The View

Are Hong Kong’s company directors spreading themselves too thin?

The ‘King of Board Memberships’ is Abraham Shek, with 28

PUBLISHED : Wednesday, 27 January, 2016, 9:45am
UPDATED : Wednesday, 27 January, 2016, 9:45am

A recent controversy in the United States has ignited debate over whether there should be a limit on directors serving on too many company boards. However Americans are rank amateurs in multiple board memberships compared with their Hong Kong counterparts.

The row in the US arose over former Hollywood executive Frank Biondi whose membership of five listed company boards was questioned by shareholders at toy maker Hasbro. They argued that his multiple board memberships stood in the way of serving their interests. Biondi no longer sits on Hasbro’s board, but it is not clear whether this was a direct result of shareholder pressure.

Were these activist shareholders trying to exert pressure in Hong Kong they would have a great more to do, as the prevalence of multiple board memberships is considerably greater.

The “King of Board Memberships” is Abraham Shek Lai-him, who, by no coincidence, occupies the property developer’s and construction industry rotten borough seat in Legco. Aside from his duties in Legco, Shek sits on a staggering total of 28 boards, including government and trade association bodies, alongside a large smattering of corporate directorships.

The go-to man for board membership used to be the Bank of East Asia’s David Li Kwok-po but nowadays he sits on a “mere” 23 boards, ranging from official bodies, to trade associations and listed companies. He was also a previous incumbent of a Legco rotten borough seat.

If you prefer multiple directorships solely confined to the corporate sector, you might like the look of Wong Chi-keung, who sits on 17 company boards or, possibly, Jimmy Loke Hoi-lam, who serves on a more modest 14 boards.

It may be argued that it is public spirited of him to spread himself so thinly but what does that mean in terms of actual performance?

The list of multiple memberships is very long and can be found at Webb-site, which has a full list and shows the extensive nature of this practice.

Both the stock exchange and the Securities and Futures Commission have looked at the question of multiple board membership at various times but, after the usual mutterings, have tipped the matter into the too-hard basket.

In the US, however, this issue is being taken more seriously and a growing number of companies are imposing limits on how many directorships their directors may hold. A Wall Street Journal analysis found that the number of S&P 500 listed company directors holding four or more board seats dropped from 27 per cent in 2005 to 5 per cent last year.

All this begs the question of does it matter? In his defence Biondi, for example, argued that he had a prefect attendance record for Hasbro board meetings and that working part time for a private equity firm left him with quite enough time to handle the responsibilities of five board memberships.

Five board memberships is, however, junior league stuff in Hong Kong. And here there is not only a question of whether multiple board members are adequately undertaking their duties on a host of boards but also raises the issue of how they are able to combine this kind of promiscuous board membership with their responsibilities in companies where they serve in an executive capacity.

Henry Cheng Kar-sum, who has executive responsibility for the New World group of companies, serves on a total of 24 boards, including a number of official bodies; one of these is the Poverty Commission where, presumably, first hand experience is not a requirement for membership. It may be argued that it is public spirited of him to spread himself so thinly but what does that mean in terms of actual performance?

When it comes to independent directorships of listed companies, shareholders look to the independents to safeguard their rights and expect them to do a lot more than merely turn up for board meetings. Diligent non-executive directors or NEDs should, as a minimum, be familiarising themselves with the company’s operations and be spending a reasonable amount of time pouring over the figures. Doing this job properly takes up serious amounts of time.

Even if they are diligent, the more fundamental question of state of mind needs to be addressed. In Hong Kong, NEDs are often little more than passive observers. The local NED culture tends towards passivity, giving rise to lots of head nodding and only small amounts of due diligence.

Moreover there is a tendency for connected directorships in cases where members of Company A’s board become NEDs for Company B and vice-versa. More often they have connected business operations. At the very least this raises questions of conflict of interest.

Market regulators, for good reason, are loath to intervene in matters of board membership, except where criminal activity is involved. Nevertheless it would be useful to have more transparency, giving shareholders an opportunity to consider whether they really wish to invest in a company whose board is filled with conflicted or overburdened NEDs.

Stephen Vines runs companies in the food sector and moonlights as a journalist and a broadcaster