'More non-executive directors needed'
MORE non-executive directors and a separation of the roles of chairman and managing director are being urged by the chairman of the Institute of Directors, Mr George Humble.
The call was prompted by the findings of an MBA (Master of Business Administration) dissertation which revealed that 54.7 per cent of board members were non-executive directors while 55.2 per cent of chairmen doubled as managing directors in Hongkong's public companies.
The research, by Mr Lam Wai-nang of Hongkong University, was done amid growing concern about corporate governance which prompted the report by Sir Adrian Cadbury in Britain.
Two of the main points in the Cadbury report were a recommendation for a greater proportion of non-executive directors and the conflict of interests between the role of chairman and managing director.
''Non-executive directors are a good thing because they bring with them their special knowledge . . . They are not shareholders and not tied to the company,'' said Mr Humble, adding that they were independent decision-makers keeping an eye on executive directors.
But he noted that the proportion of 54.7 per cent could be improved as it was low compared with some countries.
In Britain, for instance, a board with five to six executive directors usually had nine or 10 non-executive directors. This gives a ratio of non-executive to executive directors of about 65 per cent.
While calling for a larger number of non-executive directors, Mr Humble said: ''This could be very difficult in Hongkong because of the family structure of so many public companies.'' Of the surveyed companies with asset capital of up to $250 million, only 35.5 per cent of the boards were made up of non-executive directors.
The proportion was 57 per cent for those with asset capital of between $250 million and $2 billion, and 64.2 per cent for those with net asset capital of more than $2 billion.
This showed that smaller companies - many of which were family-run businesses - tended to take a smaller number of non-executive directors to retain higher autonomy for executive directors who might be family members, said Mr Humble.
The research revealed that 55.2 per cent of the firms surveyed had chairmen also acting as managing director, while 27.6 per cent showed the chairman was also an executive director, and 17.2 per cent had the chairman as a non-executive director.
Mr Humble said the chairman should not be the managing director as he was supposed to check company management to protect shareholders' interests.
He said a restructuring was needed, especially in the run-up to 1997. ''We can't present to China the situation and say 'look, that's the way to do it'.'' Almost 40 per cent of non-executive directors were chief executives elsewhere, the study said.
About half of the companies allowed their executives to accept outside board appointments, and these executives held one to two such appointments on average.
The study also revealed that training for directors was uncommon in the territory, while only one-third of companies had measures to broaden and deepen their directors' knowledge.
The research by Mr Lam was based on replies from 29 Hongkong-listed companies, of 262 to whom questionnaires were sent.
