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SCMP Reporter

A MAJORITY of executives of listed companies in Hong Kong believe that it is time for a change in rules governing the conduct of boards and directors.

   This has been revealed in a survey into attitudes to corporate governance commissioned by accounting firm Price Waterhouse.

  The report is the latest addition to the growing debate on the conduct of directors in Hong Kong and the protection of minority shareholders. This has been fuelled by recent huge salary increases and controversial connected transactions.

  It revealed some serious gaps in the governance of corporate policy which will concern regulators, investors and other observers.

  These include the lack of committees to scrutinise salaries, the absence of a formal policy on corporate governance or business ethics, and the widespread disregard of the need to keep shareholders properly informed and the general lack of machinery to deal with investor complaints.

 The survey was carried out on behalf of the accountants by Strategic Market Analysis, which obtained full responses from 100 listed companies.

  More than half of those who responded called for some improvement in the current regime of corporate governance, while a further 19 per cent said a considerable improvement was necessary.

   Five per cent would not be satisfied with anything less than a complete overhaul.

  'It is very encouraging that corporate governance is clearly regarded as an important aspect and something which companies are actively thinking about,' said John Clutterbuck, a partner with Price Waterhouse, yesterday.

 What was missing from Hong Kong was a lack of formal codes, as found in companies in the US and Britain, the firm said.

  Even those companies which had formal codes did not reveal them to outsiders, a practice which could put them at a disadvantage when attempting to raise funds for expansion, said the accountants.

   'Companies could be losing out on opportunities to attract new investors by failing to publicise their ethical codes beyond the board room,' said Mr Clutterbuck.

  The best way to improve corporate governance in Hong Kong would be for a clearer definition of directors' responsibilities, according to 39 of the 100 companies polled, while 35 wanted compulsory audit committees to overlook the drawing up of accounts.

  Concerns over the strong grip on some companies by a powerful joint chairman and chief executive were shown by the call by 26 for the roles to be separated, although the survey showed that about half of companies did divide the roles.

   The possibility that shareholders in the territory might have complaints, or even questions, appears not to occur to many companies. Less than 25 per cent of those surveyed had any mechanism for dealing with investor complaints. Many of the companies which responded said it was not necessary as they never got any.

 The report showed that, despite growing awareness of the need for directors to run companies correctly, there were still gaps, and lack of compliance with existing rules.

  Although the stock exchange has rules that all listed companies should have two non-executive directors on the board by the end of last month, three per cent of those polled still had none, while a further 10 per cent had just one.

   Recently the stock exchange revealed that it had identified 34 listed companies which had not complied with the rules.

  In contrast to this poor response, 20 per cent of the companies had three non-executives, and the largest segment, 42 per cent, actually had more than three.

  Against a background of the fierce debate over the rewards that directors have made to themselves in Hong Kong, the report showed that salaries of most companies were fixed without any scrutiny at board level.

  Only 19 per cent of those surveyed had remuneration committees which considered salaries and benefits of directors.

   This, said Price Waterhouse, could reflect the high level of significant shareholders on the board, who regard salaries as relatively unimportant.

   'This, however, is a matter of considerable concern in other markets, both to institutional investors and minority shareholders,' it said.

  While only 24 per cent of companies have an auditing committee - which consider all aspects of audits - more than half of those who did, included a non-executive.

  Commenting on the improvement seen by some companies, the executives who responded said the old cowboy days of the 1970s had gone, and credited improved listing regulations, and moves by the stock exchange to penalise companies which did not comply with its rules.

 Further action which was suggested was greater education, rather than new laws, although one respondent said new legislation would not help since what the boss said, went.



Time for change in rules on directors