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More work for less may drive off directors

HONG KONG companies are in danger of losing their best independent non-executive directors, who are faced with increased duties of audit committees and falling fees.

A survey of the 33 Hang Seng Index companies found 45 per cent of those directors were paid $50,000 or less a year - a sum Hong Kong Society of Accountants corporate governance committee chairman Edward Chow Kwong-fai described as 'abysmal' for a developed economy.

At least 57 per cent of the firms had frozen or cut the pay of those directors between last year and the previous year. Only nine of the 33 declared in their annual reports that they had increased fees.

The findings come as the stock exchange prepares to implement new guidelines requiring all listed companies to form audit committees, which should be led by the independent non-executive directors.

From January 1, all listed companies must form the committees with at least two people to review and supervise the financial reporting process and internal controls of the companies from an independent perspective.

Few companies have established the committees. Last month, Ernst & Young admitted fewer than 15 per cent of the firm's clients would have audit committees established by the deadline.

Some directors say the independents may resign or decline appointments offered to them when faced with the added responsibility of the audit committee.

Institute of Directors' sub-committee on independent non-executive directors convenor Herbert Hui Ho-ming said: 'You can't overburden the independent non-executive directors as there is a danger that responsible people will not do the job because it is too onerous.' The pool of executives and professionals capable of taking on independent directorships in Hong Kong is small, accountants and directors say.

Many firms will find it hard to fill the audit committees, which should have a majority of independents.

Ernst & Young partner David Sun Tak-kei said: 'Initially they are going to be stretched.' Many experts doubt whether the independents are performing their duties adequately and are sceptical about the audit committees.

Often, the appointment of the independents is a way of giving face to respected or influential people.

John Crawford, who holds two independent directorships in Hong Kong, said: 'Some boards put on their independent directors looking for a rubber stamp.' Philip Lawton, associate professor at City University, who is studying the role of independent directors in Hong Kong, said few companies fully understood what the committees' duties would be.

Helen Johnstone

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