"The Company's commitment to the highest standards of corporate governance is driven by the Board who, led by the Chairman, assume overall responsibility for the governance of the Company, taking into account the interests of the Company's stakeholders, the development of its business, and the changing external environment."
Mass Transit Railway Corp 2013 annual report
So much for the "commitment to the highest standards of corporate governance". The haze surrounding the delay of the HK$67 billion high-speed railway has turned it into a joke.
First, the board's competence. It had no idea of the delay, from 2015 to 2017, until the management revealed it in a press conference this month. Two board members confirmed to Money Matters that they didn't even know there would be a press conference. "I picked up the announcement [of a press conference] from the news," one said. "That's totally unacceptable."
We are talking about a board that has a composition that well exceeds any corporate governance requirement - 10 independent directors, three government officials and only one executive director.
Yet, one director said: "We rely on the management [to provide information] and the chairman [to decide what to discuss]." He could not recall how often the directors were briefed on the project.
Then, the management's integrity. It has repeatedly since May last year denied press reports of any delay. It also assured its board members that the project was on track.
"We did ask. No construction hurdle was ever mentioned," a non-executive director told Money Matters. "The management is more concerned with cross-border collaboration than the work itself."
The management's explanations for the delay have also been doubted. Among them is a power blackout during heavy rain that caused flooding and breakdown of a tunnel-boring machine. The power company has denied any such blackout.
Let's assume all these can be excused because of the technical complexities of the project. But what about what happened after the press conference?
An urgent board meeting followed to discuss the fiasco. Given the public outcry, any sensible and responsible director would have asked:
- Is it true that the possibility of a delay came to light much earlier?
- If yes, why wasn't the board informed?
- Who is responsible for the withholding of that information?
- Where have the governance and reporting systems failed?
- What needs to be done to avoid a similar situation in future?
- How to rebuild the company's reputation among the Hong Kong public and potential investors overseas?
- How is the delay going to affect the company financially?
A committee of independent directors should have been formed to study the issues. Its shareholders should have been informed of all these.
Yet two weeks into the fiasco, the company has said nothing. None of its top management or its chairman, Raymond Chien Kuo-fung, has bothered to make any statement on the delay.
One justification is that the impact of the delay is materially insignificant and it is not price-sensitive, as shown by the steady performance of its stock since the fiasco.
MTR's income from building government projects last year was less than HK$1.4 billion, a mere 3.7 per cent of its revenue. For a company whose business is heavily subsidised by property development and management, which accounts for more than 65 per cent of its profit, the Express Rail Link is a tiny bit in the larger scheme of things.
Neither can one see a significant risk of claims by the government for the delay.
If the company has indeed sought comfort from these quantitative parameters, it should perhaps speak to its peers in state-owned Sinopec, which, like MTR, is also a monopoly.
On the day of its Qingdao pipeline explosion that killed 48 people in November last year, Sinopec made an announcement.
In January, it announced detailed findings of the investigation, compensation and the firm's safety improvement plan.
To a giant like Sinopec, the financial implications of that incident would be peanuts. But it was quick to realise its reputation was on the line.
The fact that no life was lost in the MTR project delay does not make this fiasco any less serious than the Sinopec blast. That's because what's in doubt here is whether the board is in control at all. What can be a bigger reputation for a listed entity?
The delay is much worse than the repeated train breakdowns that Hongkongers have suffered or the rating of its Shenzhen train service as the poorest performer by both the Shenzhen government and travellers - both swept under the carpet by the firm, by the way.
Chien owes its shareholders, such as yours truly, and the Hong Kong public an explanation.