THE corporate behaviour of some of Hong Kong's directors late last year appears to indicate corporate governance is in pretty poor shape in Hong Kong. At the close of the year we saw directors vote themselves a doubling in pay at Lai Sun Development, while shareholders suffered a decline in earnings per share. The chairman of Pacific Concord proposed flogging some assets, valued at $1 billion, back to his own company, in a connected transaction that shareholders have yet to vote on formally. The motivation for this deal and the valuations attached to it will be closely scrutinised to check exactly to whose benefit a successful completion might be. At Paramount Publishing, a minor scandal broke after it was revealed that its former chief executive, Albert Cheng, received a $19 million pay-out when the company itself reported a loss of $30 million. It was also revealed that a special deal, linked to an option held by Mr Cheng involving $8 million of the total pay-out, was not revealed to the exchange or shareholders. Due to an oversight, which the company said it regretted, the participants were so busy negotiating this deal between themselves they forgot to tell anyone else about it, least of all the shareholders. What makes the affair at Paramount an even more telling indictment of the sad state of corporate governance in the territory is the people who were involved. Apparently all these dealings went on right under the nose of the former Paramount chairman, ex-stock exchange chief executive Francis Yuen, and the non-executive directors, one of whom is also a former exchange chief and commissioner for securities and for banking, Robert Fell. Mr Yuen points out that to his knowledge there was nothing at the publishing company that required disclosure to the authorities that was not disclosed to the relevant bodies. Mr Yuen, in fact, was in his last days at the company after agreeing to exercise an option involving the sale of his stake in parent company Seapower. But for all this to have occurred, in spite of the existence of non-executive directors, makes the stock exchange drive to get listed companies to appoint non-executive, independent directors look rather silly. Neither of the two non-executive directors appointed to the Paramount board was present when critical talks were held regarding the $8 million option. What is the point of appointing these people to protect shareholders' interests if they do not turn up at important meetings? It is time for a shake-up in Hong Kong corporate governance. The territory's regulators and Hong Kong incorporated have paid only passing lip-service to the concept of corporate governance. Already the British Cadbury report is gathering dust on people's shelves and it is business as usual at Pillage the Minorities Inc. What is striking about these events is how little protection there is for minorities in the face of a determined owning family who decide to act in their own interests instead of those of the whole corporate entity. It is time for a major re-examination of the rights of minority investors to consider whether safeguards can be put in place to make it more difficult for controlling shareholders to rape the minority interest. Why this is so important right now should be obvious to most investors. Having come through a period of stock market growth, from 1990 to 1993, we are entering a period of rising interest rates and less certainty. Already we have seen business at major United States investment banks come unstuck in derivatives trading, where millions have been lost. In the same line of losses, the Orange County affair is another reminder of what emerges when the gravy train stops. Hong Kong will not be left unscathed by the changes going on in the global economy and investors need to be more vigilant than ever to make sure they are not caught on the wrong side of a controversy when things unravel in a company's local or mainland China operations. Hong Kong needs to decide whether it cares about corporate governance. If it does, it needs to consider what effective means can be put in place to protect minority interests against the huge power held by controlling shareholders, or to act as a delaying mechanism on controversial issues to allow time for fuller consideration of corporate matters.