HK should embrace governance challenge
IN the United States, corporate governance has become an important issue, with unhappy minority shareholders able to force changes at board level.
The demise of top executives at corporate giants such as Kodak, General Motors and Sears has demonstrated that the boardroom is no longer automatically the domain of the chairman's friends or relatives.
As Hong Kong has emerged as a major financial centres, the stock exchange and the Securities and Futures Commission have established a top-notch regulatory system.
This has been supported by diligent enforcement, much to the chagrin of those who have continued to do business in the belief that Hong Kong remains the ''Wild, Wild East''.
For Hong Kong to take the next step and attain the same stature as London, New York or Tokyo, corporate governance must become an integral part of business.
This is a tall order, entailing a dramatic change in Hong Kong's corporate culture.
While Hong Kong's unique entrepreneurial spirit has made it one of the world's most dynamic business centres, it remains a market where a family-controlled listed company can, to a large degree, operate as a private fiefdom.
Unfortunately, this has meant that minority shareholders constantly get pushed around.
Instead of standing up for their rights, they react by shunning the companies involved.
It would not be fair to paint Hong Kong's entire business community with the same brush, because a growing number of companies have realised that to attract foreign investment they must conform to international standards.
This consideration has become more important with the large flow of foreign investment into Hong Kong.
Local firms have seized this opportunity by raising billions of dollars through convertible bonds, primary issues and private placements.
However, it would be naive and unacceptable for companies to believe that things will remain so comfortable without the market conforming to international standards.
The reality is that if foreign fund managers and investors lose confidence, they will move capital out just as quickly as it poured in.
Hong Kong companies must realise it is in their best interests to adopt high standards of corporate governance if they want to be accepted internationally.
This will require many to look hard at how they do business and ask themselves whether their present culture will be accepted by a new breed of demanding and inquisitive investors.
The biggest challenge is to improve standards without damaging the entrepreneurial spirit that is the envy of the world.
Many of the changes will be logical and simple. The stock exchange has moved in the right direction by coming out with a long list of proposed changes to the listing rules.
These include demanding a breakdown of directors' remuneration, bonuses, pension plans and stock options. Listed firms will also have to provide investors with details about a director's background, responsibilities and experience.
This all means that directors will be increasing scrutinised by investors and held partially accountable for a company's performance - good or bad.
While this may deter some people from accepting directorships, it will also change the image of directors from that of yes-men to active participants in corporate strategy and direction.
Another area of disclosure will involve shareholding structures, a particularly interesting provision in Hong Kong, where many firms guard ownership statistics like state secrets.
One encouraging thing is that Hong Kong has 3,000 members of the Institute of Chartered Secretaries and Administrators, 6.6 per cent of total membership.
The recent creation of a local arm that will reflect Hong Kong's distinct corporate identity is a significant step in the right direction and will help keep corporate governance in the limelight.
There is no doubt that the implementation of corporate governance standards will require time and effort before it is accepted as a key component of Hong Kong business.