Heavy hand of tycoons hold back corporate reform

Hong Kong gets top marks in Asia-Pacific governance survey for corporate crackdowns but is weighed down by city's business leaders

PUBLISHED : Thursday, 20 September, 2012, 12:00am
UPDATED : Thursday, 20 September, 2012, 2:56am

The heavy influence of tycoons and a lack of government direction pushed Hong Kong below Singapore and Australia in a highly regarded regional corporate governance survey.

The "Corporate Governance Watch" report issued yesterday by investment firm CLSA combed the financial reports of 864 listed firms in the Asia-Pacific, ranking them on corporate governance according to their level of disclosure and board composition. This is its ninth report since 2000.

Hong Kong companies ranked third overall, above nine of the 12 markets surveyed, including Japan and Taiwan.

Hong Kong earned top marks for the Securities and Futures Commission's (SFC) crackdowns on malpractice, but lost out on reform.

"Singapore edged out Hong Kong as the Singapore government has paid attention to corporate governance reform over the past two years," said Jamie Allen, secretary general of the Asian Corporate Governance Association, which wrote the report with CLSA. "Hong Kong still has no sign of any clear government strategy on corporate governance while local tycoons have excessive influence on reform."

Allen said that in 2009, for example, the stock exchange wanted to introduce a blackout period banning directors from trading stocks from the time of the close of books until the financial results were published. But the plan was scrapped after opposition from local tycoons. Hong Kong companies usually announce results within 75 to 90 days after books close, later than the 60 days for Singapore and Western markets. While most other markets, including Singapore and mainland China, have quarterly reporting, Hong Kong-listed companies still only report results every six months.

Singapore retail investors often attend shareholders' meetings to raise questions about corporate governance, but Hong Kong retail investors seldom do.

There is also no independent audit regulator in Hong Kong as local accountants make up the Institute of Certified Public Accountants and the Financial Reporting Council does not have full regulatory oversight over accountants. In contrast, many other Western and even Asian markets have independent audit regulators.

China ranked ninth in the survey, ahead of South Korea, the Philippines and Indonesia.

Allen said mainland China had contradictory regulatory policies and a poor legal system. China, for example, labelled a wide range of information, including accountants' working papers, as "state secrets".

This prompted the SFC to take legal action asking the Hong Kong High Court to determine if accounting firm Ernst & Young could use state secrecy as a basis for not handing in audit papers as part of an SFC investigation.