Listings go last minute on recruitment

PUBLISHED : Tuesday, 15 May, 2012, 12:00am
UPDATED : Tuesday, 15 May, 2012, 12:00am

Hong Kong requires listed companies to have three independent directors - but it does not specify when companies planning a listing have to recruit independent directors, which is a loophole that the listing committee should investigate.

Private companies don't need to bother with independent directors because they don't have public investors to worry about. But after they are listed, they do have responsibilities to their investors, including small shareholders, and must add at least three independent members. Independent means not employed by the company and not in a business relationship with the companies.

Currently, private companies eyeing an initial public offering only appoint independent directors when they have submitted their A1 form to the stock exchange. In some cases, they may only have two independent directors, with another pending confirmation.

Paul Chan Mo-po, who represents the accountancy constituency in the Legislative Council, said in his experience firms only asked him to join the board as an independent director just before they submitted the A1 forms. In practical terms, this can be mere weeks away from their listings.

'This time frame is too short for independent directors to understand the companies or raise questions about the financial statements,' Chan said.

There are practical reasons why listing candidates may want to leave it to the last minute. For one thing, they have to start paying them - not to mention sharing their innermost financial details. But if the Stock Exchange doesn't approve the companies' listings, they have to fire the independent directors, wasting time and money.

To get around this, many such companies try to identify their independent candidates earlier, while only confirming their appointments when they kick off the listing application process.

Which brings us back to the problem that Chan identified earlier: independent directors for the new listings may not have enough time to do their homework on the board and on the company's financial well-being. So one of the first things he may have to look at is making listing candidates appoint independent directors much earlier than they do now.

Market speculation points to Chan being a potential candidate for deputy financial secretary for the new government. Let's see if he can effect change after July 1.

More change from July 1 The Hong Kong Institute of Certified Public Accountants is to have a new head - Raphael Ding, now an executive director of listed investment firm Guoco Group, will join the bean counters' body from July 1 as chief executive, replacing Winnie Cheung, who will say farewell to the institute after working there for 22 years, including eight years as chief executive.

Ding has more than 27 years of experience in the accounting profession. Before Guoco, he spent seven years at the HKICPA's predecessor, then called Hong Kong Society of Accountants, as director of professional conduct.

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