which would have discouraged employees to report their mistakes out of fear, resulting in a “a culture that would be dishonest and crippled in its ability to learn and grow”. Instead, the management introduced a tool for traders to record all of their mistakes (a log of issues), so they can be tracked and resolved.


The HKEX Consultation Paper doesn’t give a list of mandatory information for disclosure, but corporate governance codes from other jurisdictions require disclosures to achieve an effective corporate culture.

In Singapore[11] and Australia[12], the relevant corporate governance codes require listed companies to have and disclose a code of conduct for their directors, senior executives and employees.

In the United Kingdom, the relevant corporate governance code[13] provides that companies should align their workforce’s and executive directors’ incentives and remuneration with the company’s culture to encourage the desired behaviours.


Considering the challenge to provide a general definition a company’s culture, purpose values and strategy, these concepts shall not be introduced in the Company’s Ordinance. But the new standard that the HKEX is setting for listed companies may well be reflected by the Hong Kong Institute of Director (HKIOD) in future versions of The Guidelines on Corporate Governance for SMEs in Hong Kong[14] and The SME Corporate Governance Toolkit[15].

Meanwhile, private as well as listed companies may consider how these new concepts may make them more resilient in those challenging times.

[1] Corporate Governance Code and Corporate Governance Report – Appendix 14 of the HKEX’s Main Board Listing Rules (Code)
[2] Code Provision or CP refers to the provisions of the Code (as defined in the footnote 1 above)
[3] the ESG Reporting Guide as set out in Appendix 27 to the HKEX’s Main Board Listing Rules and Appendix 20 to the GEM Listing Rules (“ESG Guide”).
[4] The FRC is an independent regulator in the United Kingdom responsible for regulating auditors, accountants and actuaries, and setting the UK’s Corporate Governance and Stewardship Codes. In July 2018, the FRC published a revised version of the UK CG Code, which applies to premium listed companies.
[5] Commentary on recommendation 3.2 of the Corporate Governance Principles and Recommendations (ASX CG Code)
[6] Simon Sinek, Start with Why – Chapter 3 – The Golden Circle – page 43 (Kindle edition)
[7] Simon Sinek, Start with Why – Chapter 10 – Communication Is Not About Speaking, It’s About Listening – page 179 (Kindle edition)
[8] https://www.bridgewater.com/principles-and-culture
[9] Ray Dalio – Principles: Life and Work – page 349 (Kindle edition)
[10] The full quote reads: “Remember back in Life Principles, when I told the story about the time that Ross, then our head of trading, forgot to put in a trade for a client? The money just sat there in cash and by the time the mistake was discovered it had cost the client (actually Bridgewater, because we had to make good on it) a lot of money. It was terrible and I could easily have fired Ross to make the point that nothing less than perfection will be accepted. But that would have been counterproductive. I would have lost a good man and it would have only encouraged other employees to hide their mistakes, creating a culture that would not only be dishonest but crippled in its ability to learn and grow. If Ross hadn’t experienced that pain, he and Bridgewater would have been the worse for it. The point I made by not firing Ross was much more powerful than firing him would have been—I was demonstrating to him and others that it was okay to make mistakes and unacceptable not to learn from them. After the dust settled, Ross and I worked together to build an error log (we now call it the Issue Log), in which traders recorded all their mistakes and bad outcomes so we could track them and address them systematically. It has become one of the most powerful tools we have at Bridgewater. Our environment is one in which people understand that remarks such as “You handled that badly” are meant to be helpful rather than punitive.”
[11] Provision 1.1 of the 2018 Code of Corporate Governance (SGX CG Code)
[12] Recommendation 3.2 of the Corporate Governance Principles and Recommendations (ASX CG Code)
[13] Provisions 2, 33 and 40 of the 2018 Corporate Governance Code (UK CG Code)
[14] Last version published in 2014
[15] Last version published in 2009

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