Railroading is the issue, not rail chief

PUBLISHED : Tuesday, 17 April, 2012, 12:00am
UPDATED : Tuesday, 17 April, 2012, 12:00am

While many brokers are unhappy with the government's choice of former MTR Corporation chief executive Chow Chung-kong as the next chairman of Hong Kong Exchanges and Clearing (HKEx), they are picking on the wrong target.

They should not care that Chow has no experience in exchange affairs, but rather ask why the government chose the HKEx chairman.

Chow is someone with leadership experience. He has held senior jobs in Britain and Australia and headed the railway firm for eight years, during which he successfully led the merger of the MTR's railway operations with those of the Kowloon-Canton Railway Corporation. It makes sense for him to help HKEx, which is preparing a bid for the London Metal Exchange.

The major problem is with how the stock exchange's chairman is selected. If it operated like any other listed company, we would not know who will succeed Ronald Arculli as chairman when he steps down on Monday at HKEx's annual general meeting. We would have to wait until the company's board meeting the following day, at which its chief executive, Charles Li Xiaojia, will ask directors to nominate candidates for the role of chairman, then decide by vote which of these gets the job.

But already last week it was known that the government had chosen Chow. This means next week's board meeting is just a show.

The reason HKEx is not like other listed companies lies in the laws of Hong Kong, which state that it shall have 13 directors - the chief executive plus six government-appointed directors and six chosen by shareholders. This means that, even if the shareholders favour a candidate and urge all six of the directors they chose to vote for that person, he or she would inevitably lose out to the government's choice, who would have the backing of the chief executive and the other six board members.

Might the situation change if one or two government-appointed directors supported the choice of the shareholder-elected directors? That would at least show the HKEx board was brave enough to elect the chairman shareholders want. Well, the law also requires that the chairman be approved by the city's chief executive - currently Donald Tsang Yam-kuen, with Leung Chun-ying taking over on July 1. If the board elects someone Tsang does not approve of, he can veto its decision.

The directors of the HKEx would ask themselves why they should bother choosing someone the government dislikes.

Several questions need to be asked: why does the government have a bigger say than other shareholders? Is this fair to other shareholders of the exchange? (The government owns only 5.88 per cent of the HKEx but that makes it the largest shareholder. If any one wants to hold more than 5 per cent of the shares, they need the approval of the financial secretary.) And if the government wants Chow to be chairman, why didn't it appoint him to the board a year or two ago rather than just a week ago? Previous chairmen have either had some years on the HKEx board first, or experience in the financial sector.

Last but not the least, given Hong Kong will have a new chief executive in July and we do not know who will be financial secretary, why not wait until after Leung takes office to make a choice? HKEx could name an acting chairman in the meantime.

Many expect Leung to make changes to the financial sector. The selection of the HKEx chairman is one area he should look at.


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