Chamber gives firm voice for listed companies

In a decade, the Chamber of Hong Kong Listed Companies has gained more than 200 members and become a player in regulatory reform

PUBLISHED : Friday, 23 November, 2012, 12:00am
UPDATED : Friday, 23 November, 2012, 1:40am

Formed 10 years ago, the Chamber of Hong Kong Listed Companies has established itself as the voice of the city's listed firms.

Chamber chairman Lo Ka-shui, who is also the chairman of Great Eagle, said the organisation had more than 200 members, representing about 40 per cent of the total market capitalisation.

Most members are Hong Kong companies. About 10 per cent are mainland firms.

"We would like to get more mainland firms and international brands as members," Lo said in an interview with the South China Morning Post.

The chamber was formed as listed companies wanted a collective voice in the market. While stockbrokers, accountants and lawyers all had industry bodies, listed companies in Hong Kong previously had no grouping of their own.

"Many listed companies were just focused on their business, not paying much attention to communicating with the regulator. The wake-up call came after the penny-stock incident in 2002 and the blackout regulation bid in 2009," Lo said.

In 2002, the stock exchange proposed to delist companies trading at less than 50 HK cents, a move that led to panic selling of low-priced stocks. This forced the exchange to cancel the consultation after just four days. The incident led to a number of companies banding together to present a unified voice.

Then in 2009, the exchange wanted to introduce a "blackout period", banning directors from trading in the shares of their companies between the end of the financial period and earnings announcements. The chamber strongly opposed the reform as it was seen as way more restrictive than the provisions in other markets such as London. A compromise was reached, resulting in a shorter blackout period.

"The chamber does not want any confrontations with the regulator, we only want to express our concerns. We are not going to oppose all reforms but will be in communication with the regulator to find consensus," Lo said.

In the past two years, the chamber has been more active in voicing concerns over reforms. It actively lobbied the government to scrap the so-called headcount rule in the Companies Ordinance that allowed small shareholders to oppose the privatisation of their company.

Under that rule, privatisation could be approved by half of the shareholders attending a shareholders' meeting. The majority was based on the number of shareholders and not the value of their shareholdings.

In the new "10 per cent objection rule", 10 per cent of the votes from independent shareholders would be needed to block a privatisation.

Lo described the new rule as fairer because it was on a "one share, one vote basis".

The chamber also opposed a law change that would make it a criminal offence for companies not to announce price-sensitive information in a timely manner, as initially proposed in 2004. The law, which is to be enforced in January, will only allow for a civil fine of up to HK$8 million.

"We agree listed companies should disclose any price-sensitive information in a timely manner but making that breach a criminal offence is just too much," Lo said.

"Sometimes what should be classified as price-sensitive information is a very subjective thing.

"A fine would be a more reasonable penalty."

According to Lo, listed companies have no experience in this new law, and could face a real challenge next year to decide what should be disclosed. For example, news of a chairman's illness might substantially affect a stock if it is a blue-chip company but would make no difference if it was a small company.

"The Securities and Futures Commission has set up an inquiry hotline for companies. I'm sure it'll ring a lot," Lo said.

With the disclosure requirement on price-sensitive information put in place, Lo believes there would be no need to introduce quarterly reporting.

"If companies that have any significant news disclose it immediately, there is no need for them to report full results more frequently," he said.

Lo's stance on quarterly reporting has undergone a U-turn. When he was the chairman of the stock exchange listing committee in the mid-1990s, helping set up the Growth Enterprise Market, he supported rules requiring GEM companies to report results every three months, instead of every six months as required for main-board companies.

"I regret [my stand then] as I do not agree with quarterly reporting now," he said.

He said the rationale for the quarterly reporting requirement was to improve protection for investors by forcing GEM companies, which were new and small, to report more often.

"But after sitting on the board of two GEM companies, I found quarterly reporting very time-consuming," he said.

In addition, quarterly reporting would encourage management to chase short-term profits, he said.

"Some [managers] fear projects that are good for the companies in the long term would be avoided if they hurt short-term profitability."

Looking ahead, Lo said the chamber would like to continue to promote corporate governance in its next decade.

"Only if companies take the culture of putting investor interests to heart can the market be healthy," he said.